UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 24, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________________ to
Commission File Number 0-24383
WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1507104
(State of other jurisdiction (I.R.S. Employer
incorporation or organization.) Identification No.)
240 Royal Palm Way
Palm Beach, FL 33480
(Address of principal executive offices) (Zip Code)
(561) 659-6551
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
As of December 4, 1998, there were 13,372,427 shares of common stock
outstanding.
<PAGE>
WORKFLOW MANAGEMENT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet..............................................................................3
October 24, 1998 (unaudited) and April 25, 1998
Consolidated Statement of Income (unaudited)............................................................4
For the three months ended October 24, 1998 and October 25, 1997 and
for the six months ended October 24, 1998 and October 25, 1997
Consolidated Statement of Cash Flows (unaudited)........................................................5
For the six months ended October 24, 1998 and October 25, 1997
Notes to Consolidated Financial Statements (unaudited)..................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................................13
Item 3. Quantitative and Qualitative Disclosure About Market Risk..............................................21
PART II - OTHER INFORMATION
Item 5. Other Information......................................................................................22
Item 6. Exhibits and Reports on Form 8-K.......................................................................22
Signatures........................................................................................................23
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
October 24, April 25,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,084 $ 234
Accounts receivable, less allowance for doubtful
accounts of $3,368 and $2,859, respectively 60,112 56,328
Inventories 31,913 32,655
Prepaid expenses and other current assets 3,130 1,978
------------ ------------
Total current assets 96,239 91,195
Property and equipment, net 34,012 33,210
Notes receivable from employees 3,703
Intangible assets, net 22,791 14,014
Other assets 7,787 4,556
------------ ------------
Total assets $ 160,829 $ 146,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 655 $ 5,855
Short-term payable to U.S. Office Products 13,536
Accounts payable 28,034 25,370
Accrued compensation 5,724 4,916
Other accrued liabilities 6,237 7,893
------------ ------------
Total current liabilities 40,650 57,570
Long-term debt 52,864 7,065
Long-term payable to U.S. Office Products 19,221
Deferred income taxes 3,972 3,314
Other long-term liabilities 13 17
------------ ------------
Total liabilities 97,499 87,187
------------ ------------
Commitments and contingencies
Stockholders' equity:
Divisional equity 50,270
Preferred stock, $.001 par value, 1,000,000 shares
authorized, none outstanding
Common stock, $.001 par value, 150,000,000 shares
authorized, 13,414,327 and no shares issued and
outstanding, respectively 13
Additional paid-in capital 55,312
Stock subscription notes receivable (1,951)
Accumulated other comprehensive loss (3,241) (1,056)
Retained earnings 13,197 10,277
------------ ------------
Total stockholders' equity 63,330 59,491
------------ ------------
Total liabilities and stockholders' equity $ 160,829 $ 146,678
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 90,100 $ 88,884 $ 180,586 $ 171,047
Cost of revenues 64,973 65,570 130,921 125,838
------------ ------------ ------------ -----------
Gross profit 25,127 23,314 49,665 45,209
Selling, general and administrative expenses 19,475 18,421 38,544 35,292
Goodwill amortization expense 133 51 266 100
Strategic restructuring plan costs 3,818
------------ ------------ ------------ ------------
Operating income 5,519 4,842 7,037 9,817
Interest expense 801 568 1,955 1,109
Interest income (60) (9) (85) (9)
Other income (65) (69) (47) (167)
------------ ------------ ------------ ------------
Income before provision for income taxes 4,843 4,352 5,214 8,884
Provision for income taxes 2,131 1,770 2,294 3,599
------------ ------------ ------------ ------------
Net income $ 2,712 $ 2,582 $ 2,920 $ 5,285
============ ============ ============ ============
Income per share:
Basic $ 0.19 $ 0.18 $ 0.19 $ 0.37
Diluted $ 0.19 $ 0.17 $ 0.19 $ 0.36
Weighted average common shares outstanding:
Basic 14,396 14,715 15,330 14,443
Diluted 14,396 15,106 15,435 14,761
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
October 24, October 25,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,920 $ 5,285
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 3,246 3,129
Strategic restructuring plan costs 3,818
Cash paid for strategic restructuring plan costs (2,226)
Changes in assets and liabilities (net of assets acquired and
liabilities assumed in business combinations):
Accounts receivable (615) (3,274)
Inventory 1,595 (1,147)
Prepaid expenses and other current assets (553) 197
Accounts payable (2,582) (1,838)
Accrued liabilities 7,384 (775)
----------- ----------
Net cash provided by operating activities 12,987 1,577
----------- ----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received (13,238) 114
Additions to property and equipment (3,349) (2,456)
Cash received on the sale of property and equipment 138
Cash collection of notes receivable from employees 3,703
Deposits on equipment (1,000)
Payments of non-recurring acquisition costs (906)
Net cash used in investing activities (13,746) (3,248)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 74,934 1,709
Payments on long-term debt (29,135) (1,802)
Proceeds from (payments of) short-term debt, net (5,180) 570
Cash paid for deferred financing costs (3,042)
Retirement of common stock (6,419)
Issuance of stock subscription notes receivable (1,951)
Payments to U.S. Office Products (36,096) (600)
Capital contributed by U.S. Office Products 8,518
---------- ----------
Net cash provided by (used in) financing activities 1,629 (123)
---------- ----------
Effect of exchange rates on cash and cash equivalents (20) 11
---------- ----------
Net increase (decrease) in cash and cash equivalents 850 (1,783)
Cash and cash equivalents at beginning of period 234 2,168
---------- ----------
Cash and cash equivalents at end of period $ 1,084 $ 385
========== ==========
</TABLE>
(Continued)
Page 5
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
October 24, October 25,
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 1,235 $ 364
Income taxes paid $ 2,803 $ 2,063
</TABLE>
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method during the six months ended
October 24, 1998 and October 25, 1997. The fair values of the assets and
liabilities at the respective dates of acquisition are presented as follows:
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
October 24, October 25,
1998 1997
----------- ----------
<S> <C> <C>
Accounts receivable $ 3,712 $ 1,109
Inventory 1,764 41
Prepaid expenses and other current assets 87 26
Property and equipment 1,621 84
Intangible assets 9,043 1,445
Accounts payable (2,320) (332)
Accrued liabilities (669) (365)
Long-term debt (10)
----------- ----------
Net assets acquired $ 13,238 $ 1,998
=========== ==========
</TABLE>
The acquisitions accounted for under the purchase method were funded as follows:
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
October 24, October 25,
1998 1997
---------- ----------
<S> <C> <C>
Common stock $ $ 2,112
Cash paid, net of cash received 13,238 (114)
----------- ----------
Total $ 13,238 $ 1,998
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
Workflow Management, Inc. (the "Company" or "Workflow Management") is a Delaware
corporation formed by U.S. Office Products Company, also a Delaware corporation
("U.S. Office Products" or "USOP"), in connection with U.S. Office Products'
strategic restructuring plan that was consummated June 9, 1998 (the "Strategic
Restructuring Plan"). As part of its Strategic Restructuring Plan, U.S. Office
Products (i) transferred to the Company substantially all the assets and
liabilities of U.S. Office Products' Print Management Division and (ii)
distributed to holders of U.S. Office Products' common stock 14,625 shares (the
"Distribution" or "Workflow Distribution") of the Company's common stock, par
value $.001 per share ("Company Common Stock"). Holders of U.S. Office Products'
common stock were not required to pay any consideration for the shares of the
Company Common Stock they received in the Distribution. The Distribution
occurred on June 9, 1998 (the "Distribution Date").
Workflow Management is a leading graphic arts company providing a "one-stop
shop" e-commerce solution for businesses to purchase office consumables via the
Internet. The Company employs over 2,100 people in North America, including a
500-person salesforce. Workflow Management has manufacturing operations located
throughout the United States and Canada which produce envelopes, commercial
printing products and documents. The Company seeks to become a consolidator in
the highly fragmented graphic arts industry. The Company currently has 18
manufacturing facilities in seven states and five Canadian provinces, 27
distribution centers, eight print-on-demand centers and 60 sales offices.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Workflow Management
and the companies acquired in business combinations accounted for under the
purchase method from their respective dates of acquisition.
For periods prior to the Distribution Date, the consolidated financial
statements reflect the assets, liabilities, divisional equity, revenues and
expenses that were directly related to the Company as it was operated within
U.S. Office Products. Upon the Distribution, divisional equity was reclassified
to common stock and additional paid-in-capital. In cases involving assets and
liabilities not specifically identifiable to any particular business of U.S.
Office Products, only those assets and liabilities transferred to the Company
prior to the Distribution were included in the Company's separate consolidated
balance sheet. The Company's statement of income includes all of the related
costs of doing business including an allocation of certain general corporate
expenses of U.S. Office Products incurred prior to the Distribution Date which
were not directly related to these businesses. These allocations were based on a
variety of factors, dependent upon the nature of the costs being allocated.
Management believes these allocations were made on a reasonable basis.
Page 7
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. The
consolidated financial statements included in this Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 25, 1998 ("Fiscal 1998").
NOTE 3 - LONG-TERM DEBT
The Company entered into a secured $150,000 revolving credit facility (the
"Credit Facility") underwritten and agented by Bankers Trust Company on June 9,
1998. The Credit Facility matures on June 10, 2003 and is secured by
substantially all assets of the Company. The Credit Facility is subject to terms
and conditions typical of a credit facility of such type and size, including
certain financial covenants. Interest rate options are available to the Company
conditioned on certain leverage tests. At October 24, 1998, the Company's
leverage test would have allowed borrowing at 0.75% over the LIBOR rate. The
maximum rate of interest is the prime rate from time to time in effect. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants.
NOTE 4 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the six months ended October 24, 1998
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity balance at April 25, 1998 $ 59,491
Capital contributions:
Contribution by U.S. Office Products 8,518
Stock options tendered in the USOP equity tender offer by the Company's employees 2,956
Purchase and retirement of Company Common Stock (6,419)
Issuance of stock subscription notes receivable (1,951)
Comprehensive income 735
------------
Stockholders' equity balance at October 24, 1998 $ 63,330
============
</TABLE>
Page 8
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Comprehensive Income
Effective April 26, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes
standards for reporting and display of changes in equity from non-owner sources
in the financial statements. The statement requires minimum pension liability
adjustments, unrealized gains or losses on available-for-sale securities and
foreign currency translation adjustment, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- -------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 2,712 $ 2,582 $ 2,920 $ 5,285
Other comprehensive income:
Foreign currency translation adjustment (766) (286) (2,185) (55)
------------ ------------ ------------ -----------
Comprehensive income $ 1,946 $ 2,296 $ 735 $ 5,230
============ ============ ============ ===========
</TABLE>
Notes Receivable from the Sale of Stock
In August 1998, the Company's board of directors approved a program under which
the Company would extend both secured and unsecured loans to certain members of
management for the purchase, in the open market, of Company Common Stock by
those individuals. The secured notes are full recourse promissory notes bearing
interest at 6.75% per annum and are collateralized by both the stock purchased
with these loan proceeds and an equal amount of pledged Company Common Stock
personally owned by those management members participating in the program. The
unsecured notes are full recourse promissory notes bearing interest at
6.75% per annum. Principal and interest is payable at maturity,
September 1, 1999. The outstanding balance on the secured and unsecured
notes at October 24, 1998 totaled $1,101 and $850, respectively, and
is reflected as stock subscription notes receivable in the
accompanying balance sheet.
Retirement of Company Common Stock
In August 1998, the Company's board of directors approved a stock repurchase
program plan (the "Stock Repurchase Program") whereby the Company's management
is authorized to repurchase and retire up to $15,000 of Company Common Stock.
Under the program, Company Common Stock is bought by the Company at prevailing
market prices at the time of the repurchase. During the three months ended
October 24, 1998, a total of 1,211 shares of Company Common Stock had been
purchased and retired at a cost of $6,419.
Distribution Ratio
At the Distribution Date, U.S. Office Products distributed to its shareholders
one share of Company Common Stock for every 7.5 shares of U.S. Office Products
common stock held by each respective shareholder. The share data reflected in
the accompanying financial statements represents the historical share data for
U.S. Office Products for the period or as of the date indicated, and
retroactively adjusted to give effect to the one for 7.5 distribution ratio.
Page 9
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 5 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for computing
and presenting earnings per share ("EPS"). SFAS No. 128 requires the dual
presentation of basic and diluted EPS on the face of the statement of income.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company adopted SFAS No. 128 during Fiscal 1998 and has
restated all prior period EPS data. The following information presents the
Company's computations of basic and diluted EPS for the periods presented in the
consolidated statement of income:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ -----------
<S> <C> <C> <C>
Three months ended October 24, 1998:
Basic EPS $ 2,712 14,396 $ 0.19
=========
Effect of dilutive employee stock options*
--------- ---------
Diluted EPS $ 2,712 14,396 $ 0.19
========= ========= =========
Three months ended October 25, 1997:
Basic EPS $ 2,582 14,715 $ 0.18
=========
Effect of dilutive employee stock options* 391
--------- ---------
Diluted EPS $ 2,582 15,106 $ 0.17
========= ========= =========
Six months ended October 24, 1998:
Basic EPS $ 2,920 15,330 $ 0.19
=========
Effect of dilutive employee stock options* 105
--------- ---------
Diluted EPS $ 2,920 15,435 $ 0.19
========= ========= =========
Six months ended October 25, 1997:
Basic EPS $ 5,285 14,443 $ 0.37
=========
Effect of dilutive employee stock options* 318
--------- ---------
Diluted EPS $ 5,285 14,761 $ 0.36
========= ========= =========
</TABLE>
* The Company had additional employee stock options outstanding during the
periods presented that were not included in the computation of diluted EPS
because they were anti-dilutive.
Page 10
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 6 - BUSINESS COMBINATIONS
During the six month period ended October 24, 1998, the Company completed two
business combinations which were accounted for under the purchase method for an
aggregate purchase price of $13,238 consisting entirely of cash. The total
assets related to these acquisitions were $16,227, including intangible assets
of $9,043. The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.
During Fiscal 1998, the Company made two acquisitions accounted for under the
purchase method for an aggregate purchase price of $14,868, consisting of common
stock with a market value of $2,112 and cash of $12,756. The total assets
related to these acquisitions were $18,835, including intangible assets of
$13,269. The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the three and six month periods ended October 24, 1998 and October
25, 1997, as if the Strategic Restructuring Plan, the Stock Repurchase Program
and the purchase acquisitions completed since the beginning of Fiscal 1998 had
been consummated at the beginning of Fiscal 1998. The pro forma results of
operations include certain pro forma adjustments including the amortization of
intangible assets, reductions in executive compensation at the acquired
companies and an increase in corporate overhead expenses as if the Company was a
stand-alone entity for the entire period:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- --------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $92,655 $93,525 $185,757 $182,379
Net income 2,658 2,100 5,194 4,470
Earnings per share:
Basic 0.20 0.16 0.39 0.33
Diluted 0.20 0.15 0.38 0.33
</TABLE>
The pro forma results of operations are prepared for comparative purposes only
and do not necessarily reflect the results that would have occurred had the
acquisitions, the Stock Repurchase Program and the Strategic Restructuring Plan
occurred at the beginning of Fiscal 1998 or the results that may occur in the
future.
NOTE 7 - SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way management
organizes and evaluates financial information internally for making decisions
and assessing performance. It also requires related disclosures about products,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 for
the year ending April 24, 1999. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
Page 11
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 8 - SUBSEQUENT EVENTS
Retirement of Company Common Stock
Subsequent to October 24, 1998 and through December 4, 1998, the Company
repurchased and retired 42 shares of Company Common Stock under its Stock
Repurchase Program. The Company Common Stock, bought by the Company at
prevailing market prices at the time of the repurchase, was purchased and
retired at a cost of $311.
Business Combinations
Subsequent to October 24, 1998 and through December 4, 1998, the Company
completed two business combinations which were accounted for under the purchase
method for an aggregate purchase price of $7,240 consisting entirely of cash.
The total assets related to these acquisitions were approximately $10,095,
including intangible assets of approximately $6,852. The results of these
acquisitions will be included in the Company's results from their respective
dates of acquisition.
Expansion of the Credit Facility
On December 2, 1998, the Company received commitments from certain lending
institutions of the Credit Facility syndicate to increase the amount available
for borrowing under the facility to $200,000 and to amend certain terms and
conditions of the Credit Facility (the "Amended Credit Facility"). The Amended
Credit Facility will be underwritten and agented by Bankers Trust, contains
essentially the same terms and conditions as the Credit Facility and will mature
on June 10, 2003. The increased funds available under the Amended Credit
Facility will primarily be used for acquisition purposes.
Page 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. When used in this Report, the words
"anticipate," "believe," "estimate," "intend," "may," "will," "expect" and
similar expressions as they relate to Workflow Management, Inc. (the "Company"
or "Workflow Management") or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements, which are made only as of the dates
hereof.
Introduction
Workflow Management is a leading graphic arts company providing a "one-stop
shop" e-commerce solution for businesses to purchase all office consumables via
the Internet. The Company employs over 2,100 people in North America, including
a 500-person salesforce. Workflow Management has manufacturing operations
located throughout the United States and Canada which produce envelopes,
commercial printing products and documents. The Company seeks to become a
consolidator in the highly fragmented graphic arts industry. The Company
currently has 18 manufacturing facilities in seven states and five Canadian
provinces, 27 distribution centers, eight print-on-demand centers and 60 sales
offices. Prior to the consummation of the U.S. Office Products Company ("U.S.
Office Products") strategic restructuring plan (the "Strategic Restructuring
Plan")on June 9, 1998 (the "Distribution Date"), the Company's subsidiaries
(other than those acquired since the Distribution Date) comprised the Print
Management Division of U.S. Office Products.
The following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto, appearing
elsewhere in this Quarterly Report on Form 10-Q, as well as the Company's
audited consolidated financial statements, and notes thereto, for the fiscal
year ended April 25, 1998 ("Fiscal 1998") included in the Company's Annual
Report on Form 10-K.
Consolidated Results of Operations
Three Months Ended October 24, 1998 Compared to Three Months Ended
October 25, 1997
Consolidated revenues increased 1.4%, from $88.9 million for the three months
ended October 25, 1997, to $90.1 million for the three months ended October 24,
1998. This increase was primarily due to increased envelope and document sales
resulting from sales to two large new customer accounts that were secured during
Fiscal 1998, internal growth in the Company's distribution division through
increased sales to existing customers and the inclusion of Astrid Offset Corp.
("Astrid"), acquired on February 26, 1998, in the consolidated results of the
Company for the entire three months ended October 24, 1998.
International revenues decreased 8.6%, from $32.7 million, or 36.8% of
consolidated revenues, for the three months ended October 25, 1997, to $29.9
million, or 33.2% of consolidated revenues, for the three months ended October
24, 1998. International revenues consisted exclusively of revenues generated in
Canada. This decrease was entirely due to a decline in the Canadian exchange
rate during the three months ended October 24, 1998. International revenues,
when stated in the local currency, increased $249,000 (Canadian) or 0.5% for the
three months ended October 24, 1998 when compared to the three months ended
October 25, 1997.
Page 13
<PAGE>
Gross profit increased 7.8%, from $23.3 million, or 26.2% of revenues, for the
three months ended October 25, 1997, to $25.1 million, or 27.9% of revenues, for
the three months ended October 24, 1998. The increase in gross profit was
primarily due to the additional gross profit generated from the two new customer
accounts and the inclusion of Astrid in the consolidated results of the Company
for the entire period. The increase in gross profit as a percentage of revenues
was due to Astrid generating gross profit at a higher percentage of revenues
than was historically recognized by the Company and increased gross profit
percentages on commercial printing and envelope revenues.
Selling, general and administrative expenses increased 5.7%, from $18.4 million,
or 20.7% of revenues, for the three months ended October 25, 1997, to $19.5
million, or 21.6% of revenues, for the three months ended October 24, 1998. The
increase in selling, general and administrative expenses was primarily due to
the inclusion of Astrid in the results of the Company for the entire period and
the additional corporate overhead that was incurred during the three months
ended October 24, 1998 as a result of the Company operating as a stand-alone
public entity following its spin-off from U.S. Office Products. This increase
was partially offset by the benefits resulting from significant headcount
reductions and cost saving measures employed by the Company during the end of
Fiscal 1998. The increase in selling, general and administrative expenses as a
percentage of sales during the three months ended October 24, 1998 was primarily
due to the additional corporate overhead incurred during the period.
Amortization expense increased $82,000 from $51,000 for the three months ended
October 25, 1997, to $133,000 for the three months ended October 24, 1998. This
increase was due exclusively to the inclusion of Astrid for the entire three
month period ended October 24, 1998.
Interest expense, net of interest income, increased 32.6%, from $559,000 for the
three months ended October 25, 1997, to $741,000 for the three months ended
October 24, 1998. This increase in net interest expense was due to the increased
level of debt outstanding during the three months ended October 24, 1998 as a
result of the Company securing a $150.0 million revolving credit facility which
was used in part to pay off the Company's debt to U.S. Office Products at the
Distribution Date and subsequent borrowings.
Other income decreased from $69,000 for the three months ended October 25, 1997,
to $65,000 for the three months ended October 24, 1998. Other income primarily
represents the net of gains and/or losses on sales of equipment and
miscellaneous other income and expense items.
Provision for income taxes increased from $1.8 million for the three months
ended October 25, 1997 to $2.1 million for the three months ended October 24,
1998, reflecting effective income tax rates of 40.7% and 44.0%, respectively.
During both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 35.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from
acquisition of Astrid.
Six Months Ended October 24, 1998 Compared to Six Months Ended
October 25, 1997
Consolidated revenues increased 5.6%, from $171.0 million for the six months
ended October 25, 1997, to $180.6 million for the six months ended October 24,
1998. This increase was primarily due to the inclusion of FMI Graphics, Inc. and
Astrid (the "Fiscal 1998 Purchased Companies") in the consolidated results of
the Company for the entire six months ended October 24, 1998 and increased
envelope and document sales resulting from sales to two large new customer
accounts that were secured during Fiscal 1998.
International revenues decreased 6.6%, from $63.6 million, or 37.2% of
consolidated revenues, for the six months ended October 25, 1997, to $59.4
million, or 32.9% of consolidated revenues, for the six months ended October 24,
1998. International revenues consisted exclusively of revenues generated in
Canada. This decrease was entirely due to a decline in the Canadian exchange
rate during the six months ended October 24, 1998. International revenues, when
stated in the local currency, increased $727,000 (Canadian) or 0.8% for the six
months ended October 24, 1998 when compared to the six months ended October 25,
1997.
Page 14
<PAGE>
Gross profit increased 9.9%, from $45.2 million, or 26.4% of revenues, for the
six months ended October 25, 1997, to $49.7 million, or 27.5% of revenues, for
the six months ended October 24, 1998. The increase in gross profit was
primarily due to the inclusion of the Fiscal 1998 Purchased Companies in the
consolidated results of the Company for the entire period and the additional
gross profit generated from the two new customer accounts. The increase in gross
profit as a percentage of revenues was due to the Fiscal 1998 Purchased
Companies generating gross profit at a higher percentage of revenues than was
historically recognized by the Company.
Selling, general and administrative expenses increased 9.2%, from $35.3 million,
or 20.6% of revenues, for the six months ended October 25, 1997, to $38.5
million, or 21.3% of revenues, for the six months ended October 24, 1998. The
increase in selling, general and administrative expenses was primarily due to
the inclusion of the Fiscal 1998 Purchased Companies in the results of the
Company for the entire period and the additional corporate overhead that was
incurred during the six months ended October 24, 1998 as a result of the Company
operating as a stand-alone public entity following its spin-off from U.S. Office
Products. This increase was partially offset by the benefits resulting from
significant headcount reductions and cost saving measures employed by the
Company during the end of Fiscal 1998. The increase in selling, general and
administrative expenses as a percentage of sales during the six months ended
October 24, 1998 was primarily due to the additional corporate overhead incurred
during the period.
Amortization expense increased $166,000 from $100,000 for the six months ended
October 25, 1997, to $266,000 for the six months ended October 24, 1998. This
increase was due exclusively to the inclusion of the Fiscal 1998 Purchased
Companies for the entire six month period ended October 24, 1998.
The Company incurred expenses of approximately $3.8 million during the six
months ended October 24, 1998 associated with U.S. Office Products' Strategic
Restructuring Plan. Under Generally Accepted Accounting Principles, the Company
was required to record a one-time, non-cash expense of approximately $3.0
million with a corresponding contribution to capital relating to the tender of
stock options by Workflow Management employees in U.S. Office Products' equity
tender offer at the Distribution Date. As a result of the Distribution, the
Company also incurred an additional $750,000 in transaction costs during the six
months ended October 24, 1998 relating to the Strategic Restructuring Plan for
legal, accounting and financial advisory services and various other fees.
Interest expense, net of interest income, increased 70.0%, from $1.1 million for
the six months ended October 25, 1997, to $1.9 million for the six months ended
October 24, 1998. This increase in net interest expense was due to the increased
level of debt outstanding during the six months ended October 24, 1998 as a
result of the Company securing a $150.0 million revolving credit facility which
was used in part to pay off the Company's debt to U.S. Office Products at the
Distribution Date.
Other income decreased from $167,000 for the six months ended October 25, 1997,
to $47,000 for the six months ended October 24, 1998. Other income primarily
represents the net of gains and/or losses on sales of equipment and
miscellaneous other income and expense items.
Provision for income taxes decreased from $3.6 million for the six months ended
October 25, 1997 to $2.3 million for the six months ended October 24, 1998,
reflecting effective income tax rates of 40.5% and 44.0%, respectively. During
both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 35.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from
acquisition of the Fiscal 1998 Purchased Companies.
Page 15
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Liquidity and Capital Resources
At October 24, 1998, the Company had cash of $1.1 million and working capital of
$55.6 million. The Company's capitalization, defined as the sum of long-term
debt and stockholders' equity, at October 24, 1998, was approximately $116.2
million.
Workflow Management uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents are typically on hand as any excess cash would be used to pay down
the Company's revolving credit facility. Cash at October 24, 1998, primarily
represented customer collections and in-transit cash sweeps from the Company's
subsidiaries at the end of the quarter.
Workflow Management's anticipated capital expenditures budget for the next
twelve months is approximately $8.0 million for new equipment and maintenance,
including any costs associated with compliance testing and technical upgrades to
ensure that the Company's computer systems are Year 2000 compliant. See "--Year
2000 Issue" discussion.
During the six months ended October 24, 1998, net cash provided by operating
activities was $13.0 million. Net cash used in investing activities was $13.7
million, including $13.2 million used for acquisitions, $3.3 million used for
capital expenditures and $1.0 million used for a deposit on machinery which were
all partially offset by the collection of $3.7 million in notes receivable from
employees. Net cash provided by financing activities was $1.6 million, which
included $40.6 million in net borrowings by the Company and an $8.5 million
capital contribution by U.S. Office Products which were partially offset by
$36.1 million of cash paid to U.S. Office Products under its Strategic
Restructuring Plan, $6.4 million paid to retire the Company's common stock, $3.0
million paid in deferred financing fees and $2.0 million paid for the issuance
of stock subscription notes receivable.
During the six months ended October 25, 1997, net cash provided by operating
activities was $1.6 million. Net cash used in investing activities was $3.2
million, including $2.5 million used for capital expenditures. Net cash used in
financing activities totaled $123,000.
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 32.9% of the Company's
total net sales for the six months ended October 24, 1998. As a result, Workflow
Management is subject to certain risks inherent in conducting business
internationally, including fluctuations in currency exchange rates. Changes in
exchange rates may have a significant effect on the Company's business,
financial condition and results of operations.
During the six months ended October 24, 1998, the Canadian dollar weakened
against the U.S. dollar ("USD"). The Canadian exchange rate declined from
approximately $0.70 USD at April 25, 1998 to $0.65 USD at October 24, 1998. This
resulted in a reduction in stockholders' equity, through a foreign currency
translation adjustment, of approximately $2.2 million, reflecting the impact of
the declining exchange rate on the Company's investments in its Canadian
subsidiary. The Company is currently reviewing certain hedge transaction options
to mitigate the effect of currency fluctuations.
As a result of the provisions of Section 355 of the Internal Revenue Code of
1986, as amended, and certain tax contribution agreements entered into by the
Company in connection with the Distribution, the Company may be subject to
constraints on its ability to issue additional shares of the Company's common
stock in certain transactions for two years following the Distribution Date. In
particular, if 50% or more, by vote or value, of the capital stock of Workflow
Management is acquired by one or more persons acting pursuant to a plan or
series of transactions that includes the Distribution, Workflow Management will
suffer significant tax liability. The Company will evaluate any significant
future issuance of capital stock to avoid the imposition of such tax liability.
Page 16
<PAGE>
The Strategic Restructuring Plan called for an allocation of $45.6 million of
debt by U.S. Office Products to Workflow Management at the Distribution Date.
This allocation resulted in the forgiveness of $8.5 million of debt during the
six months ended October 24, 1998, which was reflected in the Company's
financial statements as a contribution of capital by U.S. Office Products.
The Company entered into a secured $150.0 million revolving credit facility (the
"Credit Facility") underwritten and agented by Bankers Trust Company on June 9,
1998. The Credit Facility matures on June 10, 2003 and is secured by
substantially all assets of the Company. The Credit Facility is subject to terms
and conditions typical of a credit facility of such type and size, including
certain financial covenants. Interest rate options are available to the Company
conditioned on certain leverage tests. The maximum rate of interest is the prime
rate from time to time in effect. Workflow Management expects that the Credit
Facility is adequate to fund working capital and capital expenditure needs. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants.
On December 2, 1998, the Company received commitments from certain lending
institutions of the Credit Facility syndicate to increase the amount available
for borrowing under the facility to $200.0 million and to amend certain terms
and conditions of the Credit Facility (the "Amended Credit Facility"). The
Amended Credit Facility will be underwritten and agented by Bankers Trust,
contains essentially the same terms and conditions as the Credit Facility and
will mature on June 10, 2003. The increased funds available under the Amended
Credit Facility will primarily be used for acquisition purposes.
The Company repaid the $45.6 million of debt owed to U.S. Office Products and
other third party creditors with funds available under the Credit Facility
during the six months ended October 24, 1998. At December 4, 1998, the Company
had approximately $62.0 million outstanding under the Credit Facility, at an
annual interest rate of approximately 7.46%, and $88.0 million available under
the Credit Facility for acquisitions and working capital purposes.
The Company anticipates that its current cash on hand, cash flow from operations
and additional financing available under the Credit Facility will be sufficient
to meet the Company's liquidity requirements for its operations for the next
twelve months. However, the Company intends to pursue acquisitions, which are
expected to be funded through cash, stock or a combination thereof. There can be
no assurance that additional sources of financing will not be required during
the next twelve months or thereafter.
Fluctuations in Quarterly Results of Operations
Workflow Management's envelope business is subject to seasonal influences from
year-end mailings. As the Company continues to complete acquisitions, it may
become subject to other seasonal influences if the businesses it acquires are
seasonal. Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by the Company for the products it sells, the mix
of products sold and general economic conditions. Moreover, the operating
margins of companies acquired may differ substantially from those of Workflow
Management, which could contribute to further fluctuation in its quarterly
operating results. Therefore, results for any quarter are not necessarily
indicative of the results that the Company may achieve for any subsequent fiscal
quarter or for a full fiscal year.
Inflation
The Company does not believe that inflation has had a material impact on its
results of operations during the six month periods ended October 24, 1998 and
October 25, 1997, respectively.
Page 17
<PAGE>
New Accounting Pronouncements
Reporting Comprehensive Income. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Workflow Management has adopted
SFAS No. 130 for the fiscal year ending April 24, 1999.
Disclosures about Segments of an Enterprise and Related Information. In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments in annual and interim financial statements.
Operating segments are determined consistent with the way management organizes
and evaluates financial information internally for making decisions and
assessing performance. It also requires related disclosures about products,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 for
the year ending April 24, 1999. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
Year 2000 Issue
Many existing computer programs were designed and developed without considering
the impact of the upcoming change in the century and consequently use only two
digits to identify a year in the date field. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000 (the
"Year 2000 Issue" or "Year 2000").
The Company has commenced a process to assess the potential impact of the Year
2000 Issue on its systems and the systems of major vendors, major customers and
third party service providers, and to remediate any non-compliance of its
systems. With respect to its internal systems, the potential Year 2000 effects
extend beyond the Company's information technology systems to its manufacturing
systems and physical facilities. The Company has implemented a three step
approach to address Year 2000 which involves the following phases: (i)
Identification, (ii) Assessment and (iii) Remediation and Testing. The Company
has created a committee chaired by the Company's internal audit staff and made
up of Company key management and in-house management information systems (MIS)
personnel to monitor progress of the Year 2000 Issue, including particularly
assessment and remediation.
The Company has completed the identification phase of the Year 2000 Issue and
has inventoried all internal systems, including information technology (IT) and
non-IT systems, hardware, software and its proprietary software systems and
services material to its operations that are potentially susceptible to Year
2000 problems. The Company has also prepared plans for assessing compliance and
for completing remediation. In addition, the Company has prepared and
distributed vendor, supplier and customer compliance surveys to ascertain the
Year 2000 readiness of its key suppliers and business partners.
The assessment phase involves analyzing the internal systems, vendors, suppliers
and customers recognized in the identification phase, assessing which of the
Company's systems and key business partners are Year 2000 compliant, and
planning for remediation of non-compliant systems. The Company has evaluated
almost all of the Company's internal systems and has received a majority of the
third-party compliance surveys distributed in the identification phase. The
Company expects to complete the assessment phase within the next three months.
Page 18
<PAGE>
Based upon the assessment phase, the Company believes that the majority of its
non-IT systems, including the Company's printing presses, security systems, time
clocks and manufacturing facilities, are Year 2000 compliant. The Company
believes that there are no significant uses of micro-processing oriented
equipment within its manufacturing systems and that the cost to address any
components deemed to be non-compliant is not material. Based on information
provided by vendors and suppliers in the compliance surveys, the Company also
believes that the vast majority of its vendors and customers who have responded
to the Company's compliance surveys will be Year 2000 compliant by the end of
June 1999. The Company intends to work directly with its key vendors, suppliers
and distributors to avoid any business interruptions due to the Year 2000 Issue.
For major third-parties with known Year 2000 compliance issues, contingency
plans are being developed and are expected to be implemented by March 1999.
In the remediation and testing phase, the Company intends to deploy plans for
elimination, upgrade, replacement or modification of non-compliant systems and
test compliance. The Company completed the Year 2000 conversion and testing of
its proprietary distribution software system (known as GetSmart) in November
1998 and intends to have its other proprietary software system and related
services (known as Informa) Year 2000 compliant by the end of calendar 1998. The
Company is in various stages of completion regarding the remediation and testing
phase for its other systems but believes that all of its systems will be Year
2000 compliant by June 1999.
If the Company and its customers, suppliers and vendors were not Year 2000
compliant by January 1, 2000, the most reasonably likely worst case scenario
would be a temporary shutdown or cessation of distribution or manufacturing
operations at one or more of the Company's facilities and a temporary inability
of the Company to timely process customer orders and deliver products to
customers. Any such shutdown could have a material adverse effect on the
Company's results of operations, liquidity and financial position. The Company's
systems are not now uniform across all operations and the Company does not
expect uniformity by the end of 1999. Therefore, the Company does not anticipate
system wide failures as a result of the Year 2000 Issue. The Company's
individual business units and Year 2000 committees are currently identifying and
considering various contingency options, including identification of alternate
suppliers, vendors and service providers, and manual alternatives to systems
operations, which would allow the Company to minimize the risks of any
unresolved Year 2000 problems on their operations and to minimize the effect of
any unforeseen Year 2000 failures.
The Company estimates that it will incur approximately $6.0 million of
incremental expenses and capitalized costs in connection with the Year 2000
Issue, of which approximately $5.0 million has been incurred to date. The
Company anticipates funding future Year 2000 Issue costs with funds available
from operations and the Company's credit facility with its senior lenders.
While costs associated with the Year 2000 Issue may be material in one or more
of the Company's fiscal quarters, the Company does not believe that the Year
2000 Issue will have a material adverse effect on the long-term results of
operations, liquidity or financial position of the Company. However, no
assurance can be given that unforeseen circumstances will not arise as the
Company addresses the Year 2000 Issue. Specific factors that may cause the
Company to experience unanticipated problems with respect to the Year 2000 Issue
include the availability and cost of adequately trained personnel, the ability
to locate and correct all affected computer code, and the timing and success of
Year 2000 efforts by the Company's customers, suppliers and vendors.
Page 19
<PAGE>
Factors Affecting the Company's Business
Risks Associated with Acquisitions
One of the Company's strategies is to increase its revenues and the markets it
serves through the acquisition of additional graphic arts businesses. There can
be no assurance that suitable candidates for acquisitions can be identified or,
if suitable candidates are identified, that acquisitions can be completed on
acceptable terms, if at all.
Integration of acquired companies may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on its reported operating
results (including those adverse short-term effects caused by severance payments
to employees of acquired companies, restructuring charges associated with the
acquisitions and other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations and various other
acquisition-related costs); diversion of management's attention; difficulties
with retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets. Furthermore, although Workflow Management conducts due
diligence and 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. If an acquired company's financial or
operating results were misrepresented, the acquisition could have a material
adverse effect on the results of operations and financial condition of Workflow
Management.
Workflow Management may in the future seek to finance its acquisitions by using
shares of Company Common Stock. If the Company Common Stock does not maintain a
sufficient market value, if the price of Company Common Stock is highly
volatile, or if potential acquisition candidates are otherwise unwilling to
accept Company Common Stock as part of the consideration for the sale of their
businesses, Workflow Management may be required to use more of its cash
resources or more borrowed funds in order to initiate and maintain its
acquisition program. If Workflow Management does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity offerings. The Company does not anticipate
utilizing Company Common Stock for acquisition purposes during the current
fiscal year.
Approximately $22.8 million, or 14.2% of the Company's total assets as of
October 24, 1998, represents intangible assets, the significant majority of
which is goodwill. Goodwill represents the excess of cost over the fair market
value of net assets acquired in business combinations accounted for under the
purchase method. The Company amortizes goodwill on a straight line method over a
period of 40 years with the amount amortized in a particular period constituting
a non-cash expense that reduces the Company's net income. The Company will be
required to periodically evaluate the recoverability of goodwill by reviewing
the anticipated undiscounted future cash flows from the operations of the
acquired companies and comparing such cash flows to the carrying value of the
associated goodwill. If goodwill becomes impaired, Workflow Management would be
required to write down the carrying value of the goodwill and incur a related
charge to its income. A reduction in net income resulting from the amortization
or write down of goodwill could have a material and adverse impact upon the
market price of the Company Common Stock.
Page 20
<PAGE>
Risks Associated with Canadian Operations
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 32.9% and 36.2% of the
Company's total net sales in the six months ended October 24, 1998 and the
fiscal year ended April 25, 1998, respectively. As a result, Workflow Management
is subject to certain risks inherent in conducting business internationally,
including fluctuations in currency exchange rates. Workflow Management is also
subject to risks associated with the imposition of protective legislation and
regulations, including those resulting from trade or foreign policy. In
addition, because of the Company's Canadian operations, significant revenues and
expenses are denominated in Canadian dollars. Changes in exchange rates may have
a significant effect on the Company's business, financial condition and results
of operations. Workflow Management does not currently engage in currency hedging
transactions.
For additional risk factors, refer to the Company's Annual Report on Form 10-K
for the year ended April 25, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
NONE
Page 21
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information.
Under the terms of the agreement entered into between the Company
and U.S. Office Products in connection with the Strategic
Restructuring Plan (the "Distribution Agreement"), the Company is
obligated, subject to a maximum obligation of $1.75 million, to
indemnify U.S. Office Products for certain liabilities incurred by
U.S. Office Products prior to the Distribution, including
liabilities under federal securities laws (the "Indemnification
Obligation"). This Indemnification Obligation is reduced by any
insurance proceeds actually recovered in respect of the Indemnification
Obligation and is shared on a pro rata basis with the other three
divisions of U.S. Office Products that were spun-off from U.S. Office
Products in connection with the Strategic Restructuring Plan.
U.S. Office Products has been named a defendant in various class
action lawsuits. These lawsuits generally allege violations of federal
securities laws by U.S. Office Products and other named defendants
during the months preceding the Strategic Restructuring Plan. The
Company has not received any notice or claim from U.S. Office Products
alleging that these lawsuits are within the scope of the
Indemnification Obligation, but the Company believes that certain
liabilities and costs associated with these lawsuits (up to a maximum
of $1.75 million) are likely to be subject to the Company's
Indemnification Obligation. Nevertheless, the Company does not
presently anticipate that the Indemnification Obligation will have a
material adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Form Secured Promissory Note for Executive Stock Loan Program
10.2 Form Unsecured Promissory Note for Executive Stock Loan
Program
10.3 Form Pledge Agreement for Executive Stock Loan Program
10.4 Stock Purchase Agreement dated October 5, 1998 between
Workflow Management, Inc., Penn-Grover Envelope Corp. and
Stuart Grover.
10.5 Stock Purchase Agreement dated October 21, 1998 between SFI of
Delaware, LLC, Danziger Graphics, Inc., H. Roy Danziger, Inc.,
Robert Danziger and Roy Danziger.
10.6 Stock Purchase Agreement dated November 30, 1998
between SFI of Delaware, LLC, Caltar, Inc., Jack Tarr
and the Tarr Family Trust.
10.7 Stock Purchase Agreement dated November 30, 1998
between Workflow Management, Inc., Direct Pro LLC,
Robert Sands, TLG Realty LLC, Richard Schlanger and
Robert Fishbein.
11.1 Statement regarding computation of net income per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the period covered by this report, the Company filed a Current
Report on Form 8-K on October 20, 1998 that announced the Company's
acquisition of Penn-Grover Envelope Corp.
Page 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORKFLOW MANAGEMENT, INC.
December 8, 1998 By: /s/ Thomas B. D'Agostino
- ---------------- ------------------------
Date Thomas B. D'Agostino
Chairman of the Board, Chief Executive Officer, President,
Director (Principal Executive Officer)
December 8, 1998 By: /s/ Steven R. Gibson
- ---------------- --------------------
Date Steven R. Gibson
Vice President, Chief Financial Officer, Treasurer,
Secretary (Principal Financial Officer and Principal
Accounting Officer)
Page 23
STOCK PURCHASE AGREEMENT
By and Among
Workflow Management, Inc.
Penn-Grover Envelope Corp.
and
The Stockholder Named Therein
made effective as of October 5, 1998
<PAGE>
TABLE OF CONTENTS
Page
Error! No table of contents entries found.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 5th day of October, 1998, by and among Workflow Management, Inc., a
Delaware corporation ("Buyer"), Penn-Grover Envelope Corp., a New York
corporation (the "Company"), and Stuart Grover, the sole stockholder of the
Company ("Stockholder").
BACKGROUND
The Stockholder owns all of the issued and outstanding capital stock of
the Company. This Agreement contemplates a transaction in which the Buyer will
purchase from the Stockholder, and the Stockholder will sell to the Buyer, all
of the outstanding capital stock of the Company (the "Stock") for the cash
consideration set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE
1.1 Stock. Subject to the terms and conditions of this Agreement, at
the Closing (as defined below), the Stockholder will sell to Buyer, and Buyer
will purchase from Stockholder, the Stock for the Purchase Price (as defined
below).
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall
be the amounts payable to Stockholder by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments pursuant to Section
453(b) of the Internal Revenue Code of 1986, as amended ("Code"), in the
following manner:
(i) $10,855,424 of the Purchase Price shall be
payable in cash ("Cash Purchase Price"), as adjusted pursuant to this Section
1.2 and Section 1.3. The Cash Purchase Price, as so adjusted, shall be applied
first to satisfy the escrow obligations set forth in Section 1.4 and the balance
shall be paid to the Stockholder in cash at Closing.
(ii) Certain payments shall be made to Stockholder
based upon the "Gross Profit" of the Company, as specifically set forth in
Section 1.6 hereof. For purposes of the Code, interest shall be allocated to
such payments as set forth on Schedule 1.2(a)(ii).
(iii) In order to reimburse the Stockholder for
adverse Tax consequences he may suffer ("Incremental Taxes") as a result of
certain depreciation recapture that will occur in connection with the Section
338(h)(10) Election (as defined in Section 5.1(c)(i)), Buyer shall pay to
Stockholder such additional amount ("338 Payment") as will be determined in
accordance with the hypothetical formula calculation of Incremental Taxes set
forth on Schedule 1.2(a)(iii). The parties acknowledge that Schedule 1.2(a)(iii)
sets forth a calculation of the Incremental Taxes and corresponding 338 Payment
by way of example only and is not intended to provide the actual amount of the
338 Payment. The 338 Payment, as determined in a manner consistent with the
allocation of Purchase Price (as provided in Section 5.1(c)(ii)) and with the
formula calculation set forth on Schedule 1.2(a)(iii), shall be paid by the
Buyer to the Stockholder on the date that the Section 338 Forms (as defined in
Section 5.1(c)(i)) are filed pursuant to the terms and conditions of Section
5.1(c)(i).
<PAGE>
(b) The Purchase Price assumes that the net worth of the
Company (total assets less total liabilities), calculated in accordance with
generally accepted accounting principles ("GAAP") consistently applied (but
subject to the revaluation of the Company's accounts receivable, accounts
payable and inventory as further set forth and described in Schedule 1.2(b)
("Asset Revaluation")) is equal to or greater than $2,343,509 (the "Net Worth
Target") as of the Closing; provided, however that notwithstanding anything in
GAAP to the contrary, the Net Worth Target shall be calculated for purposes of
this Agreement after giving effect to any expenses incurred by the Company or
the Stockholder in connection with the transactions contemplated by this
Agreement.
(c) If on the Closing Financial Certificate (as defined in
Section 6.9), the Certified Closing Net Worth (as defined in Section 6.9) is
less than the Net Worth Target, the Cash Purchase Price to be delivered to the
Stockholder may, at Buyer's election, be reduced either (i) at the Closing, or
(ii) after completion of the Post-Closing Audit (as defined in Section 1.3), by
the difference between the Net Worth Target and the Certified Closing Net Worth
set forth on the Closing Financial Certificate.
(d) In addition to the Purchase Price, the Company shall cause
to be paid to the Stockholder the following additional amounts at Closing:
(i) $59,002, which amount shall be paid to the
Stockholder in full satisfaction of all loans payable due from the Company to
the Stockholder; and
(ii) $242,006, which amount represents (and shall be
deemed to be) a distribution or dividend to the Stockholder of a portion of the
Company's current year "S" Corporation earnings.
1.3 Post-Closing Adjustment.
(a) The Cash Purchase Price shall be subject to adjustment
after the Closing Date as specified in this Section 1.3.
<PAGE>
(b) Within one hundred twenty (120) days following the Closing
Date, Buyer shall cause Deloitte & Touche, LLP ("Buyer's Accountant") to audit
the Company's books to determine the Actual Company Net Worth (as defined below)
(the "Post-Closing Audit"). The parties acknowledge and agree that for purposes
of determining the audited net worth of the Company as of the Closing Date, the
value of the assets of the Company shall, except with the prior written consent
of Buyer, be calculated as provided in the last paragraph of Section 6.9. In the
event that the audited Company net worth as of the Closing Date was less than
the Certified Closing Net Worth, Buyer shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholder, setting forth (i) the audited
Company net worth (the "Actual Company Net Worth"), (ii) the amount of the Cash
Purchase Price that would have been payable at Closing pursuant to Section
1.2(c) had the Actual Company Net Worth been reflected on the Closing Financial
Certificate instead of the Certified Closing Net Worth, and (iii) the amount by
which the Cash Purchase Price would have been reduced at Closing had the Actual
Company Net Worth been used in the calculations pursuant to Section 1.2(c) (the
"Purchase Price Adjustment"). The Purchase Price Adjustment shall take account
of the reduction, if any, to the Cash Purchase Price already taken pursuant to
Section 1.2(c)(i). The parties acknowledge that the Purchase Price Adjustment is
intended to provide a dollar for dollar adjustment to the Purchase Price.
(c) The Stockholder shall have thirty (30) days from the
receipt of the Financial Adjustment Notice to notify Buyer if the Stockholder
disputes such Financial Adjustment Notice. If Buyer has not received notice of
such a dispute within such 30-day period, Buyer shall be entitled to receive
from the Stockholder (which may, at Buyer's sole discretion, be from the Pledged
Assets as defined in Section 1.4) the Purchase Price Adjustment. If, however,
the Stockholder has delivered notice of such a dispute to Buyer within such
30-day period, then Buyer's Accountant shall select an independent accounting
firm that has not represented any of the parties hereto within the preceding two
(2) years to review the Company's books, Closing Financial Certificate and
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the Purchase Price Adjustment. Such independent accounting firm shall
be confirmed by the Stockholder and Buyer within five (5) days of its selection,
unless there is an actual conflict of interest. The independent accounting firm
shall be directed not to consider any agreements, contracts, commitments or
other documents (or summaries thereof) that were not delivered or made available
to Buyer's Accountant in connection with the transactions contemplated hereby.
The independent accounting firm shall make its determination of the Purchase
Price Adjustment, if any, within thirty (30) days of its selection. The
determination of the independent accounting firm shall be final and binding on
the parties hereto, and upon such determination, Buyer shall be entitled to
receive from the Stockholder (which may, at Buyer's sole discretion, be from the
Pledged Assets as defined in Section 1.4) the Purchase Price Adjustment. The
costs of the independent accounting firm shall be borne by the Buyer.
1.4 Escrow.
(a) As collateral security for the payment of any post-Closing
adjustment to the Cash Purchase Price under Section 1.3, or any indemnification
obligations of the Stockholder pursuant to Article 8, the Stockholder shall, and
by execution hereof does, transfer to Bankers Trust Company ("Escrow Agent")
$800,000 (the "Pledged Assets").
(b) The Pledged Assets shall be held by the Escrow Agent
pursuant to the terms and conditions set forth in the Escrow Agreement ("Escrow
Agreement") dated as of the date hereof by and among the Buyer, Stockholder and
Escrow Agent.
<PAGE>
(c) The Pledged Assets shall be available to satisfy any
post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3 and
any indemnification obligations of the Stockholder pursuant to Article 8 until
March 31, 1999 (the "Release Date"). Promptly following the Release Date, and
subject to the specific terms and conditions of the Escrow Agreement, the Escrow
Agent shall return or cause to be returned to the Stockholder the Pledged
Assets, less Pledged Assets having an aggregate value equal to the amount of (i)
any post-Closing adjustment to the Cash Purchase Price under Section 1.3
(including any post-Closing adjustment to the Cash Purchase Price that is
subject to dispute under the terms and conditions of Section 1.3), (ii) any
unresolved pending claim for indemnification made by Buyer, and (iii) any
indemnification obligations of the Stockholder paid pursuant to Article 8.
1.5 Exchange of Certificates and Payment of Cash.
(a) Buyer to Provide Cash. In exchange for the Stock, Buyer
shall cause to be made available to the Stockholder the Purchase Price, as
adjusted pursuant to Section 1.2 and Section 1.3.
(b) Certificate Delivery Requirements. At the Closing, the
Stockholder shall deliver to Buyer the certificate (the "Certificate")
representing the Stock, duly endorsed in blank by the Stockholder, or
accompanied by blank stock powers duly executed by the Stockholder and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholder's
expense, affixed and canceled. The Stockholder shall promptly cure any
deficiencies with respect to the endorsement of the Certificates or other
documents of conveyance with respect to the stock powers accompanying such
Certificates.
(c) No Further Ownership Rights in Capital Stock of the
Company. All cash to be delivered (including cash that constitutes Pledged
Assets) upon the surrender for exchange of shares of the Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Stock, and following the
Closing, the Stockholder shall have no further rights to, or ownership in,
shares of capital stock of the Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the Stockholder, such cash as provided in Section 1.2.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.5, none of the Company or any party hereto shall be liable to a
holder of shares of the Stock for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.6 Post-Closing Earn-Out.
<PAGE>
(a) For a period of five consecutive years immediately
following the Closing Date ("Payment Period"), the Stockholder shall be entitled
to receive from the Buyer ten percent (10%) of the annual Gross Profit (as
defined herein) of the Company, on the specific terms and conditions set forth
in this Section 1.6 (such payments the "Earn-out"). As set forth in Section
1.6(c) below, Earn-outs shall be payable based on the Gross Profit of the
Company during the fiscal quarters of the Buyer. The first Earn-out due, if any,
shall be payable based on the Gross Profit of the Company during the period
beginning on the day following the Closing Date and ending on the last day of
the fiscal quarter of Buyer during which the Closing Date occurs. The final
Earn-out due, if any, shall be payable based on the Gross Profit of the Company
during the period beginning on the first day of the last fiscal quarter of Buyer
during the Payment Period and ending on the day that is five (5) years after the
Closing Date.
(b) Gross Profit for any period shall mean the amount of the
Company's "Net Sales" less "Cost of Goods Sold," in each case on an
unconsolidated basis and without giving effect to the results of operations of
any direct or indirect parent or subsidiary of the Company. "Net Sales" for any
period means the invoiced amount of goods sold by the Company during such
period, payment for which is actually received by the Company, less actual trade
discounts, returns, and freight to the extent not paid by customers. "Cost of
Goods Sold" for any period means the cost of goods sold as calculated under the
Company's accounting methods prior to the date of this Agreement consistently
applied (without giving effect to the Asset Revaluation).
(c) Earn-outs shall be paid quarterly in cash by the 45th day
of the Buyer's fiscal quarter immediately following the Buyer's fiscal quarter
for which an Earn-out is due. To the extent that the Company has a negative
Gross Profit during any quarter (such amount a "Gross Profit Loss"), the Gross
Profit Loss shall be carried forward to the subsequent quarterly period(s) and
aggregated with the Gross Profit (or Gross Profit Loss) for such subsequent
quarterly period(s) for purposes of determining the Earn-out, if any, due for
such subsequent quarterly period(s). All Gross Profit Losses shall continue to
be carried forward on a quarterly basis until such time as Gross Profits are
fully offset by the total amount of the Gross Profit Losses.
(d) In the event that, after the date of this Agreement, the
Company is merged (or otherwise consolidated) into Buyer, or any direct or
indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that
the Company is not the surviving corporation under applicable law, the Earn-out
shall only be payable with respect to the business and operations conducted by
the Company and without reference to the business and operations of the Merger
Affiliate. For purposes of calculating the Earn-out payable to the Stockholder
under this Section 1.6 after a merger or other consolidation by the Company and
a Merger Affiliate, the Buyer shall cause such Merger Affiliate to (i) conduct
the Company's former business and operations as a division of the Merger
Affiliate ("Company Division") and (ii) maintain separate and distinct financial
reporting systems as are necessary to accurately calculate the Gross Profit (or
Gross Profit Losses) of the Company Division.
(e) Except as otherwise expressly agreed to by Buyer and
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) and
without reference to any other entity hereafter merged into or otherwise
consolidated with the Company. In the event that the Buyer causes any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial reporting systems as are necessary to accurately calculate the Gross
Profit (or Gross Profit Losses) of the Company (or the Company Division) without
taking into account the results of any other operations of the Company or any
such other entity.
<PAGE>
(f) Notwithstanding anything in this Section 1.6 to the
contrary, and subject to the terms and conditions of Section 8.7, Buyer shall
have the right to reduce any amounts otherwise payable as an Earn-out by the
amount of any indemnification obligations of the Stockholder under Article 8.
1.7 Accounting Terms. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING
The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Koerner, Silberberg & Weiner,
LLP, New York, New York, on October 5 1998, providing that all conditions to
Closing shall have been satisfied or waived, or at such other time and date as
Buyer, the Company and the Stockholder may mutually agree, which date shall be
referred to as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholder,
jointly and severally, represents and warrants to Buyer as follows (for purposes
of this Agreement, the phrases "knowledge of the Company" or the "Company's
knowledge," or words of similar import, mean the actual knowledge, after
reasonable investigation, of the Stockholder and the directors and officers of
the Company):
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
The Company is in good standing as a foreign corporation in each jurisdiction in
which the character of the property owned, leased, or operated by the Company,
or the nature of the business or activities conducted by the Company, makes such
qualification necessary. The Company has delivered to Buyer true, complete and
correct copies of the Certificate of Incorporation and Bylaws of the Company.
Such Certificate of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
The minute books of the Company have been made available to Buyer (and have been
delivered, along with the Company's original stock ledger and corporate seal, to
Buyer) and are correct and, except as set forth in Schedule 3.1, complete in all
material respects.
<PAGE>
3.2 Authorization; Validity. The Company has the full legal right,
corporate power and authority to enter into this Agreement and the transactions
contemplated hereby. Stockholder has the full legal right and authority to enter
into this Agreement and the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the performance by the Company of
the transactions contemplated herein have been duly and validly authorized by
the Board of Directors of the Company and the Stockholder and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and the
Stockholder, enforceable in accordance with its terms.
3.3 No Conflicts. Except as set forth in Schedule 3.3, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any
of the Charter Documents;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or the Stockholder
is a party or by which the Company or the Stockholder is bound, or result in the
creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or the Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or the Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or the Stockholder is subject or by which the
Company or the Stockholder is bound including, without limitation, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together
with all rules and regulations promulgated thereunder.
<PAGE>
3.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 200 shares of common stock, no par value, of which one share
is issued and outstanding and no shares of preferred stock. The issued and
outstanding share of the capital stock of the Company has been duly authorized
and validly issued, is fully paid and nonassessable and is owned of record and
beneficially by the Stockholder free and clear of all Liens (defined below). The
issued and outstanding share of the capital stock of the Company was offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Such share was not
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to the outstanding share of the capital stock of the
Company. For purposes of this Agreement, "Lien" means any mortgage, security
interest, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
3.5 Transactions in Capital Stock; Accounting Treatment. No option,
warrant, call, subscription right, conversion right or other contract or
commitment of any kind exists of any character, written or oral, which may
obligate the Company to issue, sell or otherwise become outstanding any shares
of capital stock. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. As a result of the transactions contemplated by this Agreement, Buyer
will be the record and beneficial owner of all outstanding capital stock of the
Company and rights to acquire capital stock of the Company.
3.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries. For purposes of this Agreement, "subsidiaries" means any
corporation, partnership, limited liability company, association or other
business entity of which a person (as defined in Section 10.13) owns, directly
or indirectly, more than 50% of the voting securities thereof.
(b) Except as set forth on Schedule 3.6(b), the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company.
3.7 Complete Copies of Materials. The Company has delivered to Buyer
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Buyer in writing.
3.8 Absence of Claims Against Company. The Stockholder does
not have any claims against the Company, except as set forth on Schedule 3.8.
<PAGE>
3.9 Company Financial Conditions.
(a) The Company's net worth (i) as of the end of its most
recent fiscal year was not less than $1,119,432 (without giving effect to the
Asset Revaluation), and (ii) as of the Closing will not be less than the Net
Worth Target.
(b) The Company's sales for (i) its most recent fiscal year
ending December 31, 1997, were not less than $14,641,711 (excluding $247,767 in
bad debt reserve to be reversed in 1998), and (ii) the eight-month period ending
August 31, 1998 will not be less than $1,408,285 (including $299,973 of bad debt
reserve to be reversed in 1998);
(c) The Company's earnings before interest, taxes and
depreciation (after the addition of "add-backs" set forth on Schedule 3.9(c))
for its most recent fiscal year will not be less than $2,051,390.
(d) The sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) Harriet Grover (such indebtedness not
to exceed $66,484), and (iii) all other financial institutions and creditors (in
each case including the current portions of such indebtedness, but excluding any
amounts due to the Stockholder, trade payables and other accounts payable
incurred in the ordinary course of the Company's business consistent with past
practice) as of the Closing Date will not be more than $552,228.
For purposes of Section 3.9(a) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete
and correct copies of the Company's reviewed balance sheet as of December 31,
1997 (the end of its most recent completed fiscal year), statement of income and
retained earnings and statement of cash flows for the year ended December 31,
1997 (collectively, the "Financials") and (b) true, complete and correct copies
of the Company's unaudited balance sheet (the "Interim Balance Sheet") as of
August 31, 1998 (the "Balance Sheet Date"), statement of income and retained
earnings and statement of cash flows for the eight-month period then ended
(collectively, the "Interim Financials," and together with the Financials, the
"Company Financial Statements"). Except as noted on the accountants' review
report accompanying the Financials, the Company Financial Statements have been
prepared in accordance with GAAP consistently applied, subject, in the case of
the Interim Financials, (i) to normal year-end audit adjustments, which
individually or in the aggregate will not be material, (ii) the exceptions
stated on Schedule 3.10, and (iii) to the omission of footnote information. Each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each of
the statements of income and retained earnings and statements of cash flows
included in the Company Financial Statements presents fairly the results of its
operations for the periods indicated thereon. Since the dates of the Company
Financial Statements, there have been no material changes in the Company's
accounting policies other than as requested by Buyer to conform the Company's
accounting policies to GAAP.
<PAGE>
3.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance
Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course
of its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent with past practice,
which liabilities are not, individually or in the aggregate, material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company or have been adjusted to reasonably reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
3.13 Bank Accounts; Powers of Attorney. Schedule 3.13 sets forth a
complete and accurate list as of the date of this Agreement, of:
<PAGE>
(a) the name of each financial institution in which the Company
has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 Accounts and Notes Receivable. The Company has delivered to Buyer
a complete and accurate list, as of August 31, 1998, of the accounts and notes
receivable of the Company (including without limitation receivables from and
advances to employees and the Stockholder), which includes an aging of all
accounts and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). All Accounts Receivable represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. The Accounts Receivable are
current and collectible net of any respective reserves shown on the Company's
books and records (which reserves are adequate and calculated consistent with
past practice). To the Company's knowledge, subject to such reserves, each of
the Accounts Receivable will be collected in full, without any set-off, on or
before March 31, 1999. There is no contest, claim, or right of set-off, other
than rebates and returns in the ordinary course of business, under any contract
with any obligor of an Account Receivable relating to the amount or validity of
such Account Receivable.
3.15 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company, by any Permit.
3.16 Real Property.
<PAGE>
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.16(b) contains a complete and accurate
description of all Real Property leased by the Company (including street
address, legal description (where known), owner, and Company's use thereof) and,
to the Company's knowledge, any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, covenants, easements,
restrictions, encroachments, leases, or encumbrances of any nature thereon
("Encumbrances"). The Company does not own any Real Property. The Real Property
listed on Schedule 3.16 includes all interests in real property necessary to
conduct the business and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) The Company has good and valid rights of ingress
and egress to and from all Real Property and from and to the public street
systems for all usual street, road and utility purposes.
(ii) To the Company's knowledge, all structures and
all structural, mechanical and other physical systems thereof that constitute
part of the Real Property, including but not limited to the walls, roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facility included therein, and other material
items at the Real Property (collectively, the "Tangible Assets"), are free of
defects and in good operating condition and repair. For purposes of this
Section, a defect shall mean a condition relating to the structures or any
structural, mechanical or physical system which requires an expenditure of more
than $10,000 to correct. No maintenance or repair to the Real Property, all
structures, facilities and improvements to the Real Property ("Structures") or
any Tangible Asset has been unreasonably deferred. To the Company's knowledge,
there is no water, chemical or gaseous seepage, diffusion or other intrusion
into said buildings, including any subterranean portions, that would impair
beneficial use of the Real Property, Structures or any Tangible Asset.
(iii) To the Company's knowledge, all water, sewer,
gas, electric, telephone and drainage facilities, and all other utilities
required by any applicable law or by the use and operation of the Real Property
in the conduct of the Company's business are installed to the property lines of
the Real Property, are connected pursuant to valid permits to municipal or
public utility services or proper drainage facilities, are fully operable and
are adequate to service the Real Property in the operation of the Company's
business and to permit full compliance with the requirements of all laws in the
operation of such business. To the Company's knowledge, no fact or condition
exists which could result in the termination or material reduction of the
current access from the Real Property to existing roads or to sewer or other
utility services presently serving the Real Property.
<PAGE>
(iv) All present uses and operations of the Real
Property by the Company comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the construction, ownership, use, occupation and operation of the Real
Property.
(v) Intentionally omitted.
(vi) There are no pending or, to the Company's
knowledge, threatened condemnation, fire, health, safety, building, zoning or
other land use regulatory proceedings, lawsuits or administrative actions
relating to any portion of the Real Property or any other matters which do or
may adversely effect the current use or occupancy by the Company, nor has the
Company or the Stockholder received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vii) To the Company's knowledge, there are no
parties other than the Company in possession of any of the Real Property or any
portion thereof, and there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of the Real Property or any portion thereof.
(viii) To the Company's knowledge, there are no
outstanding options or rights of first refusal to purchase the Real Property, or
any portion thereof or interest therein, that would interfere with the Company's
quiet enjoyment of the Real Property.
(ix) Intentionally omitted.
(x) No portion of the Real Property is located in a
designated or recognized flood plain, flood plain district, flood hazard area or
area of similar characterization. The Company's use of the Real Property prior
to the date of this Agreement has not violated any requirement of the United
States Corps of Engineers or Laws relating to wetlands areas.
(xi) All real property taxes and assessments that
are due and payable by the Company with respect to the Real Property have been
paid, accrued or will be paid at or prior to Closing.
(xii) All oral or written leases, subleases,
licenses, concession agreements or other use or occupancy agreements pursuant to
which the Company leases from any other party any real property, including all
amendments, renewals, extensions, modifications or supplements to any of the
foregoing or substitutions for any of the foregoing (collectively, the "Leases")
are valid and in full force and effect. The Company has provided Buyer with true
and complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
<PAGE>
(xiii) Except as otherwise set forth in Section 5.6,
none of the Leases requires the consent or approval of any party thereto in
connection with the consummation of the transactions contemplated hereby.
3.17 Personal Property.
(a) Schedule 3.17(a) sets forth a complete and accurate list
of all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $5,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by the Stockholder or business or
personal affiliates of the Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material, machinery and
equipment of the Company, including those listed on Schedule 3.17(a), are in
good working order and condition, ordinary wear and tear excepted. All leases
set forth on Schedule 3.17(a) are in full force and effect and constitute valid
and binding agreements of the Company, and the Company is not in breach of any
of their terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on Schedule 3.17(a).
(d) Schedule 3.17(a) identifies personal property located at
the Company's principal manufacturing facility at 38-98 Review Avenue, Long
Island City, NY, that is not owned by the Company, if any.
3.18 Intellectual Property.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks (as defined below) listed on Schedule 3.18(a).
Such schedule lists (i) all of the Marks registered in the United States Patent
and Trademark Office ("PTO") or the equivalent thereof in any state of the
United States or in any foreign country, and (ii) all of the unregistered Marks,
that the Company now owns or is licensed or otherwise possesses legally
enforceable rights to use in connection with its business. The Marks listed on
Schedule 3.18(a) will not cease to be valid rights of the Company by reason of
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby. For purposes of this Section 3.18, the
term "Mark" shall mean all right, title and interest in and to any United States
or foreign trademarks, service marks and trade names now held by the Company,
including any registration or application for registration of any trademarks and
services marks in the PTO or the equivalent thereof in any state of the United
States or in any foreign country, as well as any unregistered marks used by the
Company, and any trade dress (including logos, designs, company names, business
names, fictitious names and other business identifiers) used by the Company in
the United States or any foreign country.
<PAGE>
(b) The Company does not own, is not licensed, and does not
otherwise possess legally enforceable rights to use, any Patents (as defined
below) or Copyrights (as defined below). For purposes of this Section 3.18, the
term "Patent" shall mean any United States or foreign patent to which the
Company has title as of the date of this Agreement, as well as any application
for a United States or foreign patent made by the Company; and the term
"Copyright" shall mean any United States or foreign copyright owned by the
Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 3.18(c). Those Other Rights constitute all of the Other
Rights that the Company now owns or is licensed to use. The Company owns or is
licensed to practice under all trade secrets, franchises or similar rights that
it owns, uses or practices under.
(d) The Marks and Other Rights listed on Schedules 3.18(a) and
3.18(c) are referred to collectively herein as the "Intellectual Property." The
Intellectual Property owned by the Company is referred to herein collectively as
the "Company Intellectual Property." All other Intellectual Property is referred
to herein collectively as the "Third Party Intellectual Property." Except as
indicated on Schedule 3.18(d), the Company has no obligations to compensate any
person for the use of any Intellectual Property nor has the Company granted to
any person any license, option or other rights to use in any manner any
Intellectual Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor, to the Company's knowledge will
it be, as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any Third Party
Intellectual Property license, sublicense or agreement described in Schedule
3.18(a) or (c). No claims with respect to the Company Intellectual Property or
Third Party Intellectual Property are currently pending or, to the knowledge of
the Company, are threatened by any person, nor, to the Company's knowledge, do
any grounds for any claims exist: (i) to the effect that the manufacture, sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by the Company infringes on any copyright, patent,
trademark, service mark or trade secret; (ii) against the use by the Company of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
business as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property or other
trade secret material to the Company; or (iv) challenging the Company's license
or legally enforceable right to use of the Third Party Intellectual Property. To
the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
<PAGE>
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during the past
four (4) fiscal quarters, and "Significant Suppliers" are the twenty (20)
suppliers who supplied the largest amount by dollar volume of products or
services to the Company during the twelve (12) months ending on the Balance
Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of
all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $10,000 or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$10,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.19(c), (i)
none of the Company's Significant Customers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting or
threatening to cancel or substantially reduce, any purchases from the Company,
(ii) none of the Company's Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting to cancel
or substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations and
is not in default under any of the Material Contracts, and no notice of default
has been received with respect to any thereof, and (iv) there are no Material
Contracts that were not negotiated at arm's length. The Company has not received
any material customer complaints concerning its products and/or services, nor
has it had any of its products returned by a purchaser thereof except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any material revenue.
<PAGE>
(d) Each Material Contract, except those terminated pursuant
to Section 5.6, is valid and binding on the Company and is in full force and
effect and is not subject to any default thereunder by any party obligated to
the Company pursuant thereto. The Company has obtained all necessary consents,
waivers and approvals of parties to any Material Contracts that are required in
connection with any of the transactions contemplated hereby, or are required by
any governmental agency or other third party or are advisable in order that any
such Material Contract remain in effect without modification after the
transactions contemplated by this Agreement and without giving rise to any right
to termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
(e) The Company is not a "women's business enterprise" ("WBE")
or "woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" ("MBE") or "minority-owned business concern" as
defined in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to any
of its customers.
(f) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which the Stockholder owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
Person in which the Stockholder owns a material interest, are set forth in
Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or
substantially all of the Company's assets (including, without limitation, a
pledge of the Company's contract rights under any Material Contract) will not,
except as set forth on Schedule 3.19(g), (i) result in the breach or violation
of, (ii) constitute a default under, (iii) create a right of termination under,
or (iv) result in the creation or imposition of (or the obligation to create or
impose) any lien upon any of the assets of the Company (other than a lien
created pursuant to the pledge, hypothecation or mortgage described at the start
of this Section 3.19(g)) pursuant to any of the terms and provisions of, any
Material Contract to which the Company is a party or by which the property of
the Company is bound.
3.20 Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company is
not a party to any government contracts.
(b) The Company has not been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of the Company, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Company's suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
<PAGE>
(c) Except as set forth in Schedule 3.20, the Company has not
been, nor is it now being, audited or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or instrumentality of the United States Government or any
state or local government, relating to a contract.
(e) The Company has not, with respect to any government
contract, received a cure notice advising the Company that it is or was in
default or would, if it failed to take remedial action, be in default under such
contract.
(f) The Company has not submitted any inaccurate, untruthful,
or misleading cost or pricing data, certification, bid, proposal, report, claim,
or any other information relating to a contract to any agency or instrumentality
of the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or
affiliate of the Company is in unlawful or unauthorized receipt or possession of
any competitor or government proprietary or procurement sensitive information
related to the Company's business.
(h) Each of the Company's government contracts has been
issued, awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods, all of which is merchantable and fit for the purposes for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject to a GAAP reserve for inventory set forth on the face of
the Interim Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
3.22 Insurance. Schedule 3.22 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two (2) policy years. The Company has delivered to Buyer true, complete and
correct copies of all current insurance policies, all of which are in full force
and effect. All premiums payable under all such policies have been paid and the
Company is otherwise in full compliance with the terms of such policies. Such
policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company. The Company has
not received notice of any terminations of, or material premium increases with
respect to, any of such policies.
<PAGE>
3.23 Environmental Matters.
(a) The Company and any other person or entity for whose conduct the
Company is or may be held responsible have no liability under, have never
violated, and are presently in compliance with any and all environmental, health
or safety-related laws, regulations, ordinances or by-laws at the federal, state
and local level (the "Environmental Laws") applicable to the Real Property and
any facilities and operations thereon, except as listed in Schedule 3.23(a).
(b) To the Company's knowledge, there exist no conditions with respect
to the environment on or off the Real Property, whether or not yet discovered,
that could or do result in any damage, loss, cost, expense, claim, demand, order
or liability to or against the Company by any third party including, without
limitation, any condition resulting from the operation of the Company's business
and/or the operation of the business of any other property owner or operator in
the vicinity of the Real Property and/or any activity or operation formerly
conducted by any person or entity on or off the Real Property, except as set
forth in Schedule 3.23(b).
(c) The Company, and, to the Company's knowledge, any other person or
entity for whose conduct the Company is or may be held responsible, have not
generated, manufactured, refined, transported, treated, stored, handled,
disposed, transferred, produced, or processed any pollutant, toxic substance,
hazardous waste, hazardous material, hazardous substance, or oil as defined in
or pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water
Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, ordinance, rule, or bylaw, whether existing
as of the date hereof, previously enforced, or subsequently enacted ("Hazardous
Material") or any solid waste at the Real Property, or at any other location,
except in compliance with all applicable Environmental Laws and except as listed
in Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any governmental
entity at the federal, state, or local level in connection with the presence on
or off the Real Property of any Hazardous Material, except as listed in Schedule
3.23(e).
(f) The Company has not, and, to the Company's knowledge, any other
person or entity for whose conduct the Company is or may be held responsible has
not, (i) entered into or been subject to any consent decree, compliance order,
or administrative order with respect to the Real Property or any facilities or
operations thereon; (ii) received notice under the citizen suit provision of any
of the Environmental Laws in connection with the Real Property or any facilities
or operations thereon; (iii) received any request for information, notice,
demand letter, administrative inquiry, or formal or informal compliant or claim
with respect to any Environmental Condition relating to the Real Property or any
facilities or operations thereon; or (iv) been subject to or threatened with any
governmental or citizen enforcement action with respect to the Real Property or
any facilities or operations thereon, except as set forth in Schedule 3.23(f);
and the Company, and any other person or entity for whose conduct it is or may
be held responsible, have no reason to believe that any of the above will be
forthcoming.
<PAGE>
(g) The Company has all permits necessary pursuant to Environmental
Laws for its activities and operations at the Real Property and for any past or
ongoing alterations or improvements at the Real Property, which permits are
listed in Schedule 3.23(g).
(h) None of the following exists at the Real Property: (1) underground
storage tanks, (2) asbestos-containing materials in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, (4) lead paint,
pipes or solder, or (5) landfills, surface impoundments or disposal areas,
except as listed in Schedule 3.23(h).
(i) The Company has provided to Buyer copies of all documents, records
and information in its possession or control or available to the Company
concerning Environmental Conditions relevant to the Real Property or any
facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Real Property and/or any adjacent
property or other property in the vicinity of the Real Property owned or
operated by the Company or others, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and environmental agency reports and
correspondence. Furthermore, the Stockholder shall have an ongoing obligation to
provide immediately to Buyer copies of any additional such documents that come
into the possession or control of or become available to the Stockholder
subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or caused to
be taken all actions necessary to ensure that as of the Closing Date the Real
Property, all activities and operations thereon, and all alterations and
improvements thereto, comply with all applicable Environmental Laws and with any
and all agreements with governmental entities, court orders, and administrative
orders regarding Environmental Conditions.
3.24 Labor and Employment Matters. With respect to employees of and
service providers to the Company, except as set forth on Schedule 3.24:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
<PAGE>
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.25 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any
Benefit Arrangement sponsored or maintained by the Company or with respect to
which the Company has or may have any liability (whether actual, contingent,
with respect to any of its assets or otherwise) as of the Closing Date, in each
case with respect to any present or former directors, employees, or agents of
the Company.
<PAGE>
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit
Plan described in Section 3(37) of ERISA. (viii) "Qualified Plan" means any
Employee Benefit Plan that meets, purports to meet, or is intended to meet the
requirements of Section 401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 3.25(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the last Internal Revenue Service
determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted by
the Company to obtain those letters; (D) the most recent summary plan
description; (E) the most recent written descriptions of all non-written
agreements relating to any such plan or arrangement; (F) all reports submitted
within the four (4) years preceding the date of this Agreement by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors; (G) all notices that were given within the three (3)
years preceding the date of this Agreement by the IRS, Department of Labor, or
any other governmental agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel or employee relations
policies;
<PAGE>
(ii) the Penn-Grover Envelope Corp. Profit Sharing
Plan (the "Company Profit Sharing Plan") is the only Qualified Plan. The Company
has never maintained or contributed to another Qualified Plan. The Company
Profit Sharing Plan qualifies under Section 401(a) of the Code, and any trusts
maintained pursuant thereto are exempt from federal income taxation under
Section 501 of the Code, and nothing has occurred with respect to the design or
operation of any Qualified Plans that could cause the loss of such qualification
or exemption or the imposition of any liability, lien, penalty, or tax under
ERISA or the Code;
(iii) the Company has never sponsored or maintained,
had any obligation to sponsor or maintain, or had any liability (whether actual
or contingent, with respect to any of its assets or otherwise) with respect to
any Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the
Code or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
(v) there are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are not Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company or the Stockholder, and no claims or lawsuits
have been asserted, instituted or, to the knowledge of the Company, threatened
by, against, or relating to any Company Plan or Company Benefit Arrangement,
against the assets of any trust or other funding arrangement under any such
Company Plan, by or against the Company with respect to any Company Plan or
Company Benefit Arrangement, or by or against the plan administrator or any
fiduciary of any Company Plan or Company Benefit Arrangement, and the Company
does not have knowledge of any fact that could form the basis for any such claim
or lawsuit. The Company Plans and Company Benefit Arrangements are not presently
under audit or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company Profit
Sharing Plan under the IRS's Voluntary Compliance Resolution program, its
Closing Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement;
<PAGE>
(vii) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company, the Stockholder or any officer,
director, or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and completely satisfied with
respect to each Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be made or taken until
after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the
Company is required to pay as contributions to the Company Benefit Plans as of
the last day of the most recent fiscal year of each of the plans ended before
the date of this Agreement; all benefits accrued under any unfunded Company Plan
or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the Balance Sheet Date; and
all monies withheld from employee paychecks with respect to Company Plans have
been transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any
Welfare Plan through a trust, reserve, premium stabilization, or similar
account, nor does it provide benefits through a voluntary employee beneficiary
association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been
made by the Company to any person with regard to any Company Plan or Company
Benefit Arrangement that was not in accordance with the Company Plan or Company
Benefit Arrangement and that could have an adverse economic consequence to the
Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B with respect
to any "qualifying event" (as defined therein) occurring before or on the
Closing Date;
<PAGE>
(xv) no employee or former employee of the Company
or beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Interim Balance Sheet or (iii) continuation
coverage mandated under Section 4980B of the Code or other applicable law.
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who may earn more than $100,000
in 1998, all officers and all directors, and lists all employment agreements
with such employees, officers and directors and the rate of compensation (and
the portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
(f) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
3.26 Taxes.
(a) (i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(ii) The Company has paid in full on a timely basis
all Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Interim Balance Sheet, and the amount of the Company's liability
for unpaid Taxes for all periods or portions thereof ending on or before the
Closing Date will not exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the books and records of the Company on the Closing Date.
(iv) Except as set forth on Schedule 3.26, there are
no ongoing examinations or claims against the Company for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
<PAGE>
(v) The Company has a taxable year ended on December
31, in each year commencing 1979.
(vi) The Company currently utilizes the accrual
method of accounting for income Tax purposes and such method of accounting has
not changed in the past 10 years. The Company has not agreed to, and is not and
will not be required to, make any adjustments under Code Section 481(a) as a
result of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid to any employee, independent contractor, creditor,
or other third party.
(viii) Copies of (A) any Tax examinations, (B)
extensions of statutory limitations for the collection or assessment of Taxes
and (C) the Tax Returns of the Company for the last fiscal year have been
delivered to Buyer.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Company's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
otherwise have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xiv) Except as set forth in Schedule 3.26(a)(xiv),
the Company is not, and has not been at any time, a party to a tax sharing, tax
indemnity or tax allocation agreement, and the Company has not assumed the tax
liability of any other person under contract.
(xv) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
<PAGE>
(xvi) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records, as adjusted as of the Closing Date.
(xvii) The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return and does not
have any liability for the Taxes of another person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(b) (i) The Company has, since January 1, 1987, been a validly
electing S Corporation within the meaning of Section 1361 of the Code.
(ii) The Company does not have a net recognized
built-in gain within the meaning of Section 1374 of the Code.
(iii) The Company has not, in the past 10 years, (A)
acquired assets from another corporation in a transaction in which the Company's
Tax basis for the acquired assets was determined, in whole or in part, by
reference to the Tax basis of the acquired assets (or any other property) in the
hands of the transferor or (B) acquired the stock of any corporation which is a
qualified subchapter S subsidiary.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) The Company has not violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it.
(b) The Stockholder has not: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
<PAGE>
(c) Except as set forth on Schedule 3.27(c), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to the
Stockholder or any of the Company's officers, directors, employees, consultants
or agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice, nor has the Company entered into or
amended any Company Benefit Arrangement, Company Plan, employment, severance or
other agreement relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
<PAGE>
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any person,
including without limitation the Stockholder and his affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholder and his affiliates, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(m) any transaction by the Company outside the ordinary course
of business;
(n) any commitment to purchase a capital asset by the Company,
either individually or in the aggregate, exceeding $10,000;
(o) except as set forth in Schedule 3.29(o), any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or the revaluation by the Company
of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non-renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $10,000;
(r) any loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
<PAGE>
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
3.30 Disclosure. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Buyer pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholder or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholder or the Company to
Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or intentionally omits or will omit to state
any material fact necessary in order to make any statement contained herein or
therein not misleading. There is no fact known to the Stockholder that has
specific application to the Stockholder or the Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as the Stockholder can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement or any Schedule hereto.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the Closing, the Company has operated only under the names set forth
on Schedule 3.31 in the jurisdiction or jurisdictions set forth on Schedule 3.31
and has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.32 Location of Chief Executive Offices Schedule 3.32 sets forth the
location of the Company's chief executive offices.
3.33 Location of Equipment and Inventory All inventory and equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 3.33. For purposes of this Agreement, (a) the term "inventory" shall
mean any inventory of whatever nature owned by the Company as of the date
hereof, and, in any event, shall include, but shall not be limited to, all
merchandise, inventory and goods wherever located, together with all goods,
supplies, incidentals, packaging materials and any other items used or usable in
manufacturing, processing, packaging or shipping the same, in all stages of
production -- from raw materials through work-in-process to finished goods; and
(b) the term "equipment" shall mean any equipment owned by the Company as of the
date hereof, and, in any event, shall include, but shall not be limited to, all
machinery, equipment, furnishings, fixtures and vehicles owned by the Company as
of the date hereof, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
<PAGE>
3.34 Year 2000 Compliance. Schedule 3.34 sets forth a description of
the Company's efforts to date to become Year 2000 Compliant and Ready (as
defined below) and the extent to which the Company is not currently Year 2000
Compliant and Ready. To the extent that the Company may not be Year 2000
Compliant and Ready at any time prior to January 1, 1999, the Company has no
knowledge such status will result in a material adverse affect on the Company's
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits or condition (financial or
otherwise). In addition, the Company has no knowledge that its respective
vendors, suppliers and customers are not Year 2000 Compliant and Ready where the
failure to be Year 2000 Compliant and Ready would have a material adverse affect
on the business, operations, affairs, prospects, properties, assets, existing
and potential liabilities, obligations, profits or condition (financial or
otherwise) of the Company. For purposes of this Agreement, the term "Year 2000
Compliant and Ready," with respect to any person, means that the hardware and
software systems and components (including without limitation imbedded
microchips) owned, licensed or used by such person in connection with its
business operations will (without any additional cost or the need for human
intervention) (i) accurately process information involving any and all dates
before, during and/or after January 1, 2000, including without limitation
recognizing and processing input, providing output, storing information and
performing date-related calculations, all without creating any ambiguity as to
the century and without any other error or malfunction, (ii) operate accurately
without material interruption or malfunction on and in respect of any and all
dates before, during and/or after January 1, 2000 and (iii) where applicable,
respond to and process two digit year input without creating any ambiguity as to
the century.
4. REPRESENTATIONS OF BUYER
To induce the Company and the Stockholder to enter into this Agreement
and consummate the transactions contemplated hereby, Buyer represents and
warrants to the Company and the Stockholder 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 Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite power and authority to enter into and
bind Buyer to the terms of this Agreement. Buyer has the full legal right, power
and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer and
the performance by Buyer of the transactions contemplated herein has been duly
and validly authorized by the Board of Directors of Buyer and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms.
<PAGE>
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Buyer's Certificate of Incorporation or Bylaws;
(b) conflict with, or result in a default (or would constitute
a default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
4.4 Financial Ability. Buyer possesses sufficient funds on hand and/or
has commitments from financial institutions in an amount sufficient to enable
Buyer to pay to the Stockholder the Purchase Price.
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholder, on
the other, for certain tax matters following the Closing Date:
(i) The Stockholder shall prepare or cause to be
prepared and file or cause to be filed, within the time and in the manner
provided by law, all Tax Returns of the Company for all periods ending on or
before the Closing Date that are due after the Closing Date. The Stockholder
shall pay to the Company on or before the due date of such Tax Returns the
amount of all Taxes shown as due on such Tax Returns to the extent that such
Taxes are not reflected in the current liability accruals for Taxes (excluding
reserves for deferred Taxes) shown on the Company's books and records as of the
Closing Date. Such Tax Returns shall be prepared and filed in accordance with
applicable law and in a manner consistent with past practices and shall be
subject to review and approval by Buyer. To the extent reasonably requested by
the Stockholder or required by law, Buyer and the Company shall participate in
the filing of any Tax Returns filed pursuant to this paragraph.
<PAGE>
(ii) Except as provided in Section 5.1(a)(iii) with
respect to income Tax Returns for 1998, the Company shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholder
shall pay to the Company within fifteen (15) days after the date on which Taxes
are paid with respect to such periods an amount equal to the portion of such
Taxes which relates to the portion of such taxable period ending on the Closing
Date to the extent such Taxes are not reflected in the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the
Company's books and records as of the Closing Date. For purposes of this Section
5.1, in the case of any Taxes that are imposed on a periodic basis (other than
income Taxes for 1998) and are payable for a Taxable period that includes (but
does not end on) the Closing Date, the portion of such Tax which relates to the
portion of such Taxable period ending on the Closing Date shall (x) in the case
of any Taxes other than Taxes based upon or related to income or receipts, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days in
the entire Taxable period, and (y) in the case of any Tax based upon or related
to income or receipts be deemed equal to the amount which would be payable if
the relevant Taxable period ended on the Closing Date. Any credits relating to a
Taxable period that begins before and ends after the Closing Date shall be taken
into account as though the relevant Taxable period ended on the Closing Date.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of the Company.
(iii) The Stockholder and Buyer agree that this
transaction is controlled by Section 1362(e)(6)(D) of the Code and Treasury
Regulation ss. 1.1362-3(b)(3) wherein the 1998 calendar tax year of the Company
will be treated as two taxable years for income Tax purposes and items of
income, loss, deduction or credit shall be assigned to the two short taxable
years in accordance with the Company's normal method of accounting under
Treasury Regulation ss. 1.1362-3(b)(3) on a "per books" method. The Stockholder
and Company shall file income Tax Returns for the 1998 calendar Tax year in a
manner consistent with the foregoing. In addition, the Stockholder's income Tax
Return for the 1998 calendar Tax year shall give full effect to the Asset
Revaluation.
(iv) Buyer and the Company on one hand and the
Stockholder on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 5.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to Tax matters pertinent to
the Company that are in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
<PAGE>
(v) The Stockholder shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholder shall, at his own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration, and other Taxes and fees. If required by applicable law, Buyer and
the Company will join in the execution of any such Tax Returns and other
documentation.
(b) The Company shall, prior to the Closing, maintain its
status as an S Corporation for federal and state income tax purposes. The
Company and Stockholder will not revoke the Company's election to be taxed as an
S corporation within the meaning of Sections 1361 and 1362 of the Code. The
Company and Stockholder will not take or allow any action to be taken (other
than the sale of the Stock pursuant to this Agreement) that would result in the
termination of the Company's status as a validly electing S corporation within
the meaning of Sections 1361 and 1362 of the Code.
(c) The parties agree as follows with respect to Section
338(h)(10) of the Code:
(i) At the Buyer's option, the Company and
Stockholder will join with Buyer in making a timely election under Section
338(h)(10) of the Code (and any corresponding election under state, local, and
foreign tax law) with respect to the purchase and sale of the Stock hereunder (a
"Section 338(h)(10) Election"). Stockholder will include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
its Tax Returns to the extent permitted by applicable law. Buyer and Stockholder
shall cooperate fully with each other in the making of such election. In
particular, Buyer shall be responsible for the preparation and filing of all Tax
Returns and forms (the "Section 338 Forms") required under applicable tax law to
be filed in connection with making the Section 338(h)(10) Election. Stockholder
shall deliver to Buyer, within 90 days prior to the date the Section 338 Forms
are required to be filed, such documents and other forms as reasonably requested
by Buyer to properly complete the Section 338 Forms.
(ii) Buyer and Stockholder shall allocate the
Purchase Price in the manner required by Section 338 of the Code and the
Treasury Regulations promulgated thereunder. Such allocation shall be used for
purposes of determining the modified aggregate deemed sales price under the
applicable Treasury Regulations and in reporting the deemed sale of assets of
the Company in connection with the Section 338(h)(10) Election.
(iii) Buyer shall initially prepare a completed set
of IRS Forms 8023-A (and any comparable forms required to be filed under state,
local or foreign tax law) and any additional data or materials required to be
attached to Form 8023-A pursuant to the Treasury Regulations promulgated under
Section 338 of the Code. Buyer shall deliver said forms to Stockholder for
review no later than 45 days prior to the date the Section 338 Forms are
required to be filed. In the event Stockholder objects to the manner in which
the Section 338 Forms have been prepared, Stockholder shall notify Buyer within
10 days of receipt of the Section 338 Forms of such objection, and the parties
shall endeavor within the next 15 days in good faith to resolve such dispute. If
the parties are unable to resolve such dispute within said 15 day period, Buyer
and Stockholder shall submit such dispute to an independent accounting firm of
recognized national standing (the "Allocation Arbiter") selected by Buyer and
Stockholder, which firm shall not be the regular accounting firm of Buyer or
Stockholder. Promptly, but not later than 15 days after its acceptance of
appointment hereunder, the Allocation Arbiter will determine (based solely on
presentations of Buyer and Stockholder and not by independent review) only those
matters in dispute and will render a written report as to the disputed matters
and the resulting preparation of the Section 338 Forms shall be conclusive and
binding upon the parties.
<PAGE>
(iv) No new elections with respect to Taxes, or any
changes in current elections with respect to Taxes, affecting the Company after
the Section 338(h)(10) Election shall be made after the date of this Agreement
without the prior written consent of the Buyer and the Stockholder.
(d) Buyer and Stockholder agree as follows with respect to the
allocation of Tax liabilities:
(i) Stockholder shall be responsible for all federal
income Taxes attributable to the Company for periods ending on or before the
Closing Date (including any Tax resulting from the Section 338(h)(10) Election).
Buyer shall be responsible for all federal income Taxes of the Company for
periods ending after the Closing Date.
(ii) Stockholder shall be liable for any state,
local, or foreign Tax attributable to an election under state, local, or foreign
law similar to the election available under Section 338(h)(10) of the Code.
Further, if a state, local or foreign jurisdiction does not have provisions
similar to the election available under Section 338(h)(10) of the Code,
Stockholder will be liable for any Tax imposed on the Company by such state,
local and/or foreign jurisdiction resulting from the transactions contemplated
by this Agreement. Finally, Stockholder will be liable for nonfederal income
Taxes of the Company ending on or before the Closing Date, and the Buyer and
Company will be liable for nonfederal income Taxes of the Company for periods
ending after the Closing Date.
5.2 Accounts Receivable. In the event that all Accounts Receivable are
not collected in full by March 31, 1999 (net of reserves specified in Section
3.14) then, at the request of the Company or Buyer, the Stockholder shall pay
the Company an amount equal to the Accounts Receivable not so collected, and
upon receipt of such payment the Company shall assign to the Stockholder making
the payment all of its rights with respect to the uncollected Accounts
Receivable giving rise to the payment and shall also thereafter promptly remit
any excess collections received by it with respect to such assigned Accounts
Receivable. If and when the amount subsequently collected by the Stockholder
with respect to the assigned Accounts Receivable equals (a) the payment made
therefor plus (b) the costs and expenses reasonably incurred by the Stockholder
in the collection of such assigned Accounts Receivable, the Stockholder shall
reassign to the Company all of such assigned Accounts Receivable as have not
been collected in full by the Stockholder and shall also thereafter promptly
remit any excess collections received by him. Upon the written request of the
Company, the Stockholder shall provide it with a status report concerning the
collection of assigned Accounts Receivable.
<PAGE>
5.3 Intentionally omitted.
5.4 Employee Benefit Plans. If reasonably requested by Buyer, the
Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing; provided, however, that in the
event of such termination the Buyer shall make available to the Company's
employees such benefit plans and programs as are offered to similarly situated
employees of the Buyer's other direct and indirect subsidiaries.
5.5 Related Party Agreements. The Company and/or the Stockholder, as
the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company or the Stockholder to terminate.
5.6 Cooperation; Consents and Releases.
(a) The Company, Stockholder, and Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
(b) The Stockholder and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby.
(d) The New York City Industrial Development Agency ("IDA")
previously issued its Industrial Development Revenue Bonds (1984 Penn Grover
Envelope Corp. Project) ("Bonds") pursuant to an Indenture of Mortgage and Trust
("Indenture") dated as of June 1, 1984, by and between the IDA and J. Henry
Schroder Bank & Trust Company, as Trustee ("Trustee"). Pursuant to a Lease
Agreement ("Lease") dated June 1, 1984, the IDA leased certain real property
("Leased Premises"), more particularly described in the Lease, to Grover Realty
Associates ("Grover Realty"), which Leased Premises Grover Realty subleased to
the Company pursuant to a Sublease Agreement ("Sublease") dated June 1, 1984.
The Lease and the Sublease have been assigned to the IDA, the Trustee and the
holder of the Bonds. The Lease, the Sublease and any other documents which
evidence and/or secure the obligations of the Company to pay the Bonds and/or
perform any obligations with respect to the Bonds collectively are referred to
as the "Company Bond Documents." The Stockholder covenants to use best efforts
to obtain (as soon as practicable after the Closing) the consent of the IDA to
the transactions contemplated by this Agreement, as required under the Company
Bond Documents. Stockholder further covenants to use best efforts to obtain (as
soon as practicable after Closing) the consent of the IDA to any amendments or
modifications to the Lease and Sublease as agreed to by Grover Realty and the
Company and reflected in such documents as are being entered into by Grover
Realty and the Company on the date hereof as identified in Article VI. In
addition, Stockholder shall use best efforts to cause (as soon as practicable
after Closing) the release of the Company's obligations (in a form reasonably
satisfactory to the Company) under the Company Bond Documents, including without
limitation the Corporate Guaranty Agreement dated June 1, 1984 from the Company
to the Trustee, the Pilot Guaranty Agreement dated June 1, 1984 from the Company
and Grover Realty to the IDA, and the Letter of Representation and Indemnity
Agreement, dated as of June 26, 1984 from Grover Realty, its partners and the
Company to the IDA and Henry Levien. In connection with the foregoing covenants,
Stockholder shall provide all such information as may be required by the IDA in
order for such consents to be granted. The Stockholder shall be responsible for
the costs and expenses incurred by him in connection with fulfilling the
covenants set forth in this Section 5.6(d).
<PAGE>
(e) The Company is an obligor under the indebtedness secured
by a mortgage dated June 27, 1984 by and among the IDA, Grover Realty and Chase
Bank (previously Chemical Bank) ("Chase Mortgage"). Stockholder covenants to use
its best efforts to obtain (as soon as practicable after Closing) the consent of
Chase Bank to the transactions contemplated by this Agreement and the release by
Chase Bank of any and all indebtedness of the Company under and/or pursuant to
the terms of the Chase Mortgage and/or the indebtedness secured thereby. The
Stockholder shall be responsible for the costs and expenses incurred by him in
connection with fulfilling the covenants set forth in this Section 5.6(e).
(f) The Company, the Stockholder and Buyer shall file all
notices and other information and documents required under the HSR Act (as
defined in Section 3.3), if any, as promptly as practicable after the date
hereof.
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company and
(ii) such additional financial and operating data and other information as to
the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
<PAGE>
(c) Prior to the Closing Date, neither the Company nor the
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Buyer in
writing. Buyer agrees to keep the Company and the Stockholder apprised in
advance of any disclosure of the subject matter of this Agreement by Buyer prior
to the Closing Date.
5.8 Conduct of Business Pending Closing. Between the date hereof and
the Closing Date, the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating
to or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
<PAGE>
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than the Stockholder) in accordance with past practice.
5.9 Prohibited Activities. Between the date hereof and the Closing
Date, the Company will not, without the prior written consent of Buyer:
(a) make any change in its Certificate of Incorporation or
Bylaws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice in an amount in excess of $10,000, including contracts to provide
services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, Stockholder, employee, agent, representative or
independent contractor; make any bonus or management fee payment to any such
person; make any loans or advances; adopt or amend any Company Plan or Company
Benefit Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) sell, assign, lease, pledge or otherwise transfer or
dispose of any property or equipment except in the ordinary course of business
consistent with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
<PAGE>
(i) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(j) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any other transaction (i) that is not
negotiated at arm's length with a third party not affiliated with the Company,
the Stockholder or any officer or director of the Company or (ii) outside the
ordinary course of business consistent with past practice or (iii) prohibited
hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) except with respect to the Asset Revaluation, revalue any
of its assets, including without limitation, writing down the value of inventory
or writing off notes or accounts receivable other than in the ordinary course of
business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Buyer; or
(p) take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.9(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholder contained in this Agreement untrue or result in any of the
conditions set forth in Articles 6 and 7 not being satisfied.
5.10 Exclusivity. None of the Stockholder, the Company, or any agent,
officer, director or any representative of the Company or the Stockholder will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing or the termination of this Agreement in
accordance with its terms, directly or indirectly: (a) solicit, encourage or
initiate the submission of proposals or offers from any person for, (b)
participate in any discussions pertaining to, or (c) furnish any information to
any person other than Buyer relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company or a
merger, consolidation or business combination of the Company. In addition to the
foregoing, if the Company or the Stockholder receives any unsolicited offer or
proposal, or has actual knowledge of any unsolicited offer or proposal, relating
to any of the above, the Company or the Stockholder shall immediately notify
Buyer thereof, including the identity of the party making such offer or proposal
and the specific terms of such offer or proposal.
<PAGE>
5.11 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party hereunder.
The delivery of any notice pursuant to this Section 5.11 shall not, without the
express written consent of the other parties be deemed to (x) modify the
representations or warranties hereunder of the party delivering such notice, (y)
modify the conditions set forth in Articles 6 and 7, or (z) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
5.12 Notice to Bargaining Agents. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by Buyer, and shall provide Buyer with proof that any
required notice has been sent.
5.13 Financial Records. Buyer shall cause to be maintained on an
ongoing basis such books and records as are necessary to calculate the Earn-out
(as defined in Section 1.6) on the terms and conditions set forth in Section
1.6.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholder and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholder on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and the
Stockholder shall have been delivered to Buyer.
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. There shall be no action, suit, claim or
proceeding of any nature pending or threatened against Buyer or the Company,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company. A certificate to
the foregoing effects dated the Closing Date and signed on behalf of the Company
and the Stockholder shall have been delivered to Buyer.
<PAGE>
6.3 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Buyer shall have received a certificate signed by the
Stockholder dated the Closing Date to such effect.
6.4 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholder of the transactions contemplated
hereby, shall have been obtained and made. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated, and no action by the Department of
Justice or Federal Trade Commission challenging or seeking to enjoin the
consummation of the transactions contemplated hereby shall be pending.
6.5 Opinion of Counsel. Buyer shall have received an opinion from
counsel to the Company and the Stockholder, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
6.6 Charter Documents. Buyer shall have received (a) a copy of the
Certificate of Incorporation of the Company certified by an appropriate
authority in the state of its incorporation and (b) a copy of the Bylaws of the
Company certified by the Secretary of the Company, and such documents shall be
in form and substance reasonably acceptable to Buyer.
6.7 Quarterly Financial Statements. Buyer shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to Buyer.
6.8 Due Diligence Review. The Company shall have made such deliveries
as are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
6.9 Delivery of Closing Financial Certificate. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by the Stockholder, setting
forth:
<PAGE>
(a) the net worth of the Company as of the last day of its
most recent fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(c) the sales of the Company for the most recent fiscal year
preceding the Closing Date (the "Certified Year-End Sales");
(d) the sales of the Company for the eight-month period ending
on August 31, 1998 (the "Certified Closing Sales");
(e) the earnings of the Company before interest, taxes and
depreciation (after the addition of "add-backs" set forth on Schedule 3.9(c))
for the most recent fiscal year preceding the Closing Date (the "Certified
Year-End Profits");
(f) Intentionally omitted; and
(g) the sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) Harriet Grover (such indebtedness not
to exceed $66,484), and (iii) all other financial institutions and creditors (in
each case including the current portion of such indebtedness, but excluding any
amounts due to the Stockholder, trade payables and other accounts payable
incurred in the ordinary course of the Company's business consistent with past
practice) as of the Closing Date (the "Certified Closing Long-Term Debt").
The parties acknowledge and agree that for purposes of determining the
Certified Closing Net Worth and the Certified Closing Profits, the Company shall
not take account of any increase in intangible assets (including without
limitation goodwill, franchises and intellectual property) accounted for after
December 31, 1997. In addition, the Certified Closing Net Worth shall be
calculated after giving effect to any expenses incurred by the Company or the
Stockholder in connection with the transactions contemplated by this Agreement.
6.10 FIRPTA Compliance. The Stockholder shall have delivered to Buyer a
properly executed statement in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treas. Reg. ss. 1.1445-2(b).
6.11 Employment Agreements. Stuart Grover, Harriet Grover, and Perry
Grover each shall have entered into an employment agreement with the Company in
a form reasonably satisfactory to each of Stuart Grover, Harriet Grover and
Perry Grover, respectively, and Buyer.
6.12 Certain Documents Regarding Real Property. The following documents
shall have been executed and delivered to Buyer in a form reasonably
satisfactory to each of the Company, Stockholder and Grover Realty:
<PAGE>
(a) Modification of Sublease by and between Grover Realty and
the Company.
(b) Intentionally omitted.
(c) Intentionally omitted.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligation of the Stockholder and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date , of the following conditions and
deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of Buyer contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
though such representations and warranties had been made as of such date; all of
the terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by Buyer on or before the Closing Date shall have
been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any Vice
President of Buyer shall have been delivered to the Company and the Stockholder.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; and a certificate to the foregoing effects
dated the Closing Date and signed by the President or any Vice President of
Buyer shall have been delivered to the Company and the Stockholder.
7.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated, and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
7.4 Employment Agreements. The Company shall have afforded each of
Stuart Grover, Harriet Grover and Perry Grover an opportunity to enter into an
employment agreement with the Company in a form reasonably satisfactory to each
of Stuart Grover, Harriet Grover and Perry Grover, respectively, and Buyer.
<PAGE>
8. INDEMNIFICATION
8.1 General Indemnification.
(a) The Stockholder covenants and agrees to indemnify, defend, protect
and hold harmless Buyer, the Company, and their respective officers, directors,
stockholders, assigns, successors and affiliates (individually, an "Indemnified
Party" and collectively, "Indemnified Parties") from, against and in respect of
all liabilities, losses, claims, damages, punitive damages, causes of action,
lawsuits, administrative proceedings (including informal proceedings),
investigations, audits, demands, assessments, adjustments, judgments, settlement
payments, deficiencies, penalties, fines, interest (including interest from the
date of such damages) and costs and expenses (including without limitation
reasonable attorneys' fees and disbursements of every kind, nature and
description) (collectively, "Damages") suffered, sustained, incurred or paid by
the Indemnified Parties in connection with, resulting from or arising out of,
directly or indirectly:
(i) any breach of any representation or warranty of
the Stockholder or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of the Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement
by the Stockholder or, prior to the Closing Date, the Company, under this
Agreement; or
(iii) the business, operations or assets of the
Company prior to the Closing Date or the actions or omissions of the Company's
directors, officers, stockholders, employees or agents prior to the Closing
Date, other than Damages arising from matters expressly disclosed in the Company
Financial Statements, this Agreement or the Schedules to this Agreement;
provided, that, no indemnification claim which could have been asserted under
sub-section (i) or (ii) above but for materiality or knowledge qualifiers may be
asserted under this subsection (iii); or
(iv) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27
(conformity with law; litigation); or
(v) the failure of the Stockholder to (A) obtain
the consents of the IDA contemplated by Section 5.6(d), (B) obtain the release
of the Company's obligations under the Company Bond Documents as contemplated by
Section 5.6(d) and (C) obtain the release of the Company's obligations under the
Chase Mortgage and the indebtedness secured thereby as contemplated by Section
5.6(e); or
(vi) Intentionally omitted; and
(vii) any and all Damages incident to any of the
foregoing or to the enforcement of this Section 8.1(a).
<PAGE>
(b) Buyer covenants and agrees to indemnify, defend, protect
and hold harmless the Stockholder from, against and in respect of all Damages
suffered, sustained, incurred or paid by Stockholder in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty
of Buyer set forth in this Agreement or any Schedule or certificate, delivered
by or on behalf of Buyer in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement
by Buyer under this Agreement; or
(iii) the business, operations or assets of the
Company following the Closing Date, or the actions or omissions of the Company's
directors, officers, stockholders, employees or agents (other than the
Stockholder) after the Closing Date; and
(iv) any and all Damages incident to any of the
foregoing or to the enforcement of this Section 8.1(b).
8.2 Limitation and Expiration. Notwithstanding the above:
(a) subject to Section 5.2, there shall be no liability for
indemnification under Section 8.1 unless, and solely to the extent that, the
aggregate amount of Damages exceeds $75,000 (the "Indemnification Threshold");
provided, however, that the Indemnification Threshold shall not apply to (i)
adjustments to the Cash Purchase Price as set forth in Sections 1.2 and 1.3;
(ii) Damages arising out of any breaches of the covenants of the Stockholder or
Buyer set forth in this Agreement or representations and warranties made in
Sections 3.4 (capital stock of the Company), 3.5 (transactions in capital stock;
accounting treatment), 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), 3.27 (conformity with law; litigation), or (iii) Damages
described in Section 8.1(a)(iv) or (v);
(b) the aggregate amount of the Stockholder's or Buyer's
liability under this Article 8 shall not exceed the Purchase Price; provided,
however, that the Stockholder's liability for Damages arising out of any
breaches of the representations made in Sections 3.23 (environmental matters),
3.25 (employee benefit plans) or 3.26 (taxes) or Damages described in Section
8.1(a)(ii) or (iv) shall not be subject to such limitation and shall not count
toward the limitation described in the first clause of this Section 8.2(b)
unless such Damages exceed the amount of liability the Stockholder would have
had in his capacity as a stockholder, officer or director of the Company under
applicable state law, in which event the limitation described in the first
clause of Section 8.2(b) shall apply;
(c) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(c):
<PAGE>
(i)(1) except as to representations, warranties,
and covenants specified in clause (i)(2) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii), (iv) or (v), on (A) the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof), or (B) if there is no applicable statute of limitation, (x)
ten (10) years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section 8.2(c)
(such claims referred to as "Pending Claims").
8.3 Indemnification Procedures All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party (such term to
include the Stockholder for purposes of this Section 8.3 to the extent the
Stockholder is entitled to indemnification pursuant to Section 8.1(b)) has a
Claim against any party obligated to provide indemnification pursuant to Section
8.1 hereof (the "Indemnifying Party") which does not involve a Claim being
asserted against or sought to be collected by a third party, the Indemnified
Party shall with reasonable promptness notify the Indemnifying Party of such
Claim, specifying the nature of such Claim and the amount or the estimated
amount thereof to the extent then feasible (the "Claim Notice"). If the
Indemnifying Party does not notify the Indemnified Party within thirty (30) days
after the date of delivery of the Claim Notice that the Indemnifying Party
disputes such Claim, with a detailed statement of the basis of such position,
the amount of such Claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within thirty (30) days and, for sixty (60)
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party. The Indemnifying
Party shall have thirty (30) days from the date of delivery of the Claim Notice
to notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B) if such party does not
dispute liability, whether or not the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend against the Third Party
Claim, provided that the Indemnified Party is hereby authorized (but not
obligated) to file any motion, answer or other pleading and to take any other
action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
<PAGE>
(ii) In the event that the Indemnifying Party timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of
the Indemnified Party, notice of which shall be given in writing to the
Indemnifying Party, any Third Party Claim seeks material prospective relief
which could have an adverse effect on any Indemnified Party or the Company or
any subsidiary, the Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such Third Party Claim and the amount of
any judgment or settlement and the reasonable costs and expenses of defense
shall be included as part of the indemnification obligations of the Indemnifying
Party hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
<PAGE>
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholder,
and Buyer in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
The representations of the Company and the Stockholder will survive the Closing
and will remain in effect until, and will expire upon, the termination of the
indemnification obligations as provided in Section 8.2. The representations of
Buyer will survive the Closing and will remain in effect until, and will expire
upon the third anniversary of the Closing Date.
8.5 Remedies Cumulative. The remedies set forth in this Article 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 Right to Set Off. Subject to Section 8.7, Buyer shall have the
right, but not the obligation, to set off, in whole or in part, against the
Pledged Assets or any Earn-out, amounts finally determined under Section 8.3 to
be owed to Buyer by the Stockholder under Section 8.1 hereof.
8.7 Offset Against Earn-out. Notwithstanding anything in this Agreement
to the contrary, Buyer's rights to indemnification from the Stockholder under
this Article VIII shall be subject to the following terms and conditions:
(a) For the period beginning on the Closing Date and ending on
the Release Date, the Buyer shall have the obligation to set off against the
Pledged Assets and the Earn-outs otherwise payable during such period any
amounts finally determined to be owed by Stockholder under Section 8.1(a).
(b) For the period beginning on the Release Date and ending on
October 24, 1999, the Buyer shall have the obligation to set off against the
Earn-outs otherwise payable during such period any amounts finally determined to
be owed by Stockholder under Section 8.1(a).
(c) For the period beginning October 25, 1999, and ending on
the last day of Buyer's fiscal quarter that ends in October 2002, in the event
the Stockholder shall owe any amounts to the Buyer pursuant to Section 8.1(a)
(any such amount the "Indemnification Obligation"), then the Buyer shall
determine the sum of Earn-outs paid or payable to Stockholder pursuant to
Section 1.6 for the prior four (4) fiscal quarters of Buyer ("Aggregate Fiscal
Period Earn-out"). If, and only, if, the amount of the Aggregate Fiscal Period
Earn-out equals or exceeds the Indemnification Obligation, then Buyer (i) shall
have the obligation to set off against the Earn-outs otherwise payable for the
subsequent four (4) fiscal periods of Buyer ("Post-Indemnification Fiscal
Period") the amount of the Indemnification Obligation, and (ii) shall not seek
other remedies against the Stockholder under Section 8.1(a) until after the end
of the Post-Indemnification Fiscal Period, and then only to the extent the
Indemnification Obligation exceeds the Earn-outs that would have been paid
during the Post-Indemnification Fiscal Period but for the Indemnification
Obligation.
<PAGE>
9. NONCOMPETITION
9.1 Prohibited Activities. The Stockholder acknowledges that during the
course of his ownership of the Stock, he developed relationships on behalf of,
and acquired proprietary and confidential information about the Company,
including, but not limited to, its customers, vendors, prices, sales strategies
and other information, some of which may be regarded and treated by the Company
and Buyer as trade secrets. In order to protect the Company's and/or Buyer's
critical interest in these relationships and information, Stockholder covenants
that he will not, for a period of four (4) years following the Closing Date, for
any reason whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, partnership, corporation, or
business of whatever nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or adviser, or as a sales
representative, in any business selling any products or services in direct
competition with the Company, within 50 miles of any location where the Company
both has an office and conducts business ("Territory"). As used in this
subsection, "competition" shall mean engaging, directly or indirectly, for
himself or any other person or entity, in (i) any facet of the business of the
Company in which Stockholder was engaged in prior to the Closing Date or (ii)
any facet of the business of the Company about which Stockholder acquired
proprietary or confidential information during the course of his ownership of
the Stock;
(b) hire or join with in a competitive business capacity, any
employee of the Company within the Territory;
(c) solicit or accept business which competes with the
business of the Company from any person who is, on the Closing Date, or that has
been, within one (1) year prior to the Closing Date, a customer of the Company;
or
(d) acquire or enter into any agreement to acquire any
prospective acquisition candidate that was, to the knowledge of the Stockholder,
either called upon by the Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Company within 3 years prior to
the Closing Date. The Stockholder, to the extent lacking the knowledge described
in the preceding sentence, shall immediately cease all contact with such
prospective acquisition candidate upon being informed that the Company had
called upon such candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
<PAGE>
9.2 Confidentiality. The Stockholder recognizes that by reason of his
ownership of the Stock, and his employment by the Company, he has acquired
confidential information and trade secrets concerning the operation of the
Company, the use or disclosure of which could cause the Company or its
affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, the Stockholder covenants and agrees with the Company and Buyer
that he will not at any time, except in performance of Stockholder's obligations
to the Company or with the prior written consent of the Company pursuant to
authority granted by a resolution of the Board of Directors of the Company,
directly or indirectly, disclose any secret or confidential information that he
may learn or has learned by reason of his ownership of the Company or his
employment by the Company, or any of its subsidiaries and affiliates, or use any
such information in a manner detrimental to the interests of the Company or
Buyer, unless (i) such information becomes known to the public generally through
no fault of the Stockholder, (ii) disclosure is required by law or the order of
any governmental authority under color of law, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, the
Stockholder shall give prior written notice thereof to Buyer and provide Buyer
with the opportunity to contest such disclosure and shall cooperate with efforts
to prevent such disclosure. The term "confidential information" includes,
without limitation, information not previously disclosed to the public or to the
trade by the Company's or Buyer's management with respect to the Company's or
Buyer's, or any of their affiliates' or subsidiaries', products, facilities, and
methods, trade secrets and other intellectual property, software, source code,
systems, procedures, manuals, confidential reports, product price lists,
customer lists, financial information (including the revenues, costs, or profits
associated with any of the Company's products), business plans, prospects, or
opportunities but shall exclude any information already in the public domain.
9.3 Damages. Because of the difficulty of measuring economic losses to
Buyer as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Buyer for which it
would have no other adequate remedy, the Stockholder agrees that the foregoing
covenant may be enforced by Buyer in the event of breach by the Stockholder, by
injunctions and restraining orders.
9.4 Reasonable Restraint. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on the Stockholder in
light of the activities and business of Buyer on the date of the execution of
this Agreement, assuming the completion of the transactions contemplated hereby.
9.5 Severability; Reformation. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
<PAGE>
9.6 Independent Covenant. All of the covenants in this Article 9 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the Stockholder
against Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer of such covenants. The parties
expressly acknowledge that the terms and conditions of this Article 9 are
independent of the terms and conditions of any other agreements including, but
not limited to, any employment agreements entered into in connection with this
Agreement. It is specifically agreed that the period of four (4) years stated at
the beginning of this Article 9 during which the agreements and covenants of the
Stockholder made in this Article 9 shall be effective, shall be computed by
excluding from such computation any time during which the Stockholder is found
by a court of competent jurisdiction to have been in violation of any provision
of this Article 9. The covenants contained in Article 9 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
9.7 Materiality. The Company and the Stockholder hereby agree that the
covenants set forth in this Article 9 are a material and substantial part of the
transactions contemplated by this Agreement, supported by adequate
consideration.
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the Boards of Directors of Buyer and
the Company; or
(b) by the Stockholder and the Company as a group, on the one
hand, or by Buyer, on the other hand, if the Closing shall not have occurred on
or before October 5, 1998, provided that the right to terminate this Agreement
under this Section 10.1(b) shall not be available to either party (with the
Stockholder and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholder and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholder and the Company deemed to be a single party for this purpose) of any
of the representations and warranties contained herein or in the due and timely
performance and satisfaction of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been made or
shall not reasonably be expected to occur before the Closing Date; or
<PAGE>
(d) by the Stockholder and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
transactions contemplated by this Agreement; or there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the transactions contemplated by this Agreement by any
governmental entity which would make the consummation of the transactions
contemplated by this Agreement illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10 and 8, and Sections 5.7(b)
and 9.2, shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholder and
the Company deemed to be a single party for purposes of this Article 10), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the Stockholder;
provided, however that Buyer may assign any of its rights or obligations under
this Agreement to any direct or indirect subsidiary of Buyer in its sole and
absolute discretion and without the consent of the Company or the Stockholder.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer, and the Company and the Stockholder as
a group, each represents and warrants to the other that it has not employed any
broker or agent in connection with the transactions contemplated by this
Agreement and agrees to indemnify the other against all losses, damages or
expenses relating to or arising out of claims for fees or commission of any
broker or agent employed or alleged to have been employed by such party.
<PAGE>
10.7 Expenses. Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The
Stockholder (and not the Company) has and will pay the fees, expenses and
disbursements of the Stockholder, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
10.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
(Telefax: (561) 659-7793)
with a required copy to:
Kaufman & Canoles, P.C.
P.O. Box 3037
Norfolk, VA 23514
Attn: Gus J. James, II, Esq. and T. Richard Litton, Jr., Esq.
(Telefax: (757) 624-3169)
<PAGE>
If to the Stockholder to:
Stuart Grover
2 Trails End
Chappaque, NY 10514
(Telefax: (914) 238-6790)
with a required copy to:
Carl S. Koerner, Esq.
Koerner, Silberberg and Weiner, LLP
112 Madison Avenue
New York, NY 10016
(Telefax: (212) 689-3077)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any disputes
arising out of, in connection with or with respect to this Agreement, the
subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of New York, New
York and nowhere else. Each of the parties hereto hereby irrevocably submits to
the jurisdiction of such court for the purposes of any suit, civil action or
other proceeding arising out of, in connection with or with respect to this
Agreement, the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby
(collectively, "Suit"). Each of the parties hereto hereby waives and agrees not
to assert by way of motion, as a defense or otherwise in any such Suit, any
claim that it is not subject to the jurisdiction of the above courts, that such
Suit is brought in an inconvenient forum, or that the venue of such Suit is
improper.
10.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
<PAGE>
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.13 Mutual Drafting; Construction. This Agreement is the mutual
product of the parties hereto, and each provision hereof has been subject to the
mutual consultation, negotiation and agreement of each of the parties, and shall
not be construed for or against any party hereto. As used in this Agreement, the
term "person" shall mean an individual, corporation, partnership, limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
10.14 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[Execution Page Following]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER - WORKFLOW MANAGEMENT, INC.
By: /s/ Claudia Amlie
-------------------------
Name: Claudia Amlie
------------------------
Title: Vice President
-----------------------
THE COMPANY - PENN GROVER
ENVELOPE CORP.
By: /s/ Stuart Grover
--------------------------
Name: Stuart Grover
-------------------------
Title: President
------------------------
STOCKHOLDER:
/s/ Stuart Grover
------------------------------
Stuart Grover
STOCK PURCHASE AGREEMENT
By and Among
SFI of Delaware, LLC
Danziger Graphics, Inc.
H. Roy Danziger, Inc.
and
The Stockholders Named Therein
made effective as of October 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. STOCK PURCHASE.................................................................................................1
1.1 Stock....................................................................................................1
1.2 Purchase Price...........................................................................................1
1.3 Post-Closing Adjustment..................................................................................2
1.4 Escrow...................................................................................................3
1.5 Exchange of Certificates and Payment of Cash.............................................................4
1.6 Stockholders' Representative.............................................................................4
1.7 Post-Closing Earn-Out....................................................................................5
2. CLOSING........................................................................................................7
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.............................................7
3.1 Due Organization.........................................................................................7
3.2 Authorization; Validity..................................................................................8
3.3 No Conflicts.............................................................................................8
3.4 Capital Stock of the Company.............................................................................8
3.5 Transactions in Capital Stock; Accounting Treatment......................................................9
3.6 Subsidiaries, Stock, and Notes...........................................................................9
3.7 Complete Copies of Materials............................................................................10
3.8 Absence of Claims Against Company.......................................................................10
3.9 Company Financial Conditions............................................................................10
3.10 Financial Statements...................................................................................10
3.11 Liabilities and Obligations............................................................................11
3.12 Books and Records......................................................................................11
3.13 Bank Accounts; Powers of Attorney......................................................................12
3.14 Accounts and Notes Receivable..........................................................................12
3.15 Permits................................................................................................12
3.16 Real Property..........................................................................................13
3.17 Personal Property......................................................................................15
3.18 Intellectual Property..................................................................................15
3.19 Significant Customers; Material Contracts and Commitments..............................................17
3.20 Government Contracts...................................................................................18
3.21 Inventory..............................................................................................19
3.22 Insurance..............................................................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.23 Environmental Matters..................................................................................20
3.24 Labor and Employment Matters...........................................................................21
3.25 Employee Benefit Plans.................................................................................22
3.26 Taxes..................................................................................................26
3.27 Conformity with Law; Litigation........................................................................28
3.28 Relations with Governments.............................................................................29
3.29 Absence of Changes.....................................................................................29
3.30 Disclosure.............................................................................................31
3.31 Predecessor Status; Etc................................................................................31
3.32 Location of Chief Executive Offices....................................................................31
3.33 Location of Equipment and Inventory....................................................................31
3.34 Year 2000 Compliance...................................................................................32
4. REPRESENTATIONS OF BUYER......................................................................................32
4.1 Due Organization........................................................................................32
4.2 Authorization; Validity of Obligations..................................................................32
4.3 No Conflicts............................................................................................33
4.4 Payment of Certain Indebtedness.........................................................................33
5. COVENANTS.....................................................................................................33
5.1 Tax Matters.............................................................................................33
5.2 Accounts Receivable.....................................................................................35
5.3 Intentionally Omitted...................................................................................36
5.4 Employee Benefit Plans..................................................................................36
5.5 Related Party Agreements................................................................................36
5.6 Cooperation.............................................................................................36
5.7 Access to Information; Confidentiality; Public Disclosure...............................................36
5.8 Conduct of Business Pending Closing.....................................................................37
5.9 Prohibited Activities...................................................................................38
5.10 Exclusivity............................................................................................39
5.11 Notification of Certain Matters........................................................................40
5.12 Notice to Bargaining Agents............................................................................40
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER..................................................................40
6.1 Representations and Warranties; Performance of Obligations..............................................40
6.2 No Litigation...........................................................................................41
6.3 No Material Adverse Change..............................................................................41
6.4 Consents and Approvals..................................................................................41
6.5 Opinion of Counsel......................................................................................41
6.6 Charter Documents.......................................................................................41
6.7 Intentionally Omitted...................................................................................41
6.8 Due Diligence Review....................................................................................41
6.9 Delivery of Closing Financial Certificate...............................................................42
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.10 FIRPTA Compliance......................................................................................42
6.11 Other Agreements.......................................................................................43
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY.......................................43
7.1 Representations and Warranties; Performance of Obligations..............................................43
7.2 No Litigation...........................................................................................43
7.3 Consents and Approvals..................................................................................43
7.4 Other Agreements........................................................................................43
8. INDEMNIFICATION...............................................................................................44
8.1 General Indemnification by the Stockholders.............................................................44
8.2 Limitation and Expiration...............................................................................45
8.3 Indemnification Procedures..............................................................................46
8.4 Survival of Representations Warranties and Covenants....................................................47
8.5 Remedies Cumulative.....................................................................................48
8.6 Right to Set Off........................................................................................48
9. NONCOMPETITION................................................................................................48
9.1 Prohibited Activities...................................................................................48
9.2 Confidentiality.........................................................................................49
9.3 Damages.................................................................................................49
9.4 Reasonable Restraint....................................................................................49
9.5 Severability; Reformation...............................................................................50
9.6 Independent Covenant....................................................................................50
9.7 Materiality.............................................................................................50
10. GENERAL......................................................................................................50
10.1 Termination............................................................................................50
10.2 Effect of Termination..................................................................................51
10.3 Successors and Assigns.................................................................................51
10.4 Entire Agreement; Amendment; Waiver....................................................................51
10.5 Counterparts...........................................................................................51
10.6 Brokers and Agents.....................................................................................52
10.7 Expenses...............................................................................................52
10.8 Specific Performance; Remedies.........................................................................52
10.9 Notices................................................................................................52
10.10 Governing Law.........................................................................................53
10.11 Severability..........................................................................................53
10.12 Absence of Third Party Beneficiary Rights.............................................................54
10.13 Mutual Construction...................................................................................54
10.14 Further Representations...............................................................................54
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 21 day of October 1998, by and among SFI of Delaware, LLC, a
Delaware limited liability company ("Buyer"), whose sole member is Workflow
Management, Inc., a Delaware corporation ("Workflow"), Danziger Graphics, Inc.,
a New York corporation ("DGI"), H. Roy Danziger, Inc., a New York corporation
("HRD") (DGI and HRD collectively the "Company") and Robert Danziger, the sole
stockholder of DGI and H. Roy Danziger, the sole stockholder of HRD (each a
"Stockholder" and collectively, the "Stockholders").
BACKGROUND
The Stockholders in the aggregate own all of the issued and outstanding
capital stock of the Company. This Agreement contemplates a transaction in which
the Buyer will purchase from the Stockholders, and the Stockholders will sell to
the Buyer, all of the outstanding capital stock of the Company (the "Stock") for
the cash consideration set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE
1.1 Stock. Subject to the terms and conditions of this Agreement, at
the Closing (as defined below), the Stockholders will sell to Buyer, and Buyer
will purchase from Stockholders, the Stock for the Purchase Price (as defined
below).
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall
be the amounts payable to the Stockholders by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments pursuant to Section
453(b) of the Internal Revenue Code of 1986, as amended ("Code"), in the
following manner:
(i) $1,500,000 of the Purchase Price shall be payable
in cash ("Cash Purchase Price"), as adjusted pursuant to this Section 1.2 and
Section 1.3. The Cash Purchase Price, as so adjusted, shall be applied first to
satisfy the escrow obligations set forth in Section 1.4 and the balance shall be
paid to the Stockholders in cash at Closing in the proportions set forth on
Schedule 1.2(a); provided, however, that certain amounts otherwise payable to H.
Roy Danziger shall be paid directly by Buyer to the Internal Revenue Service and
New York State Department of Taxation and Finance to satisfy any and all amounts
owed by H. Roy Danziger to such taxing authorities, as reflected more
specifically on Schedule 3.26(a).
<PAGE>
(ii) Certain payments shall be made to H. Roy
Danziger based upon the "Gross Profit" of the Company, as specifically set forth
in Section 1.7 hereof. For purposes of the Code, 5.12% of such payments shall be
treated as interest for income tax purposes, which is equal to the Applicable
Federal Rate for Mid-Term, Annual obligations as published by the Internal
Revenue Service for October 1998 in Revenue Ruling 98-50.
(b) The Purchase Price has been calculated based upon several
factors, including the assumption that the net worth of DGI is equal to or
greater than $54,380 (the "Net Worth Target") as of the Closing. The parties
agree that the Net Worth Target has been calculated in the manner set forth on
Schedule 1.2(b).
(c) If on the Closing Financial Certificate (as defined in
Section 6.9), the Certified Closing Net Worth (as defined in Section 6.9) is
less than the Net Worth Target, the Cash Purchase Price to be delivered to the
Stockholders may, at Buyer's election, be reduced either (i) at the Closing, or
(ii) after completion of the Post-Closing Audit (as defined in Section 1.3), by
the difference between the Net Worth Target and the Certified Closing Net Worth
set forth on the Closing Financial Certificate.
1.3 Post-Closing Adjustment.
(a) The Cash Purchase Price shall be subject to adjustment
after the Closing Date as specified in this Section 1.3.
(b) Within one hundred twenty (120) days following the Closing
Date, at its option, Buyer shall cause PriceWaterhouseCoopers ("Buyer's
Accountant") to audit DGI's books to determine the accuracy of the information
set forth on the Closing Financial Certificate (the "Post-Closing Audit"). The
parties acknowledge and agree that for purposes of determining the net worth of
DGI as of the Closing Date (i), the value of the assets of DGI shall, except
with the prior written consent of Buyer, be calculated as provided in the last
paragraph of Section 6.9 and (ii) full effect shall be given to the manner in
which the Net Worth Target of DGI has been calculated as set forth on Schedule
1.2(b). In the event that Buyer's Accountant determines that the actual net
worth of DGI as of the Closing Date was less than the Certified Closing Net
Worth, Buyer shall deliver a written notice (the "Financial Adjustment Notice")
to the Stockholders' Representative, as defined in Section 1.6, setting forth
(i) the determination made by Buyer's Accountant of the actual net worth of DGI
(the "Actual Net Worth"), (ii) the amount of the Cash Purchase Price that would
have been payable at Closing pursuant to Section 1.2(c) had the Actual Net Worth
been reflected on the Closing Financial Certificate instead of the Certified
Closing Net Worth, and (iii) the amount by which the Cash Purchase Price would
have been reduced at Closing had the Actual Net Worth been used in the
calculations pursuant to Section 1.2(c) (the "Purchase Price Adjustment"). The
Purchase Price Adjustment shall take account of the reduction, if any, to the
Cash Purchase Price already taken pursuant to Section 1.2(c)(i).
<PAGE>
(c) The Stockholders' Representative shall have thirty (30)
days from the receipt of the Financial Adjustment Notice to notify Buyer if the
Stockholders dispute such Financial Adjustment Notice. If Buyer has not received
notice of such a dispute within such thirty (30) day period, Buyer shall be
entitled to receive from the Stockholders (which may, at Buyer's sole
discretion, be from the Pledged Assets as defined in Section 1.4) the Purchase
Price Adjustment. If, however, the Stockholders' Representative has delivered
notice of such a dispute to Buyer within such thirty (30) day period, then
Buyer's Accountant shall select an independent accounting firm that has not
represented any of the parties hereto within the preceding two (2) years to
review the Company's books, Closing Financial Certificate and Financial
Adjustment Notice (and related information) to determine the amount, if any, of
the Purchase Price Adjustment. Such independent accounting firm shall be
confirmed by the Stockholders' Representative and Buyer within five (5) days of
its selection, unless there is an actual conflict of interest. The independent
accounting firm shall be directed to consider only those agreements, contracts,
commitments or other documents (or summaries thereof) that were either (i)
delivered or made available to Buyer's Accountant in connection with the
transactions contemplated hereby, or (ii) reviewed by Buyer's Accountant during
the course of the Post-Closing Audit. The independent accounting firm shall make
its determination of the Purchase Price Adjustment, if any, within thirty (30)
days of its selection. The determination of the independent accounting firm
shall be final and binding on the parties hereto, and upon such determination,
Buyer shall be entitled to receive from the Stockholders (which may, at Buyer's
sole discretion, be from the Pledged Assets as defined in Section 1.4) the
Purchase Price Adjustment. The costs of the independent accounting firm shall be
borne by the Buyer.
1.4 Escrow.
(a) As collateral security for the payment of any post-Closing
adjustment to the Cash Purchase Price under Section 1.3, any indemnification
obligations of the Stockholders pursuant to Article 8, or any "Purchase Price
Refund" payable pursuant to Section 1.7(g), the Stockholders shall, and by
execution hereof do, transfer to Kaufman & Canoles, a Virginia professional
corporation ("Escrow Agent") $150,000 of the Cash Purchase Price (the "Pledged
Assets").
(b) The Pledged Assets shall be held by the Escrow Agent
pursuant to the terms and conditions set forth in the Escrow Agreement ("Escrow
Agreement") dated as of the date hereof by and among the Buyer, Stockholders and
Escrow Agent.
(c) The Pledged Assets shall be available to satisfy any
post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3, any
indemnification obligations of the Stockholders pursuant to Article 8 and any
"Purchase Price Refund" payable pursuant to Section 1.7(g) until March 31, 1999
(the "Release Date"). Promptly following the Release Date, and subject to the
specific terms and conditions of the Escrow Agreement, the Escrow Agent shall
return or cause to be returned to the Stockholders the Pledged Assets, less
Pledged Assets having an aggregate value equal to the amount of (i) any
post-Closing adjustment to the Cash Purchase Price under Section 1.3 (including
any post-Closing adjustment to the Cash Purchase Price that is subject to
dispute under the terms and conditions of Section 1.3), (ii) any pending claim
for indemnification made by any Indemnified Party (as defined in Article 8),
(iii) any indemnification obligations of the Stockholders pursuant to Article 8,
and (iv) any Purchase Price Refund payable pursuant to Section 1.7(g).
<PAGE>
1.5 Exchange of Certificates and Payment of Cash.
(a) Buyer to Provide Cash. Buyer shall cause to be paid by
wire transfer to the Stockholders the Cash Purchase Price, as adjusted pursuant
to Section 1.2 and Section 1.3 and subject to Section 1.4, in the manner set
forth on Schedule 1.5(a).
(b) Certificate Delivery Requirements. At the Closing, the
Stockholders shall deliver to Buyer the certificates (the "Certificates")
representing the Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers duly executed by the Stockholders and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders shall promptly cure any
deficiencies with respect to the endorsement of the Certificates or other
documents of conveyance with respect to the stock powers accompanying such
Certificates.
(c) No Further Ownership Rights in Capital Stock of the
Company. All cash to be delivered (including cash that constitutes Pledged
Assets) upon the surrender for exchange of shares of the Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Stock, and following the
Closing, the Stockholders shall have no further rights to, or ownership in,
shares of capital stock of the Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such cash as provided in Section 1.2; provided, however
that Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Buyer with respect to the certificates alleged to
have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.5, none of the Company or any party hereto shall be liable to a
holder of shares of the Stock for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.6 Stockholders' Representative.
(a) Each Stockholder, by signing this Agreement, designates H.
Roy Danziger or, in the event that H. Roy Danziger is unable or unwilling to
serve, designates Robert Danziger to be the Stockholders' Representative for
purposes of this Agreement. The Stockholders shall be bound by any and all
actions taken by the Stockholders' Representative on their behalf.
<PAGE>
(b) Buyer shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All
communications or writings to be sent to Stockholders pursuant to this Agreement
may be addressed to the Stockholders' Representative and any communication or
writing so sent shall be deemed notice to all of the Stockholders hereunder. The
Stockholders hereby consent and agree that the Stockholders' Representative is
authorized to accept deliveries, including any notice, on behalf of the
Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 8 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to the interest
of the other Stockholders hereunder and in consideration of the mutual covenants
and agreements made herein, and shall be irrevocable and shall not be terminated
by any act of any Stockholder, by operation of law, whether by such
Stockholder's death or any other event.
1.7 Post-Closing Earn-Out.
(a) For (i) the period commencing on the date after the
Closing Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) for each
of the Buyer's next four fiscal years following the Initial Fiscal Period, and
(iii) for the period beginning April 27, 2003 and ending December 31, 2003 (such
periods individually an "Annual Earn-out Period"), H. Roy Danziger or an entity
controlled by him ("H. Roy Danziger") shall be entitled to receive from the
Buyer twenty-three percent (23%) of the Gross Profit (as defined herein) of the
Company for any Annual Earn-out Period, on the specific terms and conditions set
forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall
be payable in cash within thirty (30) days after the last day of the Annual
Earn-out Period in the manner specifically set forth on Schedule 1.7(a).
(b) Gross Profit for any period shall mean the amount of the
Company's "Net Sales" less "Cost of Goods Sold," in each case on an
unconsolidated basis and without giving effect to the results of operations of
any direct or indirect parent or subsidiary of the Company. "Net Sales" for any
period means the invoiced amount of goods sold by the Company during such period
to the "Earn-out Accounts," payment for which is actually received by the
Company, less actual trade discounts, returns, artwork to the extent not paid by
customers and freight to the extent not paid by customers. "Earn-out Accounts"
means those accounts of the Company existing on the date hereof as identified on
Schedule 1.7(b). "Cost of Goods Sold" for any period means the cost of goods
sold which are allocable to Net Sales as determined in accordance with generally
accepted accounting principles consistently applied ("GAAP"), provided however
that Cost of Goods Sold shall not be reduced by any purchased discounts, bulk
purchase discounts, discounts for payment, special discounts or other similar
incentives.
<PAGE>
(c) To the extent that the Company has a negative Gross Profit
during any Annual Earn-out Period(s) (such amount a "Gross Profit Loss"), the
Gross Profit Loss shall be carried forward to the subsequent Annual Earn-out
Period(s) and aggregated with the Gross Profit (or Gross Profit Loss) for such
subsequent Annual Earn-out Period(s) for purposes of determining the Earn-out,
if any, due for such subsequent Annual Earn-out Period(s). All Gross Profit
Losses shall continue to be carried forward until such time as Gross Profits are
fully offset by the total amount of the Gross Profit Losses.
(d) In the event that, after the date of this Agreement, the
Company is merged (or otherwise consolidated) into Buyer, Workflow or any direct
or indirect subsidiary of Buyer or Workflow (any such entity a "Merger
Affiliate") such that the Company is not the surviving corporation under
applicable law, the Earn-out shall only be payable with respect to the business
and operations conducted by the Company and without reference to the business
and operations of the Merger Affiliate. For purposes of calculating the Earn-out
payable to H.R. Danziger under this Section 1.7 after a merger or other
consolidation by the Company and a Merger Affiliate, the Buyer shall cause such
Merger Affiliate to (i) conduct the Company's former business and operations as
a division of the Merger Affiliate ("Company Division") and (ii) maintain such
financial reporting systems as are necessary to accurately calculate the Gross
Profit (or Gross Profit Losses) of the Company Division.
(e) Except as otherwise expressly agreed to by Buyer and
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) (such
business and operations to include any new product lines of the Company
developed solely by H. Roy Danziger) and without reference to any other entity
hereafter merged into or otherwise consolidated with the Company. In the event
that the Buyer or Workflow cause any entity to merge or otherwise consolidate
into the Company such that the Company is the surviving corporation under
applicable law, the Company shall maintain such financial reporting systems as
are necessary to accurately calculate the Gross Profit (or Gross Profit Losses)
of the Company (or the Company Division) without taking into account the results
of any other operations of the Company or any such other entity. Except as
provided in the first sentence of this Section 1.7(e), no Earn-out shall be
payable with respect to any Gross Profit attributable to product lines offered
by Buyer, Workflow or their direct or indirect subsidiaries that are not
currently offered by the Company.
(f) Notwithstanding anything in this Section 1.7 to the
contrary, Buyer shall have the right to reduce any amounts otherwise payable as
an Earn-out by the amount of any indemnification obligations of the Stockholders
under Article 8 or any Purchase Price Refund payable by H. Roy Danziger pursuant
to the terms and conditions of Section 1.7(g) below.
<PAGE>
(g) In the event that (i) the Buyer terminates the Contractor
Agreement ("Contractor Agreement") being entered into on the date hereof between
HRD, Inc. ("Contractor") and Buyer for "cause" pursuant to Section 6.1 of such
Contractor Agreement or (ii) Contractor terminates the Contractor Agreement
other than for Good Reason (as defined below), then, effective upon such
termination ("Triggering Event") (x) no further Earn-Outs shall be payable
pursuant to this Section 1.7 and (y) Roy Danziger, individually, shall be
required within twenty (20) business days of such Triggering Event to refund to
Buyer in cash a maximum of $450,000 of the Cash Purchase Price ("Purchase Price
Refund") as follows:
<TABLE>
<CAPTION>
Period in which Triggering Event Occurs Amount of Purchase Price Refund
--------------------------------------- -------------------------------
<S> <C> <C>
Closing Date through April 24, 1999 $450,000
April 25, 1999 through April 29, 2000 $300,000
April 30, 2000 through April 28, 2001 $180,000
April 29, 2001 through April 27, 2002 $90,000
April 28, 2002 through April 26, 2003 $60,000
</TABLE>
Following a Triggering Event, Roy Danziger shall not sell, transfer or otherwise
dispose of any assets other than for full, fair market value consideration, nor
shall he take any other actions that would impair his ability to make full
payment of any Purchase Price Refund due under this Section 1.7(g). For purposes
of this Section 1.7(g), "Good Reason" shall mean (i) a breach by the Buyer of
any material obligation to H. Roy Danziger or the Contractor under this
Agreement or the Contractor Agreement, which breach is not cured within thirty
(30) days after written notice thereof is given to Buyer by H. Roy Danziger or
the Contractor or (ii) the assignment by Buyer to Contractor under the
Contractor Agreement of any duties, positions or responsibilities materially and
adversely inconsistent with Contractor's duties, positions and responsibilities
as set forth in the Contractor Agreement.
2. CLOSING
The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place through the delivery of executed originals or
facsimile counterparts of all documents required hereunder, or at such other
time and date as Buyer, the Company and the Stockholders may mutually agree,
which date shall be referred to as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholders,
jointly and severally, represents and warrants to Buyer as follows (for purposes
of this Agreement, except as set forth in Section 3.16 or 3.23, the phrases
"knowledge of the Company" or the "Company's knowledge," or words of similar
import, mean the knowledge of the Stockholders and the directors and officers of
the Company, including facts of which the directors and officers, in the
reasonably prudent exercise of their duties, should be aware):
<PAGE>
3.1 Due Organization. DGI and HRD are each corporations duly organized,
validly existing and in good standing under the laws of the jurisdiction of
their incorporation and are duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease their properties and to carry on their business in the
places and in the manner as now conducted. Schedule 3.l hereto contains a list
of all jurisdictions in which DGI and HRD are authorized or qualified to do
business. DGI and HRD are each in good standing as foreign corporations in each
jurisdiction which they do business. The Company has delivered to Buyer true,
complete and correct copies of the Articles of Incorporation and Bylaws of DGI
and HRD. Such Articles of Incorporation and Bylaws are collectively referred to
as the "Charter Documents." Neither DGI nor HRD are in violation of any Charter
Documents. The minute books of DGI and HRD have been made available to Buyer
(and have been delivered, along with the original stock ledgers and corporate
seals, to Buyer) and are correct and, except as set forth in Schedule 3.1,
complete in all material respects.
3.2 Authorization; Validity. Each of DGI and HRD has the full legal
right, corporate power and authority to enter into this Agreement and the
transactions contemplated hereby. Each Stockholder has the full legal right and
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by each of DGI and HRD and the
performance by each of DGI and HRD of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of DGI and HRD and by
the Stockholders and this Agreement has been duly and validly authorized by all
necessary corporate action. This Agreement is a legal, valid and binding
obligation of each of DGI and HRD and each Stockholder, enforceable in
accordance with its terms.
3.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any
of the Charter Documents;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or any Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together
with all rules and regulations promulgated thereunder.
<PAGE>
3.4 Capital Stock of the Company. The authorized capital stock of DGI
consists of 200 shares of common stock, no par value, of which 100 shares are
issued and outstanding and no shares of preferred stock. The authorized capital
stock of HRD consists of 200 shares of common stock, no par value, of which 100
shares are issued and outstanding and no shares of preferred stock. All of the
issued and outstanding shares of the capital stock of DGI and HRD have been duly
authorized and validly issued, are fully paid and nonassessable and are owned of
record and beneficially by the Stockholders in the amounts set forth in Schedule
1.2 free and clear of all Liens (defined below). All of the issued and
outstanding shares of the capital stock of DGI and HRD were offered, issued,
sold and delivered by them in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of DGI or HRD. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
3.5 Transactions in Capital Stock; Accounting Treatment. Except as set
forth in Schedule 3.5, no option, warrant, call, subscription right, conversion
right or other contract or commitment of any kind exists of any character,
written or oral, which may obligate DGI or HRD to issue, sell or otherwise
become outstanding any shares of capital stock. Neither DGI nor HRD have any
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of their equity securities or any interests therein or to pay any dividend
or make any distribution in respect thereof. As a result of the transactions
contemplated by this Agreement, Buyer will be the record and beneficial owner of
all outstanding capital stock of DGI and HRD and rights to acquire capital stock
of DGI and HRD.
3.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 3.6(a), neither DGI nor
HRD have any subsidiaries. For purposes of this Agreement, "subsidiaries" means
any corporation, partnership, limited liability company, association or other
business entity of which a person (as defined in Section 10.13) owns, directly
or indirectly, more than 50% of the voting securities thereof.
(b) Except as set forth on Schedule 3.6(b), the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
<PAGE>
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company.
3.7 Complete Copies of Materials. The Company has delivered to Buyer
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Buyer. Schedule 3.7 sets forth the terms of certain oral
agreements to which the Company is a party.
3.8 Absence of Claims Against Company. No Stockholder has any claims
against the Company.
3.9 Company Financial Conditions.
(a) DGI's net worth (i) as of the end of its most recent
fiscal year was not less than $133,203, and (ii) as of the Closing will not be
less than the Net Worth Target.
(b) DGI's sales for (i) its most recent fiscal year were not
less than $2,180,779, and (ii) the nine-month period ending September 30, 1998
were not less than $1,355,470;
(c) DGI's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for (i) its most recent
fiscal year were not less than $420,650 and (ii) the nine-month period ended
September 30, 1998 were not less than $203,066.
(d) The sum of DGI's total outstanding long-term and
short-term indebtedness to (i) banks, (ii) the Stockholders and (iii) other
financial institutions and creditors (in each case including the current portion
of such indebtedness, but excluding trade payables and other accounts payable
incurred in the ordinary course of DGI's business and consistent with past
practice) as of the Closing Date will not be more than $119,914.
For purposes of Section 3.9(a) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete
and correct copies of DGI's reviewed balance sheets as of December 31, 1997 (the
end of its most recent completed fiscal year), and statements of income and
retained earnings and statements of cash flows for the year ended December 31,
1997 (collectively, the "Reviewed Financials") and (b) true, complete and
correct copies of DGI's and HRD's unaudited balance sheets (the "Interim Balance
Sheet") as of September 30, 1998 (the "Balance Sheet Date") and statements of
income and retained earnings and statements of cash flows for the nine-month
period then ended (collectively, the "Interim Financials," and together with the
Reviewed Financials, the "Company Financial Statements"). Each balance sheet
included in the Company Financial Statements presents fairly the financial
condition of DGI and HRD, respectively, as of the date indicated thereon, and
each of the statements of income and retained earnings included in the Company
Financial Statements presents fairly the results of their operations for the
periods indicated thereon. Since the dates of the Company Financial Statements,
there have been no material changes in the Company's accounting policies other
than as requested by Buyer to conform the Company's accounting policies to GAAP.
<PAGE>
3.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim
Balance Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary
course of its business consistent with past practice under any contract,
commitment or agreement specifically disclosed on any Schedule to this Agreement
or not required to be disclosed thereon because of the term or amount involved
or otherwise; and
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent with past practice,
which liabilities are not, individually or in the aggregate, material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
<PAGE>
3.13 Bank Accounts; Powers of Attorney. Schedule 3.13 sets forth
a complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 Accounts and Notes Receivable. The Company has delivered to Buyer
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in thirty (30) day aging categories (collectively, the
"Accounts Receivable"). On the Closing Date, the Company will deliver to Buyer a
complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Except as set forth on
Schedule 3.14, the Accounts Receivable are current and collectible net of any
respective reserves shown on the Company's books and records (which reserves are
adequate and calculated consistent with past practice). Subject to such
reserves, and except as set forth on Schedule 3.14, each of the Accounts
Receivable will be collected in full, without any set-off, within one hundred
twenty (120) days after the day on which it first became due and payable. Except
as set forth on Schedule 3.14, there is no contest, claim, or right of set-off,
other than rebates and returns in the ordinary course of business, under any
contract with any obligor of an Account Receivable relating to the amount or
validity of such Account Receivable.
3.15 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company, by any Permit.
<PAGE>
3.16 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof. For purposes of this Section 3.16, the phrase "Actual
Knowledge of the Company" or words of similar import shall mean the actual
knowledge of the Stockholders or officers or directors of DGI or HRD, upon
reasonable investigation.
(b) Schedule 3.16(b) contains a complete and accurate
description of all Real Property leased by the Company (including street
address, legal description (where known), owner, and Company's use thereof) and,
to the Company's knowledge, any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, covenants, easements,
restrictions, encroachments, leases, or encumbrances of any nature thereon
("Encumbrances"). The Company does not own any Real Property. The Real Property
listed on Schedule 3.16 includes all interests in real property necessary to
conduct the business and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) To the Actual Knowledge of the Company, all
structures and all structural, mechanical and other physical systems thereof
that constitute part of the Real Property, including but not limited to the
walls, roofs and structural elements thereof and the heating, ventilation, air
conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water,
paving and parking equipment, systems and facility included therein, and other
material items at the Real Property (collectively, the "Tangible Assets"), are
free of defects and in good operating condition and repair. For purposes of this
Section, a defect shall mean a condition relating to the structures or any
structural, mechanical or physical system which requires an expenditure of more
than $1,000 to correct. No maintenance or repair to the Real Property, the
structures, facilities and improvements to the Real Property ("Structures"), or
any Tangible Asset has been unreasonably deferred. To the Actual Knowledge of
the Company, there is no water, chemical or gaseous seepage, diffusion or other
intrusion into said buildings, including any subterranean portions, that would
impair beneficial use of the Real Property, Structures or any Tangible Asset.
(ii) To the Actual Knowledge of the Company, all
water, sewer, gas, electric, telephone and drainage facilities, and all other
utilities required by any applicable law or by the use and operation of the Real
Property in the conduct of the Company's business are installed to the property
lines of the Real Property, are fully operable and are adequate to service the
Real Property in the operation of the Company's business and to permit full
compliance with the requirements of all laws in the operation of such business.
To the Actual Knowledge of the Company, no fact or condition exists which could
result in the termination or material reduction of the current access from the
Real Property to existing roads or to sewer or other utility services presently
serving the Real Property.
<PAGE>
(iii) To the Actual Knowledge of the Company, the
Real Property and all present uses and operations of the Real Property comply
with all applicable statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards or restrictions of any government entity
having jurisdiction over any portion of the Real Property (including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to zoning, land use, safety, health, employment and employment
practices and access by the handicapped) (collectively, "Laws"), covenants,
conditions, restrictions, easements, disposition agreements and similar matters
affecting the Real Property. The Company has obtained all approvals of
governmental authorities (including certificates of use and occupancy, licenses
and permits) required in connection with the construction, ownership, use,
occupation and operation of the Real Property.
(iv) To the Actual Knowledge of the Company,
there are no pending or, to the Company's knowledge, threatened condemnation,
fire, health, safety, building, zoning or other land use regulatory proceedings,
lawsuits or administrative actions relating to any portion of the Real Property
or any other matters which do or may adversely effect the current use, occupancy
or value thereof, nor has the Company or any of the Stockholders received notice
of any pending or threatened special assessment proceedings affecting any
portion of the Real Property.
(v) To the Actual Knowledge of the Company, no portion
of the Real Property or the Structures has suffered any damage by fire or other
casualty which has not heretofore been completely repaired and restored to its
original condition.
(vi) There are no parties other than the Company in
possession of any of the Real Property or any portion thereof, and to the Actual
Knowledge of the Company, there are no leases, subleases, licenses, concessions
or other agreements, written or oral, granting to any party or parties the right
of use or occupancy of any portion of the Real Property or any portion thereof.
(vii) The Company is not a party to any service
contracts or other agreements relating to the use or operation of the Real
Property.
(viii) To the Actual Knowledge of the Company, no
portion of the Real Property is located in a wetlands area, as defined by Laws,
or in a designated or recognized flood plain, flood plain district, flood hazard
area or area of similar characterization.
<PAGE>
(ix) All real property taxes and assessments that
are due and payable by the Company, if any, with respect to the Real Property
have been paid or will be paid at or prior to Closing.
(x) The Company is not a party to any written
leases with respect to the Real Property. Schedule 3.16(c) contains a
description of the material terms of any oral lease to which the Company is a
party. All such oral leases are subject to month to month terms and may be
terminated at any time by the Company (without liability to the Company) upon
thirty (30) or less days notice to the landlord.
3.17 Personal Property.
(a) Schedule 3.17(a) sets forth a complete and accurate list
of all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $1,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by any Stockholder or business or
personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material, machinery and
equipment of the Company, including those listed on Schedule 3.17(a), are in
good working order and condition, ordinary wear and tear excepted. All leases
set forth on Schedule 3.17(a) are in full force and effect and constitute valid
and binding agreements of the Company, and the Company is not in breach of any
of their terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on Schedule 3.17(a).
3.18 Intellectual Property.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks (as defined below) listed on Schedule 3.18(a).
Such schedule lists (i) all of the Marks registered in the United States Patent
and Trademark Office ("PTO") or the equivalent thereof in any state of the
United States or in any foreign country, and (ii) all of the unregistered Marks,
that the Company now owns or uses in connection with its business. Except with
respect to those Marks shown as licensed on Schedule 3.18(a), the Company owns
all of the registered and unregistered trademarks, service marks, and trade
names that it uses. The Marks listed on Schedule 3.18(a) will not cease to be
valid rights of the Company by reason of the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
For purposes of this Section 3.18, the term "Mark" shall mean all right, title
and interest in and to any United States or foreign trademarks, service marks
and trade names now held by the Company, including any registration or
application for registration of any trademarks and services marks in the PTO or
the equivalent thereof in any state of the United States or in any foreign
country, as well as any unregistered marks used by the Company, and any trade
dress (including logos, designs, company names, business names, fictitious names
and other business identifiers) used by the Company in the United States or any
foreign country.
<PAGE>
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents (as defined below) listed on Schedule 3.18(b)(i) and in the
Copyright (as defined below) registrations listed on Schedule 3.18(b)(ii). Such
Patents and Copyrights constitute all of the Patents and Copyrights that the
Company now owns or is licensed to use. The Company owns or is licensed to
practice under all patents and copyright registrations that the Company now owns
or uses in connection with its business. For purposes of this Section 3.18, the
term "Patent" shall mean any United States or foreign patent to which the
Company has title as of the date of this Agreement, as well as any application
for a United States or foreign patent made by the Company; and the term
"Copyright" shall mean any United States or foreign copyright owned by the
Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 3.18(c). Those Other Rights constitute all of the Other
Rights that the Company now owns or is licensed to use. The Company owns or is
licensed to practice under all trade secrets, franchises or similar rights that
it owns, uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 3.18(a), (b), or (c). No claims
with respect to the Company Intellectual Property or Third Party Intellectual
Property are currently pending or, to the knowledge of the Company, are
threatened by any person, nor, to the Company's knowledge, do any grounds for
any claims exist: (i) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Company infringes on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by the Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted by the Company; (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property or other trade secret
material to the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
<PAGE>
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during the twelve
(12) months ending on the Balance Sheet Date, and "Significant Suppliers" are
the twenty (20) suppliers who supplied the largest amount by dollar volume of
products or services to the Company during the twelve (12) months ending on the
Balance Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of
all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $5,000, or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$5,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts. The Stockholders have paid all amounts owed by
them to the Company, including without limitation the loan from DGI to Robert
Danziger, and the Stockholders have no liabilities or obligations to the
Company, whether by loan or otherwise.
(c) Except to the extent set forth on Schedule 3.19(c), (i)
none of the Company's Significant Customers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting or
threatening to cancel or substantially reduce, any purchases from the Company,
(ii) none of the Company's Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting to cancel
or substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations and
is not in default under any of the Material Contracts, and no notice of default
has been received with respect to any thereof, and (iv) there are no Material
Contracts that were not negotiated at arm's length. The Company has not received
any material customer complaints concerning its products and/or services, nor
has it had any of its products returned by a purchaser thereof except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any material revenue.
<PAGE>
(d) Each Material Contract, except those terminated pursuant
to Section 5.6, is valid and binding on the Company and is in full force and
effect and is not subject to any default thereunder by any party obligated to
the Company pursuant thereto. The Company has obtained all necessary consents,
waivers and approvals of parties to any Material Contracts that are required in
connection with any of the transactions contemplated hereby, or are required by
any governmental agency or other third party or are advisable in order that any
such Material Contract remain in effect without modification after the
transactions contemplated by this Agreement and without giving rise to any right
to termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
(e) The Company is not a "women's business enterprise" ("WBE")
or "woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" ("MBE") or "minority-owned business concern" as
defined in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to any
of its customers.
(f) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which any of the Stockholders
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any person in which any of the Stockholders owns a material interest, are set
forth in Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or
substantially all of the Company's assets (including, without limitation, a
pledge of the Company's contract rights under any Material Contract) will not,
except as set forth on Schedule 3.19(g), (i) result in the breach or violation
of, (ii) constitute a default under, (iii) create a right of termination under,
or (iv) result in the creation or imposition of (or the obligation to create or
impose) any lien upon any of the assets of the Company (other than a lien
created pursuant to the pledge, hypothecation or mortgage described at the start
of this Section 3.19(g)) pursuant to any of the terms and provisions of, any
Material Contract to which the Company is a party or by which the property of
the Company is bound.
3.20 Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company is not a
party to any government contracts.
<PAGE>
(b) The Company has not been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of the Company, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Company's suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 3.20, the Company has not
been, nor is it now being, audited, or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or instrumentality of the United States Government or any
state or local government, relating to a contract.
(e) The Company has not, with respect to any government
contract, received a cure notice advising the Company that it is or was in
default or would, if it failed to take remedial action, be in default under such
contract.
(f) The Company has not submitted any inaccurate, untruthful,
or misleading cost or pricing data, certification, bid, proposal, report, claim,
or any other information relating to a contract to any agency or instrumentality
of the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or
affiliate of the Company is in receipt or possession of any competitor or
government proprietary or procurement sensitive information related to the
Company's business under circumstances where there is reason to believe that
such receipt or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been
issued, awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods, all of which is merchantable and fit for the purposes for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject to a reserve for inventory set forth on the face of the
Interim Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
3.22 Insurance. Schedule 3.22 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two (2) policy years. All premiums payable under all such policies have
been paid and the Company is otherwise in full compliance with the terms of such
policies. To the knowledge of the Company, there have been no threatened
terminations of, or material premium increases with respect to, any of such
policies.
<PAGE>
3.23 Environmental Matters.
(a) For purposes of this Section 3.23, the phrase "Actual
Knowledge of the Company" or words of similar import shall mean the actual
knowledge of the Stockholders or officers or directors of DGI or HRD, upon
reasonable investigation. The Company and any other person or entity for whose
conduct the Company is or may be held responsible have no liability under, have
never violated, and are presently in compliance with any and all environmental,
health or safety-related laws, regulations, ordinances or by-laws at the
federal, state and local level (the "Environmental Laws") applicable to the Real
Property and any facilities and operations thereon, except as listed in Schedule
3.23(a).
(b) To the Actual Knowledge of the Company, there exist no
conditions with respect to the environment on or off the Real Property, whether
or not yet discovered, that could or do result in any damage, loss, cost,
expense, claim, demand, order or liability to or against the Company by any
third party including, without limitation, any condition resulting from the
operation of the Company's business and/or the operation of the business of any
other property owner or operator in the vicinity of the Real Property and/or any
activity or operation formerly conducted by any person or entity on or off the
Real Property, except as set forth in Schedule 3.23(b).
(c) The Company, and any other person or entity for whose
conduct the Company is or may be held responsible, have not generated,
manufactured, refined, transported, treated, stored, handled, disposed,
transferred, produced, or processed any pollutant, toxic substance, hazardous
waste, hazardous material, hazardous substance, or oil as defined in or pursuant
to the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et
seq., the Comprehensive Environmental Response, Compensation, and Liability Act,
as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water Act, as amended,
33 U.S.C. ss. 1251 et seq., or any other federal, state, or local environmental
law, regulation, ordinance, rule, or bylaw, whether existing as of the date
hereof, previously enforced, or subsequently enacted ("Hazardous Material") or
any solid waste at the Real Property, or at any other location, except in
compliance with all applicable Environmental Laws and except as listed in
Schedule 3.23(c).
(d) The Company has no Actual Knowledge of the releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing, or dumping into the soil, surface waters, ground
waters, land, stream sediments, surface or subsurface strata, ambient air, sewer
system, or any environmental medium with respect to the Real Property
("Environmental Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Real Property of any Hazardous Material, except as listed
in Schedule 3.23(e).
<PAGE>
(f) The Company has not, and any other person or entity for
whose conduct the Company is or may be held responsible has not, (i) entered
into or been subject to any consent decree, compliance order, or administrative
order with respect to the Real Property or any facilities or operations thereon;
(ii) received notice under the citizen suit provision of any of the
Environmental Laws in connection with the Real Property or any facilities or
operations thereon; (iii) received any request for information, notice, demand
letter, administrative inquiry, or formal or informal compliant or claim with
respect to any Environmental Condition relating to the Real Property or any
facilities or operations thereon; or (iv) been subject to or threatened with any
governmental or citizen enforcement action with respect to the Real Property or
any facilities or operations thereon, except as set forth in Schedule 3.23(f);
and the Company, and any other person or entity for whose conduct it is or may
be held responsible, have no Actual Knowledge that any of the above will be
forthcoming.
(g) The Company has all permits necessary pursuant to
Environmental Laws for its activities and operations at the Real Property and
for any past or ongoing alterations or improvements at the Real Property, which
permits are listed in Schedule 3.23(g).
(h) To the Actual Knowledge of the Company, none of the
following exists at the Real Property (1) underground storage tanks, (2)
asbestos-containing materials in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, (4) lead paint, pipes or solder,
or (5) landfills, surface impoundments or disposal areas, except as listed in
Schedule 3.23(h).
(i) The Company has provided to Buyer copies of all documents,
records and information in its possession or control or available to the Company
concerning Environmental Conditions relevant to the Real Property or any
facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Real Property and/or any adjacent
property or other property in the vicinity of the Real Property owned or
operated by the Company or others, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and environmental agency reports and
correspondence. Furthermore, the Stockholders shall have an ongoing obligation
to immediately provide to Buyer copies of any additional such documents that
come into the possession or control of or become available to the Stockholders
subsequent to the date hereof.
3.24 Labor and Employment Matters. With respect to employees of and
service providers to the Company, except as set forth on Schedule 3.24:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
<PAGE>
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.25 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any
Benefit Arrangement sponsored or maintained by the Company or with respect to
which the Company has or may have any liability (whether actual, contingent,
with respect to any of its assets or otherwise) as of the Closing Date, in each
case with respect to any present or former directors, employees, or agents of
the Company.
<PAGE>
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee
Benefit Plan described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit
Plan that meets, purports to meet, or is intended to meet the requirements of
Section 401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 3.25(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the last Internal Revenue Service
determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted by
the Company to obtain those letters; (D) the most recent summary plan
description; (E) the most recent written descriptions of all non-written
agreements relating to any such plan or arrangement; (F) all reports submitted
within the four (4) years preceding the date of this Agreement by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors; (G) all notices that were given within the three (3)
years preceding the date of this Agreement by the IRS, Department of Labor, or
any other governmental agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel or employee relations
policies;
<PAGE>
(ii) the Danziger Graphics, Inc. Profit Sharing Plan
(the "Company Profit Sharing Plan") is the only Qualified Plan. The Company has
never maintained or contributed to another Qualified Plan. The Company Profit
Sharing Plan qualifies under Section 401(a) of the Code, and any trusts
maintained pursuant thereto are exempt from federal income taxation under
Section 501 of the Code, and nothing has occurred with respect to the design or
operation of any Qualified Plans that could cause the loss of such qualification
or exemption or the imposition of any liability, lien, penalty, or tax under
ERISA or the Code;
(iii) the Company has never sponsored or maintained,
had any obligation to sponsor or maintain, or had any liability (whether actual
or contingent, with respect to any of its assets or otherwise) with respect to
any Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the
Code or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
(v) there are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are not Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company or any Stockholder, and no claims or lawsuits
have been asserted, instituted or, to the knowledge of the Company, threatened
by, against, or relating to any Company Plan or Company Benefit Arrangement,
against the assets of any trust or other funding arrangement under any such
Company Plan, by or against the Company with respect to any Company Plan or
Company Benefit Arrangement, or by or against the plan administrator or any
fiduciary of any Company Plan or Company Benefit Arrangement, and the Company
does not have knowledge of any fact that could form the basis for any such claim
or lawsuit. The Company Plans and Company Benefit Arrangements are not presently
under audit or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company Profit
Sharing Plan under the IRS's Voluntary Compliance Resolution program, its
Closing Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement;
<PAGE>
(vii) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company or any Stockholder, officer, director,
or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and completely satisfied with
respect to each Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be made or taken until
after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the
Company is required to pay as contributions to the Company Benefit Plans as of
the last day of the most recent fiscal year of each of the plans ended before
the date of this Agreement; all benefits accrued under any unfunded Company Plan
or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved as of the Balance Sheet Date; and all monies withheld from
employee paychecks with respect to Company Plans have been transferred to the
appropriate plan within thirty (30) days of such withholding;
(xi) the Company has not prepaid or prefunded any
Welfare Plan through a trust, reserve, premium stabilization, or similar
account, nor does it provide benefits through a voluntary employee beneficiary
association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been
made by the Company to any person with regard to any Company Plan or Company
Benefit Arrangement that was not in accordance with the Company Plan or Company
Benefit Arrangement and that could have an adverse economic consequence to the
Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B with respect
to any "qualifying event" (as defined therein) occurring before or on the
Closing Date;
<PAGE>
(xv) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Interim Balance Sheet or (iii) continuation
coverage mandated under Section 4980B of the Code or other applicable law.
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who may earn more than $50,000
in 1998, all officers and all directors, and lists all employment agreements
with such employees, officers and directors and the rate of compensation (and
the portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
(f) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
3.26 Taxes.
(a) Except as disclosed on Schedule 3.26(a):
(i) The Company has timely filed (or filed extensions
for) all Tax Returns due on or before the Closing Date, and all such Tax Returns
are true, correct, and complete in all respects.
(ii) The Company has paid in full on a timely basis
all Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Interim Balance Sheet, and the amount of the Company's liability
for unpaid Taxes for all periods or portions thereof ending on or before the
Closing Date will not exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the books and records of the Company on the Closing Date.
<PAGE>
(iv) Except as set forth on Schedule 3.26(a), there
are no ongoing examinations or claims against the Company for Taxes, and no
notice of any audit, examination, or claim for Taxes, whether pending or
threatened, has been received.
(v) DGI and HRD have each had a taxable year ended on
December 31 since their respective dates of incorporation.
(vi) DGI and HRD each currently utilize the accrual
method of accounting for income Tax purposes and such method of accounting has
continually been used since their respective dates of incorporation. Neither DGI
nor HRD has agreed to, and are not and will not be required to, make any
adjustments under Code Section 481(a) as a result of a change in accounting
methods.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid to any employee, independent contractor, creditor,
or other third party.
(viii) Copies of (A) any Tax examinations, (B)
extensions of statutory limitations for the collection or assessment of Taxes
and (C) the Tax Returns of the Company for the last fiscal year have been
delivered to Buyer.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Company's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
otherwise have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
<PAGE>
(xiv) The Company is not, and has not been at any
time, a party to a tax sharing, tax indemnity or tax allocation agreement, and
the Company has not assumed the tax liability of any other person under
contract.
(xv) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
(xvii) The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return and does not
have any liability for the Taxes of another person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(b) (i) HRD has, since January 1, 1997, been an S
Corporation within the meaning of Section 1361 of the Code.
(ii) HRD does not have any net recognizable built-in
gain within the meaning of Section 1374 of the Code.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) The Company has not violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it.
(b) No Stockholder has, at any time: (i) committed any
criminal act (except for minor traffic violations); (ii) engaged in acts of
fraud, dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
<PAGE>
(c) Except as set forth on Schedule 3.27(c), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to materially affect adversely, the
business, operations, affairs, prospects, properties, assets, profits or
condition (financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into or amended any Company
Benefit Arrangement, Company Plan, employment, severance or other agreement
relating to compensation or fringe benefits;
<PAGE>
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets property or rights of the Company to any person,
including without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(m) any transaction by the Company outside the ordinary course
of business;
(n) any capital commitment by the Company, either
individually or in the aggregate, exceeding $5,000;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $5,000;
<PAGE>
(r) any loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
3.30 Disclosure. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Buyer pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholders or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholders or the Company to
Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to any Stockholder that has specific
application to such Stockholder or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
Stockholder can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or any Schedule hereto.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the Closing, the Company has operated only under the names set forth
on Schedule 3.31 in the jurisdiction or jurisdictions set forth on Schedule 3.31
and has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.32 Location of Chief Executive Offices. Schedule 3.32 sets forth the
location of the Company's chief executive offices.
3.33 Location of Equipment and Inventory. All inventory and equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 3.33. For purposes of this Agreement, (a) the term "inventory" shall
mean any "inventory" or whatever nature owned by the Company as of the date
hereof, and, in any event, shall include, but shall not be limited to, all
merchandise, inventory and goods wherever located, together with all goods,
supplies, incidentals, packaging materials and any other items used or usable in
manufacturing, processing, packaging or shipping the same; in all stages of
production -- from raw materials through work-in-process to finished goods; and
(b) the term "equipment" shall mean any "equipment." owned by the Company as of
the date hereof, and, in any event, shall include, but shall not be limited to,
all machinery, equipment, furnishings, fixtures and vehicles owned by the
Company as of the date hereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.
<PAGE>
3.34 Year 2000 Compliance. To the extent that the Company may not be
Year 2000 Compliant and Ready (as defined below) at any time prior to January 1,
1999, the Company has no reason to believe that such status will result in a
material adverse affect on the Company's business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise). In addition, the Company has no
knowledge and has not received written notice that its respective vendors,
suppliers and customers are not Year 2000 Compliant and Ready where the failure
to be Year 2000 Compliant and Ready would have a material adverse affect on the
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits or condition (financial or
otherwise) of the Company. For purposes of this Agreement, the term "Year 2000
Compliant and Ready," with respect to any person, means that the hardware and
software systems and components (including without limitation imbedded
microchips) owned, licensed or used by such person in connection with its
business operations will (without any additional cost or the need for human
intervention) (i) accurately process information involving any and all dates
before, during and/or after January 1, 2000, including without limitation
recognizing and processing input, providing output, storing information and
performing date-related calculations, all without creating any ambiguity as to
the century and without any other error or malfunction, (ii) operate accurately
without material interruption or malfunction on and in respect of any and all
dates before, during and/or after January 1, 2000 and (iii) where applicable,
respond to and process two digit year input without creating any ambiguity as to
the century.
4. REPRESENTATIONS OF BUYER
To induce the Company and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, Buyer represents and
warrants to the Company and the Stockholders as follows:
4.1 Due Organization. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite power and authority to enter into and
bind Buyer to the terms of this Agreement. Buyer has the full legal right, power
and authority to enter into this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by Buyer and the
performance by Buyer of the transactions contemplated herein has been duly and
validly authorized by the Board of Managers of Buyer and this Agreement has been
duly and validly authorized by all necessary action. This Agreement is a legal,
valid and binding obligation of Buyer enforceable in accordance with its terms.
<PAGE>
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Buyer's Operating Agreement;
(b) conflict with, or result in a default (or would constitute
a default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
4.4 Payment of Certain Indebtedness. At or immediately following the
Closing, Buyer shall pay or cause the Company to pay all amounts owed by the
Company to The Chase Manhattan Bank, N.A. and Wells Fargo Bank as of the Closing
Date ("Bank Debt"), to the extent the principal amount of the Bank Debt does not
exceed the principal amount of the Bank Debt previously disclosed by the Company
to the Buyer and set forth on Schedule 3.6(c).
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholders, on
the other, for certain tax matters following the Closing Date:
(i) Stockholders shall prepare or cause to be
prepared and file or cause to be filed, within the time and in the manner
provided by law, all Tax Returns of the Company for all periods ending on or
before the Closing Date that are due after the Closing Date. Stockholders shall
pay to the Company on or before the due date of such Tax Returns the amount of
all Taxes shown as due on such Tax Returns to the extent that such Taxes are not
reflected in the current liability accruals for Taxes (excluding reserves for
deferred Taxes) shown on the Company's books and records as of the Closing Date.
Such Tax Returns shall be prepared and filed in accordance with applicable law
and in a manner consistent with past practices and shall be subject to review
and approval by Buyer. To the extent reasonably requested by the Stockholders or
required by law, Buyer and the Company shall participate in the filing of any
Tax Returns filed pursuant to this paragraph.
<PAGE>
(ii) Except as set forth in Section 5.1(a)(iii) with
respect to income Tax Returns for HRD for 1998, the Company shall prepare or
cause to be prepared and file or cause to be filed any Tax Returns for Tax
periods which begin before the Closing Date and end after the Closing Date. The
Stockholders shall pay to the Company within fifteen (15) days after the date on
which Taxes are paid with respect to such periods an amount equal to the portion
of such Taxes which relates to the portion of such taxable period ending on the
Closing Date to the extent such Taxes are not reflected in the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the
Company's books and records as of the Closing Date. For purposes of this Section
5.1, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(iii) The Stockholders and Buyer agree that the
Buyer's purchase of the capital stock of HRD is controlled by Section
1362(e)(6)(D) of the Code and Treasury Regulation ss. 1.1362-3(b)(3) wherein the
1998 calendar tax year of HRD will be treated as two taxable years for income
Tax purposes and items of income, loss, deduction or credit shall be assigned to
the two short taxable years in accordance with HRD's normal method of accounting
under Treasury Regulation ss. 1.1362-3(b)(3) on a "per books" method. H. Roy
Danziger and HRD shall file income Tax Returns for the 1998 calendar tax year in
a manner consistent with the foregoing.
(iv) Buyer and the Company on one hand and
Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 5.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to Tax matters pertinent to
the Company that are in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
<PAGE>
(v) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
Buyer and the Company will join in the execution of any such Tax Returns and
other documentation.
(b) HRD shall, prior to the Closing, maintain its status as an
S Corporation for federal and state income tax purposes. HRD and the Stockholder
will not revoke HRD's election to be taxed as an S corporation within the
meaning of Sections 1361 and 1362 of the Code. HRD and the Stockholder will not
take or allow any action to be taken (other than the sale of the Stock pursuant
to this Agreement) that would result in the termination of HRD's status as a
validly electing S corporation within the meaning of Sections 1361 and 1362 of
the Code.
(c) Buyer and the Stockholders agree as follows with respect
to the allocation of Tax liabilities:
(i) The Stockholders shall be responsible for all
federal income Taxes attributable to the Company for periods ending on or before
the Closing Date. Buyer shall be responsible for all federal income Taxes of the
Company for periods ending after the Closing Date.
(ii) The Stockholders shall be responsible for
all nonfederal income Taxes attributable to the Company for periods ending on or
before the Closing Date. Buyer and Company shall be responsible for nonfederal
income Taxes of the Company for periods ending after the Closing Date.
5.2 Accounts Receivable. In the event that all Accounts Receivable are
not collected in full (net of reserves specified in Section 3.14) within one
hundred twenty (120) days (or, with respect to those Accounts Receivable
identified on Schedule 5.2, such longer period of time as identified on such
Schedule) after the Closing then, at the request of the Company or Buyer, the
Stockholders shall pay (based on their percentage ownership of the Company
immediately prior to the Closing Date as set forth on Schedule 1.2(a)) the
Company an amount equal to the Accounts Receivable not so collected, and upon
receipt of such payment the Company shall assign to the Stockholders making the
payment all of their rights with respect to the uncollected Accounts Receivable
giving rise to the payment and shall also thereafter promptly remit any excess
collections received by it with respect to such assigned Accounts Receivable. If
and when the amount subsequently collected by Stockholders with respect to the
assigned Accounts Receivable equals (a) the payment made therefor plus (b) the
costs and expenses reasonably incurred by the Stockholders in the collection of
such assigned Accounts Receivable, the Stockholders shall reassign to the
Company all of such assigned Accounts Receivable as have not been collected in
full by the Stockholders and shall also thereafter promptly remit any excess
collections received by them. Upon the written request of the Company, the
Stockholders shall provide it with a status report concerning the collection of
assigned Accounts Receivable.
<PAGE>
5.3 Intentionally Omitted.
5.4 Employee Benefit Plans. If reasonably requested by Buyer, the
Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing.
5.5 Related Party Agreements. The Company and/or the Stockholders, as
the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company or Stockholders to terminate.
5.6 Cooperation.
(a) The Company, Stockholders, and Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby
(d) The Company, the Stockholders and Buyer shall file all
notices and other information and documents required under the HSR Act (as
defined in Section 3.3) as promptly as practicable after the date hereof.
(e) The Stockholders shall fully cooperate with the Buyer if
Buyer should elect to relocate the Company's principal offices after the Closing
Date, it being acknowledged that such relocation shall occur at Buyer's sole and
absolute discretion.
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company and
(ii) such additional financial and operating data and other information as to
the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
<PAGE>
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
(c) Prior to the Closing Date, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Buyer in
writing. Buyer agrees to keep the Company and the Stockholders apprised in
advance of any disclosure of the subject matter of this Agreement by Buyer prior
to the Closing Date.
5.8 Conduct of Business Pending Closing. Between the date hereof and
the Closing Date, the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating
to or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
<PAGE>
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
5.9 Prohibited Activities. Between the date hereof and the Closing
Date, none of DGI or HRD will, without the prior written consent of Buyer:
(a) make any change in their Certificates of Incorporation
or Bylaws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice in an amount in excess of $5,000, including contracts to provide
services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, Stockholder, employee, agent, representative or
independent contractor; make any bonus or management fee payment to any such
person; make any loans or advances; adopt or amend any Company Plan or Company
Benefit Arrangement; or grant any severance or termination pay;
<PAGE>
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) sell, assign, lease, pledge or otherwise transfer or
dispose of any property or equipment except in the ordinary course of business
consistent with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(j) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any other transaction (i) that is not
negotiated at arm's length with a third party not affiliated with the Company or
any officer, director or Stockholder of the Company or (ii) outside the ordinary
course of business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Buyer; or
(p) take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.9(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 6 and 7 not being satisfied.
<PAGE>
5.10 Exclusivity. None of the Stockholders, the Company, or any agent,
officer, director or any representative of the Company or any Stockholder will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing or the termination of this Agreement in
accordance with its terms, directly or indirectly: (a) solicit, encourage or
initiate the submission of proposals or offers from any person for, (b)
participate in any discussions pertaining to, or (c) furnish any information to
any person other than Buyer relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company or a
merger, consolidation or business combination of the Company. In addition to the
foregoing, if the Company or any Stockholder receives any unsolicited offer or
proposal, or has actual knowledge of any unsolicited offer or proposal, relating
to any of the above, the Company or such Stockholder shall immediately notify
Buyer thereof, including the identity of the party making such offer or proposal
and the specific terms of such offer or proposal.
5.11 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party hereunder.
The delivery of any notice pursuant to this Section 5.11 shall not, without the
express written consent of the other parties be deemed to (x) modify the
representations or warranties hereunder of the party delivering such notice, (y)
modify the conditions set forth in Articles 6 and 7, or (z) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
5.12 Notice to Bargaining Agents. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by Buyer, and shall provide Buyer with proof that any
required notice has been sent.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to Buyer.
<PAGE>
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. There shall be no action, suit, claim or
proceeding of any nature pending or threatened against Buyer or the Company,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company. A certificate to
the foregoing effects dated the Closing Date and signed on behalf of the Company
and Stockholders shall have been delivered to Buyer.
6.3 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Buyer shall have received a certificate signed by each
Stockholder dated the Closing Date to such effect.
6.4 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the transactions contemplated by this
Agreement under the HSR Act shall have expired or been terminated, and no action
by the Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the consummation of the transactions contemplated hereby shall be
pending.
6.5 Opinion of Counsel. Buyer shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
6.6 Charter Documents. Buyer shall have received (a) a copy of the
[Articles] of Incorporation of each of DGI and HRD certified by an appropriate
authority in the state of their incorporation and (b) a copy of the Bylaws of
each of DGI and HRD certified by their Secretary, and such documents shall be in
form and substance reasonably acceptable to Buyer.
6.7 Intentionally Omitted.
6.8 Due Diligence Review. The Company shall have made such deliveries
as are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
<PAGE>
6.9 Delivery of Closing Financial Certificate. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of DGI as of the last day of its most recent
fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of DGI as of the Closing Date (the
"Certified Closing Net Worth");
(c) the sales of DGI for the most recent fiscal year preceding
the Closing Date (the "Certified Year-End Sales");
(d) the sales of DGI for the nine month period ending on
September 30, 1998 (the "Certified Closing Sales");
(e) the earnings of DGI before interest and taxes (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for the most recent fiscal
year preceding the Closing Date (the "Certified Year-End Profits");
(f) the earnings of DGI before interest and taxes (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for the nine month period
ending on September 30, 1998 (the "Certified Closing Profits"); and
(g) the sum of DGI's total outstanding long-term and
short-term indebtedness to (i) banks, (ii) the Stockholders, and (iii) other
financial institutions and creditors (in each case including the current portion
of such indebtedness, but excluding trade payables and other accounts payable
incurred in the ordinary course of DGI's business and consistent with past
practice) as of the Closing Date (the "Certified Closing Long-Term Debt").
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth and the Certified Closing Profits, the Company shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after December 31,
1997.
6.10 FIRPTA Compliance. Each of the Stockholders shall have delivered
to Buyer a properly executed statement in a form reasonably acceptable to Buyer
for purposes of satisfying Buyer's obligations under Treas. Reg. ss.
1.1445-2(b).
6.11 Other Agreements. Roy Danziger, individually, and the Buyer shall
have entered into a Confidentiality and Noncompetition Agreement in the form
attached to this Agreement as Exhibit A, and Contractor and the Buyer shall have
entered into the Contractor Agreement in the form attached to this Agreement as
Exhibit B.
<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date, of the following conditions and
deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of Buyer contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
though such representations and warranties had been made as of such date; all of
the terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by Buyer on or before the Closing Date shall have
been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any Vice
President of Buyer shall have been delivered to the Company and the
Stockholders.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. A certificate to the foregoing effects dated
the Closing Date and signed by the President or any Vice President of Buyer
shall have been delivered to the Company and Stockholders.
7.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated, and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
7.4 Other Agreements. Roy Danziger, individually, and the Buyer shall
have entered into a Confidentiality and Noncompetition Agreement in the form
attached to this Agreement as Exhibit A, and Contractor and the Buyer shall have
entered into the Contractor Agreement in the form attached to this Agreement as
Exhibit B.
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholders. Each Stockholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless Buyer, the Company, Workflow and their respective officers,
directors, employees, stockholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
<PAGE>
(a) all liabilities, losses, claims, damages, punitive
damages, causes of action, lawsuits, administrative proceedings (including
informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interest from the date of such damages) and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description) (collectively, "Damages")
suffered, sustained, incurred or paid by the Indemnified Parties in connection
with, resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of
the Stockholders, DGI, HRD or the Company set forth in this Agreement or any
Schedule or certificate, delivered by or on behalf of any Stockholder or DGI,
HRD or the Company in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement
by the Stockholders or, prior to the Closing Date, the Company, DGI or HRD under
this Agreement; or
(iii) the business, operations or assets of the
Company, DGI or HRD prior to the Closing Date or the actions or omissions of the
Company's, DGI's or HRD's directors, officers, stockholders, employees or agents
prior to the Closing Date, other than Damages arising from matters expressly
disclosed in the Company Financial Statements, this Agreement or the Schedules
to this Agreement; or
(iv) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27
(conformity with law; litigation); or
(v) any amount of Tax liability owed or owing by the
Stockholders, DGI or HRD in excess of the total amount of such liability shown
on Schedule 3.26(a) with respect to the Tax liens and Tax years identified
thereon, including any adjustments to such Tax liability; or
(vi) the failure of the Company to keep in effect
insurance policies generally or to insure its business, assets, operations or
Real Property specifically; or
(vii) the failure of the Company's customers to
purchase any inventory procured prior to the date hereof by the Company and held
for the account of a specific customer; and
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 8.1.
8.2 Limitation and Expiration. Notwithstanding the above:
<PAGE>
(a) there shall be no liability for indemnification under
Section 8.1 unless, and solely to the extent that, the aggregate amount of
Damages exceeds $10,000 (it being expressly understood that if the Damages
exceed $10,000, no amounts shall be owed under this Article 8 for the first
$10,000 of Damages) (the "Indemnification Threshold"); provided, however, that
the Indemnification Threshold shall not apply to (i) adjustments to the Cash
Purchase Price as set forth in Sections 1.2 and 1.3; (ii) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock; accounting treatment), 3.19
(significant customers; material contracts and commitments), 3.23 (environmental
matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27 (conformity with
law; litigation, or (iii) Damages described in Section 8.1(a)(iv),(v) or (vi);
(b) the aggregate amount of the Stockholders' liability under
this Article 8 shall not exceed the sum of the Purchase Price and the Earn-outs;
provided, however, that the Stockholders' liability for Damages arising out of
any breaches of the representations made in Sections 3.23 (environmental
matters), 3.25 (employee benefit plans) or 3.26 (taxes) or Damages described in
Section 8.1(a)(ii), (iv)(v) or (vi) shall not be subject to such limitation and
shall not count toward the limitation described in the first clause of this
Section 8.2(b);
(c) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(c):
(i) (1) except as to representations,
warranties, and covenants specified in clause (i)(2) of this Section 8.2(c), the
third anniversary of the Closing Date, or
(2) with respect to representations and
warranties contained in Sections 3.23 (environmental matters), 3.25 (employee
benefit plans), 3.26 (taxes), and the indemnification set forth in Section
8.1(a)(ii), (iii), (iv),(v) or (vi) on (A) the date that is six (6) months after
the expiration of the longest applicable federal or state statute of limitation
(including extensions thereof), or (B) if there is no applicable statute of
limitation, (x) ten (10) years after the Closing Date if the Claim is related to
the cost of investigating, containing, removing, or remediating a release of
Hazardous Material into the environment, or (y) five (5) years after the Closing
Date for any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section 8.2(c)
(such claims referred to as "Pending Claims").
8.3 Indemnification Procedures. All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
<PAGE>
(a) In the event that any Indemnified Party has a Claim
against any party obligated to provide indemnification pursuant to Section 8.1
hereof (the "Indemnifying Party") which does not involve a Claim being asserted
against or sought to be collected by a third party, the Indemnified Party shall
with reasonable promptness notify the Stockholders' Representative of such
Claim, specifying the nature of such Claim and the amount or the estimated
amount thereof to the extent then feasible (the "Claim Notice"). If the
Stockholders' Representative does not notify the Indemnified Party within thirty
(30) days after the date of delivery of the Claim Notice that the Indemnifying
Party disputes such Claim, with a detailed statement of the basis of such
position, the amount of such Claim shall be conclusively deemed a liability of
the Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within thirty (30) days and, for sixty (60)
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty (30) days from the date of
delivery of the Claim Notice to notify the Indemnified Party (A) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute, and
(B) if such party does not dispute liability, whether or not the Indemnifying
Party desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated) to file any motion, answer or other pleading and
to take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Company or any subsidiary, the Indemnified Party shall have the right to control
or assume (as the case may be) the defense of any such Third Party Claim and the
amount of any judgment or settlement and the reasonable costs and expenses of
defense shall be included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Indemnified Party elects to exercise such
right, the Indemnifying Party shall have the right to participate in, but not
control, the defense of such Third Party Claim at the sole cost and expense of
the Indemnifying Party.
<PAGE>
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
and Buyer in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
The representations of the Company and the Stockholders will survive the Closing
and will remain in effect until, and will expire upon, the termination of the
indemnification obligations as provided in Section 8.2. The representations of
Buyer will survive the Closing and will remain in effect until, and will expire
upon the third anniversary of the Closing Date.
8.5 Remedies Cumulative. The remedies set forth in this Article 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 Right to Set Off. Buyer shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets or any
Earn-out, amounts finally determined under Section 8.3 to be owed to Buyer by
the Stockholders under Section 8.1 hereof.
<PAGE>
9. NONCOMPETITION
9.1 Prohibited Activities. Each Stockholder acknowledges that during
the course of his ownership of the Stock, he developed relationships on behalf
of, and acquired proprietary and confidential information about the Company,
including, but not limited to, its customers, vendors, prices, sales strategies
and other information, some of which may be regarded and treated by the Company
and Buyer as trade secrets. In order to protect the Company's and/or Buyer's
critical interest in these relationships and information, each Stockholder
covenants that he will not, for a period of four (4) years following the Closing
Date, for any reason whatsoever, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, persons, partnership,
corporation, or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or adviser, or as a sales
representative, in any business selling any products or services in direct
competition with the Company, within 50 miles of any location where the Company
both has an office and conducts business ("Territory"). As used in this
subsection, "competition" shall mean engaging, directly or indirectly, for
himself or any other person or entity, in (i) any facet of the business of the
Company in which such Stockholder was engaged in prior to the Closing Date or
(ii) any facet of the business of the Company about which such Stockholder
acquired proprietary or confidential information during the course of his
ownership of the Stock;
(b) hire or join with in a competitive business capacity, any
employee of the Company within the Territory;
(c) solicit or accept business which competes with the
business of the Company from any person who is, on the Closing Date, or that has
been, within one (1) year prior to the Closing Date, a customer of the Company;
or
(d) acquire or enter into any agreement to acquire any
prospective acquisition candidate that was, to the knowledge of such
Stockholder, either called upon by the Company as a prospective acquisition
candidate or was the subject of an acquisition analysis by the Company within 3
years prior to the Closing Date. The Stockholders, to the extent lacking the
knowledge described in the preceding sentence, shall immediately cease all
contact with such prospective acquisition candidate upon being informed that the
Company had called upon such candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the Stockholders from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
<PAGE>
9.2 Confidentiality. Each Stockholder recognizes that by reason of his
ownership of the Company and his employment by the Company, he has acquired
confidential information and trade secrets concerning the operation of the
Company, the use or disclosure of which could cause the Company or its
affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, each Stockholder covenants and agrees with the Company and Buyer
that he will not at any time, except in performance of Stockholder's obligations
to the Company or with the prior written consent of the Company pursuant to
authority granted by a resolution of the Board of Directors of the Company,
directly or indirectly, disclose any secret or confidential information that he
may learn or has learned by reason of his ownership of the Company or his
employment by the Company, or any of its subsidiaries and affiliates, or use any
such information in a manner detrimental to the interests of the Company or
Buyer, unless (i) such information becomes known to the public generally through
no fault of any Stockholder, (ii) disclosure is required by law or the order of
any governmental authority under color of law, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, the
Stockholder (as applicable) shall give prior written notice thereof to Buyer and
provide Buyer with the opportunity to contest such disclosure and shall
cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not previously disclosed
to the public or to the trade by the Company's or Buyer's management with
respect to the Company's or Buyer's, or any of their affiliates' or
subsidiaries', products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial information
(including the revenues, costs, or profits associated with any of the Company's
products), business plans, prospects, or opportunities but shall exclude any
information already in the public domain.
9.3 Damages. Because of the difficulty of measuring economic losses to
Buyer as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Buyer for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Buyer in the event of breach by such Stockholder, by
injunctions and restraining orders.
9.4 Reasonable Restraint. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on each Stockholder in
light of the activities and business of Buyer on the date of the execution of
this Agreement, assuming the completion of the transactions contemplated hereby.
9.5 Severability; Reformation. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6 Independent Covenant. All of the covenants in this Article 9 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer of such covenants. The parties
expressly acknowledge that the terms and conditions of this Article 9 are
independent of the terms and conditions of any other agreements including, but
not limited to, any employment agreements entered into in connection with this
Agreement. It is specifically agreed that the period of four (4) years stated at
the beginning of this Article 9 during which the agreements and covenants of the
Stockholder made in this Article 9 shall be effective, shall be computed by
excluding from such computation any time during which the Stockholder is found
by a court of competent jurisdiction to have been in violation of any provision
of this Article 9. The covenants contained in Article 9 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
<PAGE>
9.7 Materiality. The Company and each Stockholder hereby agree that the
covenants set forth in this Article 9 are a material and substantial part of the
transactions contemplated by this Agreement, supported by adequate
consideration.
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the Board of Managers of the Buyer
and the Board of Directors of the Company; or
(b) by the Stockholders and the Company as a group, on the one
hand, or by Buyer, on the other hand, if the Closing shall not have occurred on
or before October 31, 1998, provided that the right to terminate this Agreement
under this Section 10.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
transactions contemplated by this Agreement; or there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the transactions contemplated by this Agreement by any
governmental entity which would make the consummation of the transactions
contemplated by this Agreement illegal.
<PAGE>
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10 and 8, and Sections 5.7(b)
and 9.2, shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholders and
the Company deemed to be a single party for purposes of this Article 10), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the
Stockholders; provided, however, that Buyer may assign any of its rights or
obligations under this Agreement to Workflow or any direct or indirect
subsidiary of Workflow and without the consent of the Company or any
Stockholder.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer and the Company and each Stockholder (as
a group) each represents and warrants to the other that it has not employed any
broker or agent in connection with the transactions contemplated by this
Agreement and agrees to indemnify the other against all losses, damages or
expenses relating to or arising out of claims for fees or commission of any
broker or agent employed or alleged to have been employed by such party.
<PAGE>
10.7 Expenses. Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The
Stockholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement; provided, however, that
Buyer shall reimburse the Stockholders at Closing for up to $15,000 in the
aggregate for such expenses incurred by them in connection with the transactions
herein contemplated.
10.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
SFI of Delaware, LLC
c/o Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
(Telefax: (561) 659-7793)
with a required copy to:
Kaufman & Canoles, P.C.
P.O. Box 3037
Norfolk, VA 23514
Attn: Gus J. James, II, Esq. and T. Richard Litton, Jr., Esq.
(Telefax: (757) 624-3169)
<PAGE>
If to any Stockholder to:
H. Roy Danziger
2533 Bradley Court
Merrick, New York 11566-4335
with a required copy to:
Theodore W. Tashlik, Esq.
Tashlik, Kreutzer, & Goldwyn, PC
833 Northern Blvd.
Great Neck, NY 11021
(Telefax: (516) 829-6509)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any disputes
arising out of, in connection with or with respect to this Agreement, the
subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of Wilmington,
Delaware and nowhere else. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of such court for the purposes of any suit, civil action or
other proceeding arising out of, in connection with or with respect to this
Agreement, the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby
(collectively, "Suit"). Each of the parties hereto hereby waives and agrees not
to assert by way of motion, as a defense or otherwise in any such Suit, any
claim that it is not subject to the jurisdiction of the above courts, that such
Suit is brought in an inconvenient forum, or that the venue of such Suit is
improper.
10.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
<PAGE>
10.13 Mutual Construction. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto. As used in this Agreement, the term
"person" shall mean an individual, corporation, partnership, limited liability
company, an association, a trust, or any other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
10.14 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[Execution Page Following]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER - SFI OF DELAWARE, LLC
By: /s/ Thomas B. D'Agostino, Jr.
---------------------------------
Name: Thomas B. D'Agostino, Jr.
---------------------------------
Title: President
--------------------------------
DANZIGER GRAPHICS, INC.
By: /s/ Robert Danziger
-----------------------------------
Name: Robert Danziger
---------------------------------
Title: President
--------------------------------
H. ROY DANZIGER, INC.
By: /s/ H. Roy Danziger
----------------------------------
Name: H. Roy Danizger
--------------------------------
Title: President
-------------------------------
STOCKHOLDERS:
/s/ Robert Danziger
-------------------------------------
Robert Danziger
/s/ H. Roy Danziger
-------------------------------------
H. Roy Danziger
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
STOCK PURCHASE AGREEMENT
By and Among
SFI of Delaware, LLC
Caltar, Inc.
and
The Stockholder Named Therein
made effective as of November 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. STOCK PURCHASE.................................................................................................1
1.1 Stock......................................................................................................1
1.2 Purchase Price.............................................................................................1
1.3 Post-Closing Adjustment....................................................................................2
1.4 Escrow.....................................................................................................3
1.5 Exchange of Certificates and Payment of Cash...............................................................4
1.6 Post-Closing Earn-Out......................................................................................4
1.7 Accounting Terms...........................................................................................6
2. CLOSING........................................................................................................6
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER..............................................6
3.1 Due Organization...........................................................................................6
3.2 Authorization; Validity....................................................................................7
3.3 No Conflicts...............................................................................................7
3.4 Capital Stock of the Company...............................................................................8
3.5 Transactions in Capital Stock; Accounting Treatment........................................................8
3.6 Subsidiaries, Stock, and Notes.............................................................................8
3.7 Complete Copies of Materials...............................................................................9
3.8 Absence of Claims Against Company..........................................................................9
3.9 Company Financial Conditions...............................................................................9
3.10 Financial Statements......................................................................................9
3.11 Liabilities and Obligations..............................................................................10
3.12 Books and Records........................................................................................10
3.13 Bank Accounts; Powers of Attorney........................................................................11
3.14 Accounts and Notes Receivable............................................................................11
3.15 Permits..................................................................................................11
3.16 Real Property............................................................................................12
3.17 Personal Property........................................................................................14
3.18 Intellectual Property....................................................................................15
3.19 Significant Customers; Material Contracts and Commitments................................................16
3.20 Government Contracts.....................................................................................18
3.21 Inventory................................................................................................19
3.22 Insurance................................................................................................19
3.24 Labor and Employment Matters.............................................................................21
3.25 Employee Benefit Plans...................................................................................22
3.26 Taxes....................................................................................................26
3.27 Conformity with Law; Litigation..........................................................................28
3.28 Relations with Governments...............................................................................28
3.29 Absence of Changes.......................................................................................29
3.30 Disclosure...............................................................................................30
3.33 Predecessor Status; Etc..................................................................................31
3.36 Location of Chief Executive Offices......................................................................31
3.37 Location of Equipment and Inventory......................................................................31
3/35 Year 2000 Compliance.....................................................................................31
4. REPRESENTATIONS AND WARRANTIES OF BUYER.......................................................................32
4.1 Due Organization..........................................................................................32
4.2 Authorization; Validity of Obligations....................................................................32
4.3 No Conflicts..............................................................................................32
4.4 Financial Ability.........................................................................................33
i
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5. COVENANTS.....................................................................................................33
5.1 Tax Matters...............................................................................................33
5.2 Accounts Receivable.......................................................................................36
5.3 Intentionally Omitted.....................................................................................36
5.4 Employee Benefit Plans....................................................................................36
5.5 Related Party Agreements..................................................................................37
5.6 Cooperation...............................................................................................37
5.7 Access to Information; Confidentiality; Public Disclosure.................................................37
5.8 Conduct of Business Pending Closing.......................................................................38
5.9 Prohibited Activities.....................................................................................39
5.10 Exclusivity..............................................................................................40
5.11 Notification of Certain Matters..........................................................................41
5.12 Notice to Bargaining Agents..............................................................................41
5.13 Post-Closing Balance Sheet...............................................................................41
5.14 Subordination, Nondisturbance Attornment Agreement.......................................................41
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER..................................................................41
6.1 Representations and Warranties; Performance of Obligations................................................41
6.2 No Litigation.............................................................................................42
6.3 No Material Adverse Change................................................................................42
6.4 Consents and Approvals....................................................................................42
6.5 Opinion of Counsel........................................................................................42
6.6 Charter Documents.........................................................................................42
6.7 Quarterly Financial Statements............................................................................43
6.8 Due Diligence Review......................................................................................43
6.9 Delivery of Closing Financial Certificate.................................................................43
6.10 FIRPTA Compliance........................................................................................44
6.11 Tarr Employment Agreement................................................................................44
6.12 Lease Agreement..........................................................................................44
6.13 Salesmen Employment Agreements...........................................................................44
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY........................................44
7.1 Representations and Warranties; Performance of Obligations................................................44
7.2 No Litigation.............................................................................................44
7.4 Consents and Approvals....................................................................................45
7.5 Employment Agreements.....................................................................................45
7.5 Lease Agreement...........................................................................................45
8. INDEMNIFICATION...............................................................................................45
8.1 General Indemnification by the Stockholder and Tarr.......................................................45
8.2 Limitation and Expiration.................................................................................46
8.3 Indemnification Procedures................................................................................47
8.4 Survival of Representations Warranties and Covenants......................................................49
8.5 Remedies Cumulative.......................................................................................49
8.6 Right to Set Off..........................................................................................49
9. NONCOMPETITION................................................................................................49
9.1 Prohibited Activities.....................................................................................49
9.2 Confidentiality...........................................................................................50
9.3 Damages...................................................................................................51
9.4 Reasonable Restraint......................................................................................51
9.5 Severability; Reformation.................................................................................51
9.6 Independent Covenant......................................................................................51
9.7 Materiality...............................................................................................51
9.8 Construction..............................................................................................51
10. GENERAL......................................................................................................51
10.1 Termination..............................................................................................52
ii
<PAGE>
10.2 Effect of Termination....................................................................................52
10.3 Successors and Assigns...................................................................................52
10.4 Entire Agreement; Amendment; Waiver......................................................................53
10.5 Counterparts.............................................................................................53
10.6 Brokers and Agents.......................................................................................53
10.7 Expenses.................................................................................................53
10.8 Specific Performance; Remedies...........................................................................53
10.9 Notices..................................................................................................54
10.10 Governing Law...........................................................................................55
10.11 Severability............................................................................................55
10.12 Absence of Third Party Beneficiary Rights...............................................................55
10.13 Mutual Construction.....................................................................................55
10.14 Further Representations.................................................................................55
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 30 day of November, 1998, by and among SFI of Delaware, LLC, a
Delaware limited liability company ("Buyer"), whose sole member is Workflow
Management, Inc., a Delaware corporation ("Workflow"), Caltar, Inc., a
California corporation (the "Company"), Jack Tarr and Phyllis T. Tarr, Trustees
("Trustees") of the Tarr Family Trust u/t/d October 3, 1991, the sole
stockholder of the Company ("Stockholder"), and Jack Tarr, individually
.
BACKGROUND
The Company is engaged in the business of distributing printed business
forms and electronic forms. The Stockholder owns all of the issued and
outstanding capital stock of the Company. Tarr is the President of the Company
and is entering into an Employment Agreement with Buyer on the date hereof. This
Agreement contemplates a transaction in which the Buyer will purchase from the
Stockholder, and the Stockholder will sell to the Buyer, all of the outstanding
capital stock of the Company (the "Stock") for the cash consideration set forth
herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE
1.1 Stock. Subject to the terms and conditions of this Agreement, at
the Closing (as defined below), the Stockholder will sell to Buyer, and Buyer
will purchase from Stockholder, the Stock for the Purchase Price (as defined
below).
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall
be the amounts payable to the Stockholder by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments pursuant to Section
453(b) of the Internal Revenue Code of 1986, as amended ("Code"), in the
following manner:
(i) $400,000 of the Purchase Price shall be
payable in cash ("Cash Purchase Price"), as adjusted pursuant to this
Section 1.2 and Section 1.3. The Cash Purchase Price, as so adjusted,
shall be applied first to satisfy the escrow obligations set forth in
Section 1.4 and the balance shall be paid to the Stockholder in cash at
Closing.
(ii) Certain payments shall be made to the
Stockholder based upon the "Gross Profit" of the Company, as specifically
set forth in Section 1.6 hereof. For purposes of the Code, 4.51% of such
payments shall be treated as interest for income tax purposes, which is equal
to the Applicable Federal Rate for Mid-Term, Annual obligations as published
by the Internal Revenue Service for November 1998 in Revenue Ruling 98-52.
<PAGE>
(b) The Purchase Price has been calculated based upon several
factors, including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $100,000 (the "Net Worth
Target") as of the Closing; provided, however that notwithstanding anything in
GAAP to the contrary, the Net Worth Target shall be calculated for purposes of
this Agreement after giving effect to any expenses incurred by the Company or
the Stockholder in connection with the transactions contemplated by this
Agreement.
(c) If on the Closing Financial Certificate (as defined in
Section 6.9), the Certified Closing Net Worth (as defined in Section 6.9) is
less than the Net Worth Target, the Cash Purchase Price to be delivered to the
Stockholder may, at Buyer's election, be reduced either (i) at the Closing, or
(ii) after completion of the Post-Closing Audit (as defined in Section 1.3), by
the difference between the Net Worth Target and the Certified Closing Net Worth
set forth on the Closing Financial Certificate.
1.3 Post-Closing Adjustment.
(a) The Cash Purchase Price shall be subject to adjustment
after the Closing Date as specified in this Section 1.3.
(b) Within one hundred twenty (120) days following the Closing
Date, Buyer, at its option, shall cause PriceWaterhouseCoopers ("Buyer's
Accountant") to audit the Company's books to determine the accuracy of the
information set forth on the Closing Financial Certificate (the "Post-Closing
Audit"). The parties acknowledge and agree that for purposes of determining the
net worth of the Company as of the Closing Date, the value of the assets of the
Company shall, except with the prior written consent of Buyer and Stockholder,
be calculated as provided in the last paragraph of Section 6.9. In the event
that Buyer's Accountant determines that the actual Company net worth as of the
Closing Date was less than the Certified Closing Net Worth, Buyer shall deliver
a written notice (the "Financial Adjustment Notice") to the Stockholder, setting
forth (i) the determination made by Buyer's Accountant of the actual Company net
worth (the "Actual Company Net Worth"), (ii) the amount of the Cash Purchase
Price that would have been payable at Closing pursuant to Section 1.2(c) had the
Actual Company Net Worth been reflected on the Closing Financial Certificate
instead of the Certified Closing Net Worth, and (iii) the amount by which the
Cash Purchase Price would have been reduced at Closing had the Actual Company
Net Worth been used in the calculations pursuant to Section 1.2(c) (the
"Purchase Price Adjustment"). The Purchase Price Adjustment shall take account
of the reduction, if any, to the Cash Purchase Price already taken pursuant to
Section 1.2(c)(i).
<PAGE>
(c) The Stockholder shall have thirty (30) days from the
receipt of the Financial Adjustment Notice to notify Buyer if the Stockholder
disputes such Financial Adjustment Notice. If Buyer has not received notice of
such a dispute within such 30-day period, Buyer shall be entitled to receive
from the Stockholder (which may, at Buyer's sole discretion, be from the Pledged
Assets as defined in Section 1.4) the Purchase Price Adjustment. If, however,
the Stockholder has delivered notice of such a dispute to Buyer within such
30-day period, then Buyer's Accountant and Stockholder shall jointly select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years to review the Company's books, Closing
Financial Certificate and Financial Adjustment Notice (and related information)
to determine the amount, if any, of the Purchase Price Adjustment. The
independent accounting firm shall be directed to consider only those agreements,
contracts, commitments or other documents (or summaries thereof) that were
either (i) delivered or made available to Buyer's Accountant in connection with
the transactions contemplated hereby, or (ii) reviewed by Buyer's Accountant
during the course of the Post-Closing Audit. The independent accounting firm
shall make its determination of the Purchase Price Adjustment, if any, within
thirty (30) days of its selection. The determination of the independent
accounting firm shall be final and binding on the parties hereto, and upon such
determination, Buyer shall be entitled to receive from the Stockholder (which
may, at Buyer's sole discretion, be from the Pledged Assets as defined in
Section 1.4) the Purchase Price Adjustment. The costs of the independent
accounting firm shall be borne by the party (either Buyer or the Stockholder)
whose determination of the Company's net worth at Closing was further from the
determination of the independent accounting firm, or equally by Buyer and the
Stockholder in the event that the determination by the independent accounting
firm is equidistant (or within $1,000 of being equidistant) between the
Certified Closing Net Worth and the Actual Company Net Worth.
1.4 Escrow.
(a) As collateral security for the payment of any post-Closing
adjustment to the Cash Purchase Price under Section 1.3, or any indemnification
obligations of the Stockholder or Tarr pursuant to Article 8, $40,000 of the
Cash Purchase Price (the "Pledged Assets") shall be delivered at Closing to
Kaufman & Canoles, a Virginia professional corporation, as escrow agent ("Escrow
Agent").
(b) The Pledged Assets shall be held by the Escrow Agent
pursuant to the terms and conditions set forth in the Escrow Agreement ("Escrow
Agreement") dated as of the date hereof by and among the Buyer, Stockholder and
Escrow Agent.
(c) The Pledged Assets shall be available to satisfy any
post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3 and
any indemnification obligations of the Stockholder or Tarr pursuant to Article 8
until April 30, 1999 (the "Release Date"). Promptly following the Release Date,
and subject to the specific terms and conditions of the Escrow Agreement, the
Escrow Agent shall return or cause to be returned to the Stockholder the Pledged
Assets, less Pledged Assets having an aggregate value equal to the amount of (i)
any post-Closing adjustment to the Cash Purchase Price under Section 1.3
(including any post-Closing adjustment to the Cash Purchase Price that is
subject to dispute under the terms and conditions of Section 1.3) (ii) any
pending claim for indemnification made by any Indemnified Party (as defined in
Article 8), and (iii) any indemnification obligations of the Stockholder
pursuant to Article 8.
<PAGE>
1.5 Exchange of Certificates and Payment of Cash.
(a) Buyer to Provide Cash. In exchange for the Stock, Buyer
shall cause to be paid by wire transfer to the Stockholder the Cash Purchase
Price, as adjusted pursuant to Section 1.2 and Section 1.3.
(b) Certificate Delivery Requirements. At the Closing, the
Stockholder shall deliver to Buyer the certificate or certificates (the
"Certificates") representing the Stock, duly endorsed in blank by the
Stockholder, or accompanied by blank stock powers duly executed by the
Stockholder and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and canceled. The Stockholder
shall promptly cure any deficiencies with respect to the endorsement of the
Certificates or other documents of conveyance with respect to the stock powers
accompanying such Certificates.
(c) No Further Ownership Rights in Capital Stock of the
Company. All cash to be delivered (including cash that constitutes Pledged
Assets) upon the surrender for exchange of shares of the Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Stock, and following the
Closing, the Stockholder shall have no further rights to, or ownership in,
shares of capital stock of the Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the Stockholder, such cash as provided in Section 1.2; provided, however that
Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the Stockholder to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Buyer
with respect to the certificates alleged to have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.5, none of the Company or any party hereto shall be liable to a
holder of shares of the Stock for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.6 Post-Closing Earn-Out.
(a) For (i) the period commencing the date after the Closing
Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) each of Buyer's
next four (4) fiscal years following the Initial Fiscal Period, and (iii) the
period commencing April 27, 2003 and ending on the date that is five (5) years
after the date of this Agreement (such periods individually an "Annual Earn-out
Period"), the Stockholder shall be entitled to receive from the Buyer ten
percent (10%) of the annual Gross Profit (as defined herein) of the Company for
any Annual Earn-out Period, on the specific terms and conditions set forth in
this Section 1.6 (such payments the "Earn-out"). Any Earn-out due shall be
payable in cash within thirty (30) days after the last day of the Annual
Earn-out Period.
<PAGE>
(b) Gross Profit for any period shall mean the amount of the
Company's "Net Sales" less "Cost of Goods Sold," in each case on an
unconsolidated basis and without giving effect to the results of operations of
any direct or indirect parent or subsidiary of the Company. "Net Sales" for any
period means the invoiced amount of goods sold by the Company during such period
to the Earn-out Accounts (as defined below), payment for which is actually
received by the Company, less actual trade discounts, returns, artwork to the
extent not paid by customers, and freight to the extent not paid by customers.
"Earn-out Accounts" means those accounts of the Company existing on the date
hereof as identified on Schedule 1.6(b) and any new accounts of the Company
obtained or procured by the Company and any of the Company's current or future
sales representatives or employees during any Annual Earn-out Period. "Cost of
Goods Sold" for any period means the cost of goods sold which are allocable to
Net Sales as determined in accordance with GAAP; provided, however, that Cost of
Goods Sold shall not be reduced by any purchased discounts, bulk purchase
discounts, discounts for payment, special discounts or other similar incentives.
(c) To the extent that the Company has a negative Gross Profit
during any Annual Earn-out Period (such amount a "Gross Profit Loss"), the Gross
Profit Loss shall be carried forward to the subsequent Annual Earn-out Period(s)
and aggregated with the Gross Profit (or Gross Profit Loss) for such subsequent
Annual Earn-out Period(s) for purposes of determining the Earn-out, if any, due
for such subsequent Annual Earn-out Period(s). All Gross Profit Losses shall
continue to be carried forward on an annual basis until such time as Gross
Profits are fully offset by the total amount of the Gross Profit Losses. Any
Gross Profit Losses will not effect prior payments of Earn-outs for Annual
Earn-out Periods in which the Company had a Gross Profit.
(d) In the event that, after the date of this Agreement, the
Company is merged (or otherwise consolidated) into Buyer, Workflow or any direct
or indirect subsidiary of Buyer or Workflow (any such entity a "Merger
Affiliate") such that the Company is not the surviving corporation under
applicable law, the Earn-out shall only be payable with respect to the business
and operations conducted by the Company and without reference to the business
and operations of the Merger Affiliate. For purposes of calculating the Earn-out
payable to the Stockholder under this Section 1.6 after a merger or other
consolidation by the Company and a Merger Affiliate, the Buyer shall cause such
Merger Affiliate to (i) conduct the Company's former business and operations as
a division of the Merger Affiliate ("Company Division") and (ii) maintain such
financial reporting systems as are necessary to accurately calculate the Gross
Profit (or Gross Profit Losses) of the Company Division.
(e) Except as otherwise expressly agreed to by Buyer and
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) (such
business and operations to include any product lines of the Company and any
product lines offered by Buyer, Workflow or their direct or indirect
subsidiaries) and without reference to any other entity hereafter merged into or
otherwise consolidated with the Company. In the event that the Buyer or Workflow
cause any entity to merge or otherwise consolidate into the Company such that
the Company is the surviving corporation under applicable law, the Company shall
maintain such financial reporting systems as are necessary to accurately
calculate the Gross Profit (or Gross Profit Losses) of the Company (or the
Company Division) without taking into account the results of any other
operations of the Company or any such other entity.
<PAGE>
(f) Notwithstanding anything in this Section 1.6 to the
contrary, Buyer shall have the right to reduce any amounts otherwise payable as
an Earn-out by the amount of any indemnification obligations of the Stockholder
or Tarr under Article 8.
1.7 Accounting Terms. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING
The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place through the delivery of executed originals or
facsimile counterparts of all documents required hereunder, providing that all
conditions to Closing shall have been satisfied or waived, at such time and date
as Buyer, the Company and the Stockholder may mutually agree, which date shall
be referred to as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company, the Stockholder and Tarr,
jointly and severally, represents and warrants to Buyer as follows (for purposes
of this Agreement, the phrases "knowledge of the Company" or the "Company's
knowledge," or words of similar import, mean the knowledge of the Stockholder,
Tarr and the directors and officers of the Company, including facts of which
Tarr and the directors and officers of the Company, in the reasonably prudent
exercise of their duties, should be aware):
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
The Company is in good standing as a foreign corporation in each jurisdiction in
which it does business. The Company has delivered to Buyer true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
The minute books of the Company have been made available to Buyer (and have been
delivered, along with the Company's original stock ledger and corporate seal, to
Buyer) and are correct and, except as set forth in Schedule 3.1, complete in all
material respects.
<PAGE>
3.2 Authorization; Validity. The Company has the full legal right,
corporate power and authority to enter into this Agreement and the transactions
contemplated hereby. Each of the Stockholder and Tarr has the full legal right
and authority to enter into this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
performance by the Company of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of the Company and the
Stockholder and this Agreement has been duly and validly authorized by all
necessary corporate action. The execution and delivery of this Agreement by the
Stockholder has been duly and validly authorized by all necessary action under
the terms of the Tarr Family Trust u/t/d October 3, 1991 ("Trust"). This
Agreement is a legal, valid and binding obligation of the Company, the
Stockholder and Tarr, enforceable in accordance with its terms.
3.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation
of, any of the Charter Documents or the Trust;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company, the Stockholder or
Tarr is a party or by which the Company, the Stockholder or Tarr is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Company's properties pursuant to (i) any law or regulation to which the
Company, the Stockholder or Tarr or any of their respective property is subject,
or (ii) any judgment, order or decree to which the Company, the Stockholder or
Tarr is bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company, the Stockholder or Tarr is subject or by
which the Company, the Stockholder or Tarr is bound including, without
limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), together with all rules and regulations promulgated thereunder.
<PAGE>
3.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 2,000 shares of common stock, $10.00 par value, of which
2,000 shares are issued and outstanding and no shares of preferred stock.. All
of the issued and outstanding shares of the capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned of record and beneficially by the Stockholder free and clear of all
Liens (defined below). All of the issued and outstanding shares of the capital
stock of the Company were offered, issued, sold and delivered by the Company in
compliance with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares was issued in violation of any
preemptive rights. There are no voting agreements or voting trusts with respect
to any of the outstanding shares of the capital stock of the Company. For
purposes of this Agreement, "Lien" means any mortgage, security interest,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
3.5 Transactions in Capital Stock; Accounting Treatment. Except as set
forth in Schedule 3.5, no option, warrant, call, subscription right, conversion
right or other contract or commitment of any kind exists of any character,
written or oral, which may obligate the Company to issue, sell or otherwise
become outstanding any shares of capital stock. The Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. As a result of the transactions contemplated by
this Agreement, Buyer will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
3.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries. For purposes of this Agreement, "subsidiaries" means any
corporation, partnership, limited liability company, association or other
business entity of which a person (as defined in Section 10.13) owns, directly
or indirectly, more than 50% of the voting securities thereof.
(b) Except as set forth on Schedule 3.6(b), the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company.
<PAGE>
3.7 Complete Copies of Materials. The Company has delivered to Buyer
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Buyer.
3.8 Absence of Claims Against Company. Neither the Stockholder
nor Tarr has any claims against the Company.
3.9 Company Financial Conditions.
(a) The Company's net worth (i) as of the end of its most
recent fiscal year was not less than $256,538, and (ii) as of the Closing will
not be less than the Net Worth Target.
(b) The Company's sales for (i) its most recent fiscal year
ending December 31, 1997, were not less than $3,590,482, and (ii) the ten-month
period ending October 31, 1998 were not less than $3,226,365.
(c) The Company's earnings before interest and taxes (after
the addition of "add-backs" set forth on Schedule 3.9(c)) for (i) its most
recent fiscal year were not less than $133,546 and (ii) the ten-month period
ended October 31, 1998, were not less than $140,160.
(d) The sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) the Stockholder, (iii) Tarr and (iv)
all other financial institutions and creditors (in each case including the
current portions of such indebtedness, but excluding trade payables and other
accounts payable incurred in the ordinary course of the Company's business
consistent with past practice) as of the Closing Date will not be more than
$378,935.
For purposes of Section 3.9(a) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete
and correct copies of the Company's internal, unaudited balance sheet as of
December 31, 1997 (the end of its most recent completed fiscal year), and
internal, unaudited income statement for the year ended December 31, 1997
(collectively, the "Year End Financials") and (b) true, complete and correct
copies of the Company's unaudited balance sheet (the "Interim Balance Sheet") as
of October 31, 1998 (the "Balance Sheet Date") and income statement for the
ten-month period then ended (collectively, the "Interim Financials," and
together with the Year End Financials, the "Company Financial Statements"). The
Company Financial Statements have been prepared in accordance with GAAP
consistently applied, subject, in the case of the Interim Financials, (i) to
normal year-end adjustments, which individually or in the aggregate will not be
material, (ii) the exceptions stated on Schedule 3.10, and (iii) to the omission
of footnote information. Each balance sheet included in the Company Financial
Statements presents fairly the financial condition of the Company as of the date
indicated thereon, and each of the income statements included in the Company
Financial Statements presents fairly the results of its operations for the
periods indicated thereon. Since the dates of the Company Financial Statements,
there have been no material changes in the Company's accounting policies other
than as requested by Buyer to conform the Company's accounting policies to GAAP.
<PAGE>
3.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any
liabilities except for:
(i) those liabilities reflected on the Interim
Balance Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary
course of its business consistent with past practice under any contract,
commitment or agreement specifically disclosed on any Schedule to this
Agreement or not required to be disclosed thereon because of the term or
amount involved or otherwise; and
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent with past
practice, which liabilities are not, individually or in the aggregate,
material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
<PAGE>
3.13 Bank Accounts; Powers of Attorney. Schedule 3.13 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 Accounts and Notes Receivable. The Company has delivered to Buyer
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees, Tarr
and the Stockholder), which includes an aging of all accounts and notes
receivable showing amounts due in 30-day aging categories (collectively, the
"Accounts Receivable"). On the Closing Date, the Company will deliver to Buyer a
complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are current and collectible net of any respective reserves shown on the
Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within one hundred
twenty (120) days after the day on which it first became due and payable. There
is no contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
3.15 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company, by any Permit.
<PAGE>
3.16 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.16(b) contains a complete and accurate
description of all Real Property leased to the Company (including street
address, legal description (where known), owner, and Company's use thereof) and,
to the Company's knowledge, any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, covenants, easements,
restrictions, encroachments, leases, or encumbrances of any nature thereon
("Encumbrances"). The Company does not own any Real Property. The Real Property
listed on Schedule 3.16 includes all interests in real property necessary to
conduct the business and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) The Company has good and valid rights of
ingress and egress to and from all Real Property from and to the public street
systems for all usual street, road and utility purposes.
(ii) All structures and all structural, mechanical
and other physical systems thereof that constitute part of the Real Property,
including but not limited to the walls, roofs and structural elements thereof
and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facility included therein, and other material items at the Real
Property (collectively, the "Tangible Assets"), are free of defects and in good
operating condition and repair. For purposes of this Section, a defect shall
mean a condition relating to the structures or any structural, mechanical or
physical system which requires an expenditure of more than $1,000 to correct. No
maintenance or repair to the Real Property, structures, facilities and
improvements to the Real Property ("Structures") or any Tangible Asset has been
unreasonably deferred. There is no water, chemical or gaseous seepage, diffusion
or other intrusion into said buildings, including any subterranean portions,
that would impair beneficial use of the Real Property, Structures or any
Tangible Asset.
(iii) All water, sewer, gas, electric, telephone and
drainage facilities, and all other utilities required by any applicable law or
by the use and operation of the Real Property in the conduct of the Company's
business are installed to the property lines of the Real Property, are connected
pursuant to valid permits to municipal or public utility services or proper
drainage facilities, are fully operable and are adequate to service the Real
Property in the operation of the Company's business and to permit full
compliance with the requirements of all laws in the operation of such business.
No fact or condition exists which could result in the termination or material
reduction of the current access from the Real Property to existing roads or to
sewer or other utility services presently serving the Real Property.
<PAGE>
(iv) The Real Property and all present uses and
operations of the Real Property comply with all applicable statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the construction, ownership, use, occupation and operation of the Real
Property.
(v) There are no pending or, to the Company's
knowledge, threatened condemnation, fire, health, safety, building, zoning or
other land use regulatory proceedings, lawsuits or administrative actions
relating to any portion of the Real Property or any other matters which do or
may adversely effect the current use, occupancy or value thereof, nor has the
Company, Tarr or the Stockholder received notice of any pending or threatened
special assessment proceedings affecting any portion of the Real Property.
(vi) No portion of the Real Property or the
Structures has suffered any damage by fire or other casualty which has not
heretofore been completely repaired and restored to its original condition.
(vii) There are no parties other than the Company in
possession of any of the Real Property or any portion thereof, and there are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of any portion of
the Real Property or any portion thereof.
(viii) The Company is not a party to, and to the
Company's knowledge there are no, outstanding options or rights of first refusal
to purchase the Real Property, or any portion thereof or interest therein. The
Company has not transferred any air rights or development rights relating to the
Real Property.
<PAGE>
(ix) The Company is not a party to any service
contracts or other agreements relating to the use or operation of the Real
Property.
(x) To the knowledge of the Company, no portion of
the Real Property is located in a wetlands area, as defined by Laws, or in a
designated or recognized flood plain, flood plain district, flood hazard area or
area of similar characterization. No commercial use of any portion of the Real
Property will violate any requirement of the United States Corps of Engineers or
Laws relating to wetlands areas.
(xi) All real property taxes and assessments that
are due and payable by the Company with respect to the Real Property have been
paid or will be paid at or prior to Closing.
(xii) All oral or written leases, subleases,
licenses, concession agreements or other use or occupancy agreements pursuant to
which the Company leases from any other party any real property, including all
amendments, renewals, extensions, modifications or supplements to any of the
foregoing or substitutions for any of the foregoing (collectively, the "Leases")
are valid and in full force and effect. The Company has provided Buyer with true
and complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
option granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
(xiii) None of the Leases requires the consent or
approval of any party thereto in connection with the consummation of the
transactions contemplated hereby.
3.17 Personal Property.
(a) Schedule 3.17(a) sets forth a complete and accurate list
of all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $5,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by the Stockholder or Tarr or business
or personal affiliates of the Stockholder, Tarr or the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material, machinery and
equipment of the Company, including those listed on Schedule 3.17(a), are in
good working order and condition, ordinary wear and tear excepted. All leases
set forth on Schedule 3.17(a) are in full force and effect and constitute valid
and binding agreements of the Company, and the Company is not in breach of any
of their terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on Schedule 3.17(a).
<PAGE>
3.18 Intellectual Property.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks (as defined below) listed on Schedule 3.18(a).
Such schedule lists (i) all of the Marks registered in the United States Patent
and Trademark Office ("PTO") or the equivalent thereof in any state of the
United States or in any foreign country, and (ii) all of the unregistered Marks,
that the Company now owns or uses in connection with its business. Except with
respect to those Marks shown as licensed on Schedule 3.18(a), the Company owns
all of the registered and unregistered trademarks, service marks, and trade
names that it uses. The Marks listed on Schedule 3.18(a) will not cease to be
valid rights of the Company by reason of the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
For purposes of this Section 3.18, the term "Mark" shall mean all right, title
and interest in and to any United States or foreign trademarks, service marks
and trade names now held by the Company, including any registration or
application for registration of any trademarks and services marks in the PTO or
the equivalent thereof in any state of the United States or in any foreign
country, as well as any unregistered marks used by the Company, and any trade
dress (including logos, designs, company names, business names, fictitious names
and other business identifiers) used by the Company in the United States or any
foreign country.
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents (as defined below) listed on Schedule 3.18(b)(i) and in the
Copyright (as defined below) registrations listed on Schedule 3.18(b)(ii). Such
Patents and Copyrights constitute all of the Patents and Copyrights that the
Company now owns or is licensed to use. The Company owns or is licensed to
practice under all patents and copyright registrations that the Company now owns
or uses in connection with its business. For purposes of this Section 3.18, the
term "Patent" shall mean any United States or foreign patent to which the
Company has title as of the date of this Agreement, as well as any application
for a United States or foreign patent made by the Company; and the term
"Copyright" shall mean any United States or foreign copyright owned by the
Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 3.18(c). Those Other Rights constitute all of the Other
Rights that the Company now owns or is licensed to use. The Company owns or is
licensed to practice under all trade secrets, franchises or similar rights that
it owns, uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
<PAGE>
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 3.18(a), (b), or (c). No claims
with respect to the Company Intellectual Property or Third Party Intellectual
Property are currently pending or, to the knowledge of the Company, are
threatened by any person, nor, to the Company's knowledge, do any grounds for
any claims exist: (i) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Company infringes on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by the Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted by the Company; (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property or other trade secret
material to the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during each of
the past four (4) fiscal quarters, and "Significant Suppliers" are the twenty
(20) suppliers who supplied the largest amount by dollar volume of products or
services to the Company during the twelve (12) months ending on the Balance
Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of
all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $2,500 or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$2,500 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts.
<PAGE>
(c) Except to the extent set forth on Schedule 3.19(c), (i)
none of the Company's Significant Customers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting or
threatening to cancel or substantially reduce, any purchases from the Company,
(ii) none of the Company's Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting to cancel
or substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations and
is not in default under any of the Material Contracts, and no notice of default
has been received with respect to any thereof, and (iv) there are no Material
Contracts that were not negotiated at arm's length. The Company has not received
any material customer complaints concerning its products and/or services, nor
has it had any of its products returned by a purchaser thereof except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any material revenue.
(d) Each Material Contract, except those terminated pursuant
to Section 5.6, is valid and binding on the Company and is in full force and
effect and is not subject to any default thereunder by any party obligated to
the Company pursuant thereto. The Company has obtained all necessary consents,
waivers and approvals of parties to any Material Contracts that are required in
connection with any of the transactions contemplated hereby, or are required by
any governmental agency or other third party or are advisable in order that any
such Material Contract remain in effect without modification after the
transactions contemplated by this Agreement and without giving rise to any right
to termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
(e) The Company is not a "women's business enterprise" ("WBE")
or "woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" ("MBE") or "minority-owned business concern" as
defined in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to any
of its customers.
(f) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which the Stockholder or Tarr
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any Person in which the Stockholder or Tarr owns a material interest, are set
forth in Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or
substantially all of the Company's assets (including, without limitation, a
pledge of the Company's contract rights under any Material Contract) will not,
except as set forth on Schedule 3.19(g), (i) result in the breach or violation
of, (ii) constitute a default under, (iii) create a right of termination under,
or (iv) result in the creation or imposition of (or the obligation to create or
impose) any lien upon any of the assets of the Company (other than a lien
created pursuant to the pledge, hypothecation or mortgage described at the start
of this Section 3.19(g)) pursuant to any of the terms and provisions of, any
Material Contract to which the Company is a party or by which the property of
the Company is bound.
<PAGE>
3.20 Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company is
not a party to any government contracts.
(b) The Company has not been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of the Company, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Company's suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 3.20, the Company has not
been, nor is it now being, audited or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or instrumentality of the United States Government or any
state or local government, relating to a contract.
(e) The Company has not, with respect to any government
contract, received a cure notice advising the Company that it is or was in
default or would, if it failed to take remedial action, be in default under such
contract.
(f) The Company has not submitted any inaccurate, untruthful,
or misleading cost or pricing data, certification, bid, proposal, report, claim,
or any other information relating to a contract to any agency or instrumentality
of the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or
affiliate of the Company is in receipt or possession of any competitor or
government proprietary or procurement sensitive information related to the
Company's business under circumstances where there is reason to believe that
such receipt or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been
issued, awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods, all of which is merchantable and fit for the purposes for which it was
procured or manufactured, and none of which is obsolete, damaged, or defective,
subject to a GAAP reserve for inventory set forth on the face of the Interim
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company.
<PAGE>
3.22 Insurance. Schedule 3.22 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two (2) policy years. The Company has delivered to Buyer true, complete and
correct copies of all current insurance policies, all of which are in full force
and effect. All premiums payable under all such policies have been paid and the
Company is otherwise in full compliance with the terms of such policies. Such
policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company. To the knowledge
of the Company, there have been no threatened terminations of, or material
premium increases with respect to, any of such policies.
3.23 Environmental Matters.
(a) The Company and any other person or entity for whose conduct the
Company is or may be held responsible have no liability under, have never
violated, and are presently in compliance with any and all environmental, health
or safety-related laws, regulations, ordinances or by-laws at the federal, state
and local level (the "Environmental Laws") applicable to the Real Property and
any facilities and operations thereon, except as listed in Schedule 3.23(a).
(b) There exist no conditions with respect to the environment on or off
the Real Property, whether or not yet discovered, that could or do result in any
damage, loss, cost, expense, claim, demand, order or liability to or against the
Company by any third party including, without limitation, any condition
resulting from the operation of the Company's business and/or the operation of
the business of any other property owner or operator in the vicinity of the Real
Property and/or any activity or operation formerly conducted by any person or
entity on or off the Real Property, except as set forth in Schedule 3.23(b).
(c) The Company, and any other person or entity for whose conduct the
Company is or may be held responsible, have not generated, manufactured,
refined, transported, treated, stored, handled, disposed, transferred, produced,
or processed any pollutant, toxic substance, hazardous waste, hazardous
material, hazardous substance, or oil as defined in or pursuant to the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et seq., the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water Act, as amended, 33
U.S.C. ss. 1251 et seq., or any other federal, state, or local environmental
law, regulation, ordinance, rule, or bylaw, whether existing as of the date
hereof, previously enforced, or subsequently enacted ("Hazardous Material") or
any solid waste at the Real Property, or at any other location, except in
compliance with all applicable Environmental Laws and except as listed in
Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except as listed in Schedule 3.23(d).
<PAGE>
(e) No Lien has been imposed on the Real Property by any governmental
entity at the federal, state, or local level in connection with the presence on
or off the Real Property of any Hazardous Material, except as listed in Schedule
3.23(e).
(f) The Company has not, and any other person or entity for whose
conduct the Company is or may be held responsible has not, (i) entered into or
been subject to any consent decree, compliance order, or administrative order
with respect to the Real Property or any facilities or operations thereon; (ii)
received notice under the citizen suit provision of any of the Environmental
Laws in connection with the Real Property or any facilities or operations
thereon; (iii) received any request for information, notice, demand letter,
administrative inquiry, or formal or informal compliant or claim with respect to
any Environmental Condition relating to the Real Property or any facilities or
operations thereon; or (iv) been subject to or threatened with any governmental
or citizen enforcement action with respect to the Real Property or any
facilities or operations thereon, except as set forth in Schedule 3.23(f); and
the Company, and any other person or entity for whose conduct it is or may be
held responsible, have no knowledge that any of the above will be forthcoming.
(g) The Company has all permits necessary pursuant to Environmental
Laws for its activities and operations at the Real Property and for any past or
ongoing alterations or improvements at the Real Property, which permits are
listed in Schedule 3.23(g).
(h) None of the following exists at the Real Property: (1) underground
storage tanks, (2) asbestos-containing materials in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, (4) lead paint,
pipes or solder, or (5) landfills, surface impoundments or disposal areas,
except as listed in Schedule 3.23(h).
(i) The Company has provided to Buyer copies of all documents, records
and information in its possession or control or available to the Company
concerning Environmental Conditions relevant to the Real Property or any
facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Real Property and/or any adjacent
property or other property in the vicinity of the Real Property owned or
operated by the Company or others, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and environmental agency reports and
correspondence. Furthermore, the Stockholder and Tarr shall have an ongoing
obligation to immediately provide to Buyer copies of any additional such
documents that come into the possession or control of or become available to the
Stockholder or Tarr subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or caused to
be taken all actions necessary to ensure that as of the Closing Date the Real
Property, all activities and operations thereon, and all alterations and
improvements thereto, comply with all applicable Environmental Laws and with any
and all agreements with governmental entities, court orders, and administrative
orders regarding Environmental Conditions.
<PAGE>
3.24 Labor and Employment Matters. With respect to employees
of and service providers to the Company, except as set forth on
Schedule 3.24:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.25 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
<PAGE>
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit
Plan described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit
Plan that meets, purports to meet, or is intended to meet the requirements of
Section 401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 3.25(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
<PAGE>
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the last Internal Revenue Service
determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted by
the Company to obtain those letters; (D) the most recent summary plan
description; (E) the most recent written descriptions of all non-written
agreements relating to any such plan or arrangement; (F) all reports submitted
within the four (4) years preceding the date of this Agreement by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors; (G) all notices that were given within the three (3)
years preceding the date of this Agreement by the IRS, Department of Labor, or
any other governmental agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel or employee relations
policies;
(ii) the Caltar Data Forms, Inc. 401 Salary Savings
Plan (the "Company 401(k) Plan") is the only Qualified Plan. The Company has
never maintained or contributed to another Qualified Plan. The Company 401(k)
Plan qualifies under Section 401(a) of the Code, and any trusts maintained
pursuant thereto are exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred with respect to the design or operation of
any Qualified Plans that could cause the loss of such qualification or exemption
or the imposition of any liability, lien, penalty, or tax under ERISA or the
Code;
(iii) the Company has never sponsored or maintained,
had any obligation to sponsor or maintain, or had any liability (whether actual
or contingent, with respect to any of its assets or otherwise) with respect to
any Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the
Code or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
(v) there are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are not Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company, Tarr or the Stockholder, and no claims or
lawsuits have been asserted, instituted or, to the knowledge of the Company,
threatened by, against, or relating to any Company Plan or Company Benefit
Arrangement, against the assets of any trust or other funding arrangement under
any such Company Plan, by or against the Company with respect to any Company
Plan or Company Benefit Arrangement, or by or against the plan administrator or
any fiduciary of any Company Plan or Company Benefit Arrangement, and the
Company does not have knowledge of any fact that could form the basis for any
such claim or lawsuit. The Company Plans and Company Benefit Arrangements are
not presently under audit or examination (nor has notice been received of a
potential audit or examination) by the IRS, the Department of Labor, or any
other governmental agency or entity, and no matters are pending with respect to
the Company 401(k) Plan under the IRS's Voluntary Compliance Resolution program,
its Closing Agreement Program, or other similar programs;
<PAGE>
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company, the Stockholder or any officer,
director, or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and completely satisfied with
respect to each Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring
the Company Benefit Plans into conformity with the applicable provisions of
ERISA, the Code, and other applicable laws have been made or taken except to the
extent such amendments or actions (A) are not required by law to be made or
taken until after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the
Company is required to pay as contributions to the Company Benefit Plans as of
the last day of the most recent fiscal year of each of the plans ended before
the date of this Agreement; all benefits accrued under any unfunded Company Plan
or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the Balance Sheet Date; and
all monies withheld from employee paychecks with respect to Company Plans have
been transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any
Welfare Plan through a trust, reserve, premium stabilization, or similar
account, nor does it provide benefits through a voluntary employee beneficiary
association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been
made by the Company to any person with regard to any Company Plan or Company
Benefit Arrangement that was not in accordance with the Company Plan or Company
Benefit Arrangement and that could have an adverse economic consequence to the
Company;
<PAGE>
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B with respect
to any "qualifying event" (as defined therein) occurring before or on the
Closing Date;
(xv) no employee or former employee of the Company
or beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Interim Balance Sheet or (iii) continuation
coverage mandated under Section 4980B of the Code or other applicable law.
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who may earn more than $50,000
in 1998, all officers and all directors, and lists all employment agreements
with such employees, officers and directors and the rate of compensation (and
the portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
(f) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
3.26 Taxes.
(a) (i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
<PAGE>
(ii) The Company has paid in full on a timely basis
all Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Interim Balance Sheet, and the amount of the Company's liability
for unpaid Taxes for all periods or portions thereof ending on or before the
Closing Date will not exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the books and records of the Company on the Closing Date.
(iv) Except as set forth on Schedule 3.26, there are
no ongoing examinations or claims against the Company for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
(v) The Company has a taxable year ended on December
31, in each year commencing 1987.
(vi) The Company currently utilizes the accrual
method of accounting for income Tax purposes and such method of accounting has
not changed in the past 20 years. The Company has not agreed to, and is not and
will not be required to, make any adjustments under Code Section 481(a) as a
result of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid to any employee, independent contractor, creditor,
or other third party.
(viii) Copies of (A) any Tax examinations, (B)
extensions of statutory limitations for the collection or assessment of Taxes
and (C) the Tax Returns of the Company for the last fiscal year have been
delivered to Buyer.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Company's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
otherwise have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as
"tax exempt use property" within the meaning of Section 168(h) of the Code.
<PAGE>
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xiv) The Company is not, and has not been at any
time, a party to a tax sharing, tax indemnity or tax allocation agreement, and
the Company has not assumed the tax liability of any other person under
contract.
(xv) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
(xvii) The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return and does not
have any liability for the Taxes of another person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(b) (i) The Company has, since June 1, 1987, been an
S Corporation within the meaning of Section 1361 of the Code.
(ii) The Company does not have a net recognizable
built-in gain within the meaning of Section 1374 of the Code.
(c) Except as set forth on Schedule 3.26(c),
(i) The Trust does not file Tax Returns.
(ii) The Trustees are the only trustees of the Trust.
(iii) The Trustees are (A) citizens of the United
States and (B) are husband and wife and are not divorced.
(d) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
<PAGE>
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) The Company has not violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it.
(b) Neither the Stockholder nor Tarr has, at any time: (i)
committed any criminal act (except for minor traffic violations); (ii) engaged
in acts of fraud, dishonesty, gross negligence or moral turpitude; (iii) filed
for personal bankruptcy; or (iv) been an officer, director, manager, trustee or
controlling shareholder of a company that filed for bankruptcy or Chapter 11
protection.
(c) Except as set forth on Schedule 3.27(c), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
<PAGE>
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to the
Stockholder, Tarr or any of the Company's other officers, directors, employees,
consultants or agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice, nor has the Company
entered into or amended any Company Benefit Arrangement, Company Plan,
employment, severance or other agreement relating to compensation or fringe
benefits;
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any person,
including without limitation the Stockholder and Tarr and his affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholder or Tarr and his affiliates,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
<PAGE>
(m) any transaction by the Company outside the ordinary
course of business;
(n) any capital commitment by the Company, either
individually or in the aggregate, exceeding $2,500;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $2,500;
(r) any loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
3.30 Disclosure. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Buyer pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholder, Tarr or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholder, Tarr or the Company
to Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to the Stockholder or Tarr that has specific
application to the Stockholder, Tarr or the Company (other than general economic
or industry conditions) and that materially adversely affects or, as far as the
Stockholder or Tarr can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement or any Schedule hereto.
<PAGE>
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the Closing, the Company has operated only under the names set forth
on Schedule 3.31 in the jurisdiction or jurisdictions set forth on Schedule 3.31
and has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.32 Location of Chief Executive Offices Schedule 3.32 sets forth the
location of the Company's chief executive offices.
3.33 Location of Equipment and Inventory All inventory and equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 3.33. For purposes of this Agreement, (a) the term "inventory" shall
mean any inventory of whatever nature owned by the Company as of the date
hereof, and, in any event, shall include, but shall not be limited to, all
merchandise, inventory and goods wherever located, together with all goods,
supplies, incidentals, packaging materials and any other items used or usable in
manufacturing, processing, packaging or shipping the same, in all stages of
production -- from raw materials through work-in-process to finished goods; and
(b) the term "equipment" shall mean any equipment owned by the Company as of the
date hereof, and, in any event, shall include, but shall not be limited to, all
machinery, equipment, furnishings, fixtures and vehicles owned by the Company as
of the date hereof, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
3.34 Year 2000 Compliance. To the extent the Company may not be Year
2000 Compliant and Ready (as defined below) at any time prior to January 1,
1999, the Company has no reason to believe that such status will result in a
material adverse affect on the Company's business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise). In addition, the Company has no
reason to believe that its respective vendors, suppliers and customers are not
Year 2000 Compliant and Ready where the failure to be Year 2000 Compliant and
Ready would have a material adverse affect on the business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits or condition (financial or otherwise) of the Company. For purposes of
this Agreement, the term "Year 2000 Compliant and Ready," with respect to any
person, means that the hardware and software systems and components (including
without limitation imbedded microchips) owned, licensed or used by such person
in connection with its business operations will (without any additional cost or
the need for human intervention) (i) accurately process information involving
any and all dates before, during and/or after January 1, 2000, including without
limitation recognizing and processing input, providing output, storing
information and performing date-related calculations, all without creating any
ambiguity as to the century and without any other error or malfunction, (ii)
operate accurately without material interruption or malfunction on and in
respect of any and all dates before, during and/or after January 1, 2000 and
(iii) where applicable, respond to and process two digit year input without
creating any ambiguity as to the century.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce the Company, the Stockholder and Tarr to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer represents
and warrants to the Company and the Stockholder as follows:
4.1 Due Organization. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted. The sole
member of Buyer is Workflow.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite power and authority to enter into and
bind Buyer to the terms of this Agreement. Buyer has the full legal right, power
and authority to enter into this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by Buyer and the
performance by Buyer of the transactions contemplated herein has been duly and
validly authorized by the Board of Managers of Buyer and this Agreement has been
duly and validly authorized by all necessary action. This Agreement is a legal,
valid and binding obligation of Buyer enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Buyer's Operating Agreement;
(b) conflict with, or result in a default (or would constitute
a default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
<PAGE>
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
4.4 Financial Ability. Buyer possesses sufficient funds on hand and/or
Workflow has commitments from financial institutions in an amount sufficient to
enable Buyer to pay to the Stockholder the Purchase Price.
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholder, on
the other, for certain tax matters following the Closing Date:
(i) The Stockholder shall prepare or cause to be
prepared and file or cause to be filed, within the time and in the manner
provided by law, all Tax Returns of the Company for all periods ending on or
before the Closing Date that are due after the Closing Date. The Stockholder
shall pay to the Company on or before the due date of such Tax Returns the
amount of all Taxes shown as due on such Tax Returns to the extent that such
Taxes are not reflected in the current liability accruals for Taxes (excluding
reserves for deferred Taxes) shown on the Company's books and records as of the
Closing Date. Such Tax Returns shall be prepared and filed in accordance with
applicable law and in a manner consistent with past practices and shall be
subject to review and approval by Buyer. To the extent reasonably requested by
the Stockholder or required by law, Buyer and the Company shall participate in
the filing of any Tax Returns filed pursuant to this paragraph.
(ii) Except as set forth in Section 5.1(a)(iii) with
respect to income Tax Returns for the Company for 1998, the Company shall
prepare or cause to be prepared and file or cause to be filed any Tax Returns
for Tax periods which begin before the Closing Date and end after the Closing
Date. The Stockholder shall pay to the Company within fifteen (15) days after
the date on which Taxes are paid with respect to such periods an amount equal to
the portion of such Taxes which relates to the portion of such taxable period
ending on the Closing Date to the extent such Taxes are not reflected in the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. For purposes of
this Section 5.1, in the case of any Taxes that are imposed on a periodic basis
and are payable for a Taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
Taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
<PAGE>
(iii) The Stockholder and Buyer agree that the
Buyer's purchase of the capital stock of the Company is controlled by Section
1362(e)(6)(D) of the Code and Treasury Regulation ss.1.1362-3(b)(3) wherein the
1998 calendar tax year of the Company will be treated as two taxable years for
income Tax purposes and items of income, loss, deduction or credit shall be
assigned to the two short taxable years in accordance with the Company's normal
method of accounting under Treasury Regulation ss. 1.1362-3(b)(3) on a "per
books" method. The Stockholder and the Company shall file income Tax Returns for
the 1998 calendar tax year in a manner consistent with the foregoing.
(iv) Buyer and the Company on one hand and the
Stockholder on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 5.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to Tax matters pertinent to
the Company that are in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
(v) The Stockholder shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholder shall, at his own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration, and other Taxes and fees. If required by applicable law, Buyer and
the Company will join in the execution of any such Tax Returns and other
documentation.
(b) The Company shall, prior to the Closing, maintain its
status as an S Corporation for federal and state income tax purposes. The
Company and the Stockholder will not revoke the Company's election to be taxed
as an S corporation within the meaning of Sections 1361 and 1362 of the Code.
The Company and the Stockholder will not take or allow any action to be taken
(other than the sale of the Stock pursuant to this Agreement) that would result
in the termination of the Company's status as a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code.
(c) The parties agree as follows with respect to Section
338(h)(10) of the Code:
(i) At the Buyer's option, the Company and
Stockholder will join with Buyer in making a timely election under Section
338(h)(10) of the Code (and any corresponding election under state, local, and
foreign tax law) with respect to the purchase and sale of the Stock hereunder (a
"Section 338(h)(10) Election"). Stockholder will include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
its Tax Returns to the extent permitted by applicable law. Buyer and Stockholder
shall cooperate fully with each other in the making of such election. In
particular, Buyer shall be responsible for the preparation and filing of all Tax
Returns and forms (the "Section 338 Forms") required under applicable tax law to
be filed in connection with making the Section 338 (h)(10) Election. Stockholder
shall deliver to Buyer, within 90 days prior to the date the Section 338 Forms
are required to be filed, such documents and other forms as reasonably requested
by Buyer to properly complete the Section 338 Forms.
<PAGE>
(ii) Buyer and Stockholder shall allocate the
Purchase Price in the manner required by Section 338 of the Code and the
Treasury Regulations promulgated thereunder. Such allocation shall be used for
purposes of determining the modified aggregate deemed sales price under Treasury
Regulations and in reporting the deemed sale of assets of the Company in
connection with the Section 338(h)(10) Election.
(iii) Buyer shall initially prepare a completed set
of IRS Forms 8023-A (and any comparable forms required to be filed under state,
local or foreign tax law) and any additional data or materials required to be
attached to Form 8023-A pursuant to the Treasury Regulations promulgated under
Section 338 of the Code. Buyer shall deliver said forms to Stockholder for
review no later than 45 days prior to the date the Section 338 Forms are
required to be filed. In the event Stockholder objects to the manner in which
the Section 338 Forms have been prepared, Stockholder shall notify Buyer within
10 days of receipt of the Section 338 Forms of such objection, and the parties
shall endeavor within the next 15 days in good faith to resolve such dispute. If
the parties are unable to resolve such dispute within said 15 day period, Buyer
and Stockholder shall submit such dispute to an independent accounting firm of
recognized national standing (the "Allocation Arbiter") selected by Buyer and
Stockholder, which firm shall not be the regular accounting firm of Buyer or
Stockholder. Promptly, but not later than 15 days after its acceptance of
appointment hereunder, the Allocation Arbiter will determine (based solely on
presentations of Buyer and Stockholder and not by independent review) only those
matters in dispute and will render a written report as to the disputed matters
and the resulting preparation of the Section 338 Forms shall be conclusive and
binding upon the parties.
(iv) No new elections with respect to Taxes, or any
changes in current elections with respect to Taxes, affecting the Company after
the Section 338(h)(10) Election shall be made after the date of this Agreement
without the prior written consent of the Buyer and the Stockholder.
(d) Buyer and Stockholder agree as follows with respect to the
allocation of Tax liabilities:
(i) Stockholder shall be responsible for all federal
income Taxes attributable to the Company for periods ending on or before the
Closing Date (including any Tax resulting from the Section 338(h)(10) Election).
Buyer shall be responsible for all federal income Taxes of the Company for
periods ending after the Closing Date.
(ii) Stockholder shall be liable for any state,
local, or foreign Tax attributable to an election under state, local, or foreign
law similar to the election available under Section 338(h)(10) of the Code.
Further, if a state, local or foreign jurisdiction does not have provisions
similar to the election available under Section 338(h)(10) of the Code,
Stockholder will be liable for any Tax imposed on the Company by such state,
local and/or foreign jurisdiction resulting from the transactions contemplated
by this Agreement. Finally, Stockholder will be liable for nonfederal income
Taxes of the Company ending on or before the Closing Date, and the Buyer and
Company will be liable for nonfederal income Taxes of the Company for periods
ending after the Closing Date.
5.2 Accounts Receivable. In the event that all Accounts Receivable are
not collected in full (net of reserves specified in Section 3.14) within one
hundred twenty (120) days after the Closing then, at the request of the Company
or Buyer, the Stockholder or Tarr shall pay the Company an amount equal to the
Accounts Receivable not so collected, and upon receipt of such payment the
Company shall assign to the Stockholder all of its rights with respect to the
uncollected Accounts Receivable giving rise to the payment and the Company shall
also thereafter promptly remit any excess collections received by it with
respect to such assigned Accounts Receivable. If and when the amount
subsequently collected by the Stockholder or Tarr with respect to the assigned
Accounts Receivable equals (a) the payment made therefor plus (b) the costs and
expenses reasonably incurred by the Stockholder in the collection of such
assigned Accounts Receivable, the Stockholder shall reassign to the Company all
of such assigned Accounts Receivable as have not been collected in full by the
Stockholder or Tarr and shall also thereafter promptly remit any excess
collections received by them. Upon the written request of the Company, the
Stockholder or Tarr shall provide it with a status report concerning the
collection of assigned Accounts Receivable.
5.3 Intentionally Omitted.
5.4 Employee Benefit Plans. If reasonably requested by Buyer,
the Company shall terminate any Company Plan or Company Benefit Arrangement.
5.5 Related Party Agreements. The Company, Tarr and/or the Stockholder,
as the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company, Tarr or the Stockholder to terminate.
5.6 Cooperation.
(a) The Company, Stockholder, and Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
<PAGE>
(b) The Stockholder and Tarr (on the one hand) and the Company
(on the other hand) shall cooperate and use their reasonable efforts to have the
present officers, directors and employees of the Company cooperate with Buyer on
and after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company and
(ii) such additional financial and operating data and other information as to
the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
(c) Prior to the Closing Date, none of the Company, the
Stockholder or Tarr shall make any disclosure (whether or not in response to an
inquiry) of the subject matter of this Agreement unless previously approved by
Buyer in writing. Buyer agrees to keep the Company and the Stockholder apprised
in advance of any disclosure of the subject matter of this Agreement by Buyer
prior to the Closing Date.
<PAGE>
5.8 Conduct of Business Pending Closing. Between the date hereof and
the Closing Date, the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new method of
management, operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating
to or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than Tarr) in accordance with past practice.
5.9 Prohibited Activities. Between the date hereof and the Closing
Date, the Company will not, without the prior written consent of Buyer:
(a) make any change in its Articles of Incorporation
or Bylaws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
<PAGE>
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice in an amount in excess of $2,500, including contracts to provide
services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) sell, assign, lease, pledge or otherwise transfer or
dispose of any property or equipment except in the ordinary course of business
consistent with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(j) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any other transaction (i) that is not
negotiated at arm's length with a third party not affiliated with the Company,
the Stockholder or any officer or director of the Company or (ii) outside the
ordinary course of business consistent with past practice or (iii) prohibited
hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice;
<PAGE>
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Buyer; or
(p) take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.9(a) through (o) above, or any action which
would make any of the representations and warranties of the Company, Tarr and
the Stockholder contained in this Agreement untrue or result in any of the
conditions set forth in Articles 6 and 7 not being satisfied.
5.10 Exclusivity. None of the Stockholder, Tarr, the Company, or any
agent, officer, director or any representative of the Company, Tarr or the
Stockholder will, during the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing or the termination of this
Agreement in accordance with its terms, directly or indirectly: (a) solicit,
encourage or initiate the submission of proposals or offers from any person for,
(b) participate in any discussions pertaining to, or (c) furnish any information
to any person other than Buyer relating to, any acquisition or purchase of all
or a material amount of the assets of, or any equity interest in, the Company or
a merger, consolidation or business combination of the Company. In addition to
the foregoing, if the Company, Tarr or the Stockholder receives any unsolicited
offer or proposal, or has actual knowledge of any unsolicited offer or proposal,
relating to any of the above, the Company, Tarr or the Stockholder shall
immediately notify Buyer thereof, including the identity of the party making
such offer or proposal and the specific terms of such offer or proposal.
5.11 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party hereunder.
The delivery of any notice pursuant to this Section 5.11 shall not, without the
express written consent of the other parties be deemed to (x) modify the
representations or warranties hereunder of the party delivering such notice, (y)
modify the conditions set forth in Articles 6 and 7, or (z) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
5.12 Notice to Bargaining Agents. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by Buyer, and shall provide Buyer with proof that any
required notice has been sent.
<PAGE>
5.13 Post-Closing Balance Sheet. Within fifteen (15) business days
after Closing, Tarr shall deliver to Buyer a balance sheet of the Company as of
the Closing Date prepared in accordance with GAAP ("Post-Closing Balance
Sheet"). Buyer shall cooperate with Tarr to the extent reasonably requested by
the Stockholder in connection with Tarr's preparation of such Post-Closing
Balance Sheet.
5.14 Subordination, Nondisturbance and Attornment Agreement. As soon
after Closing as is practicable, Tarr shall use best efforts to deliver to Buyer
a Subordination, Nondisturbance and Attornment Agreement (in such form as Buyer
designates) with respect to the Company's main office location owned by Tarr and
located in Santa Fe Springs, Los Angeles County, California ("Company Main
Office").
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholder, Tarr and the Company
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants, agreements
and conditions of this Agreement to be complied with, performed or satisfied by
the Company, Tarr and the Stockholder on or before the Closing Date shall have
been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed on behalf of the Company,
Tarr and the Stockholder shall have been delivered to Buyer.
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. There shall be no action, suit, claim or
proceeding of any nature pending or threatened against Buyer or the Company,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company. A certificate to
the foregoing effects dated the Closing Date and signed on behalf of the
Company, Tarr and Stockholder shall have been delivered to Buyer.
6.3 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Buyer shall have received a certificate signed by the Company,
Stockholder and Tarr dated the Closing Date to such effect.
<PAGE>
6.4 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company, Tarr and the Stockholder of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the transactions contemplated by this
Agreement under the HSR Act shall have expired or been terminated, and no action
by the Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the consummation of the transactions contemplated hereby shall be
pending.
6.5 Opinion of Counsel. Buyer shall have received an opinion from
counsel to the Company, Tarr and the Stockholder, dated the Closing Date, in a
form reasonably satisfactory to Buyer.
6.6 Charter Documents. Buyer shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to Buyer.
6.7 Quarterly Financial Statements. Buyer shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to Buyer.
6.8 Due Diligence Review. The Company shall have made such deliveries
as are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
6.9 Delivery of Closing Financial Certificate. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by Tarr and the Stockholder,
setting forth:
(a) the net worth of the Company as of the last day of
its most recent fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date
(the "Certified Closing Net Worth");
(c) the sales of the Company for the most recent fiscal year
preceding the Closing Date (the "Certified Year-End Sales");
(d) the sales of the Company for the ten-month period ending
on October 31, 1998 (the "Certified Closing Sales");
<PAGE>
(e) the earnings of the Company before interest and taxes
(after the addition of "add-backs" set forth on Schedule 3.9(c)) for the most
recent fiscal year preceding the Closing Date (the "Certified Year-End
Profits");
(f) the earnings of the Company before interest and taxes
(after the addition of "add-backs" set forth on Schedule 3.9(c)) for the
ten-month period ending on October 31, 1998 (the "Certified Closing Profits");
and
(g) the sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) the Stockholder, (iii) Tarr and (iv)
all other financial institutions and creditors (in each case including the
current portion of such indebtedness, but excluding trade payables and other
accounts payable incurred in the ordinary cause of the Company's business
consistent with past practice) as of the Closing Date (the "Certified Closing
Long-Term Debt").
The parties acknowledge and agree that for purposes of determining the
Certified Closing Net Worth and the Certified Closing Profits, the Company shall
not take account of any increase in intangible assets (including without
limitation goodwill, franchises and intellectual property) accounted for after
December 31, 1997. In addition, the Certified Closing Net Worth shall be
calculated after giving effect to any expenses incurred by the Company, Tarr or
the Stockholder in connection with the transactions contemplated by this
Agreement.
6.10 FIRPTA Compliance. The Stockholder shall have delivered to Buyer a
properly executed statement in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treas. Reg. ss. 1.1445-2(b).
6.11 Tarr Employment Agreement. Tarr shall have entered into an
employment agreement with the Buyer or the Company in a form reasonably
satisfactory to Buyer.
6.12 Lease Agreement. Tarr and the Company and/or Buyer shall have
entered into a Lease Agreement with respect to the Company Main Office in a form
reasonably satisfactory to Buyer.
6.13 Salesmen Employment Agreements. Such salesmen of the Company as
Buyer may identify in its sole discretion shall have entered into Employment
Agreements with Buyer in a form reasonably satisfactory to Buyer.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligation of the Stockholder and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date, of the following conditions and
deliveries:
<PAGE>
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of Buyer contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
though such representations and warranties had been made as of such date; all of
the terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by Buyer on or before the Closing Date shall have
been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any Vice
President of Buyer shall have been delivered to the Company and the Stockholder.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending and a certificate to the foregoing effects dated
the Closing Date and signed by the President or any Vice President of Buyer
shall have been delivered to the Company and the Stockholder.
7.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated, and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
7.4 Employment Agreements. Tarr shall have entered into an employment
agreement with the Buyer or the Company in a form reasonably satisfactory to
Tarr.
7.5 Lease Agreement. Tarr and the Company and/or Buyer shall have
entered into a Lease Agreement with respect to the Company Main Office in a form
reasonably satisfactory to Tarr.
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholder and Tarr. The
Stockholder and Tarr, jointly and severally, covenant and agree to indemnify,
defend, protect and hold harmless Buyer, the Company, Workflow and their
respective officers, directors, employees, stockholders, assigns, successors and
affiliates (individually, an "Indemnified Party" and collectively, "Indemnified
Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive
damages, causes of action, lawsuits, administrative proceedings (including
informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interest from the date of such damages) and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description) (collectively, "Damages")
suffered, sustained, incurred or paid by the Indemnified Parties in connection
with, resulting from or arising out of, directly or indirectly:
<PAGE>
(i) any breach of any representation or warranty of
the Stockholder, Tarr or the Company set forth in this Agreement or any Schedule
or certificate, delivered by or on behalf of the Stockholder, Tarr or the
Company in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement
by the Stockholder or Tarr or, prior to the Closing Date, the Company, under
this Agreement; or
(iii) the business, operations or assets of the
Company prior to the Closing Date or the actions or omissions of the Company's
directors, officers, stockholders, employees or agents prior to the Closing
Date, other than Damages arising from matters expressly disclosed in the Company
Financial Statements, this Agreement or the Schedules to this Agreement; or
(iv) (A) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), and 3.27
(conformity with law; litigation), (B) the failure of the Company or Tarr to
obtain the consent of the landlord at the Company's Thousand Oaks facility to
the transactions contemplated by this Agreement, (C) any inability of Tarr to
provide services to Workflow, Buyer or any of their direct or indirect
subsidiaries as a result of the Consulting Agreement dated August 8, 1997
between Tarr and Galaxy Solutions, L.L.C., and (D) the failure of Tarr to
deliver the Subordination, Nondisturbance and Attornment Agreement contemplated
by Section 5.14; and
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 8.1.
8.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under
Section 8.1 unless, and solely to the extent that, the aggregate amount of
Damages exceeds $2,000 (the "Indemnification Threshold"); provided, however,
that the Indemnification Threshold shall not apply to (i) adjustments to the
Cash Purchase Price as set forth in Sections 1.2 and 1.3; (ii) Damages arising
out of any breaches of the covenants of the Stockholder or Tarr set forth in
this Agreement or representations and warranties made in Sections 3.4 (capital
stock of the Company), 3.5 (transactions in capital stock; accounting
treatment), 3.19 (significant customers; material contracts and commitments),
3.23 (environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), or
3.27 (conformity with law; litigation), or (iii) Damages described in Section
8.1(a)(iv);
(b) the aggregate amount of the Stockholder's and Tarr's
liability under this Article 8 shall not exceed the Purchase Price (such term to
include the Cash Purchase Price, any Earn-out); provided, however, that the
Stockholder's and Tarr's liability for Damages arising out of any breaches of
the representations made in Sections 3.23 (environmental matters), 3.25
(employee benefit plans) or 3.26 (taxes) or Damages described in Section
8.1(a)(ii) or (iv) shall not be subject to such limitation and shall not count
toward the limitation described in the first clause of this Section 8.2(b);
<PAGE>
(c) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(c):
(i) (1) except as to representations, warranties,
and covenants specified in clause (i)(2) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii) or (iv), on (A) the date that is six (6) months after the expiration of
the longest applicable federal or state statute of limitation (including
extensions thereof), or (B) if there is no applicable statute of limitation, (x)
ten (10) years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section 8.2(c)
(such claims referred to as "Pending Claims").
8.3 Indemnification Procedures All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party has a Claim
against any party obligated to provide indemnification pursuant to Section 8.1
hereof (the "Indemnifying Party") which does not involve a Claim being asserted
against or sought to be collected by a third party, the Indemnified Party shall
with reasonable promptness notify the Stockholder and Tarr of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholder or
Tarr does not notify the Indemnified Party within thirty (30) days after the
date of delivery of the Claim Notice that the Indemnifying Party disputes such
Claim, with a detailed statement of the basis of such position, the amount of
such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 8.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty (30) days and, for sixty (60) days thereafter,
attempt in good faith to agree upon the rights of the respective parties with
respect to each of such Claims (and, if the parties should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholder and Tarr. The Stockholder
or Tarr shall have thirty (30) days from the date of delivery of the Claim
Notice to notify the Indemnified Party (A) whether the Indemnifying Party
disputes liability to the Indemnified Party hereunder with respect to the Third
Party Claim, and, if so, the basis for such a dispute, and (B) if such party
does not dispute liability, whether or not the Indemnifying Party desires, at
the sole cost and expense of the Indemnifying Party, to defend against the Third
Party Claim, provided that the Indemnified Party is hereby authorized (but not
obligated) to file any motion, answer or other pleading and to take any other
action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
<PAGE>
(ii) In the event that Stockholder or Tarr timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of
the Indemnified Party, notice of which shall be given in writing to the
Stockholder or Tarr, any Third Party Claim seeks material prospective relief
which could have an adverse effect on any Indemnified Party or the Company or
any subsidiary, the Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such Third Party Claim and the amount of
any judgment or settlement and the reasonable costs and expenses of defense
shall be included as part of the indemnification obligations of the Indemnifying
Party hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
<PAGE>
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholder,
Tarr and Buyer in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company, the Stockholder and Tarr will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 8.2. The
representations of Buyer will survive the Closing and will remain in effect
until, and will expire upon the third anniversary of the Closing Date.
8.5 Remedies Cumulative. The remedies set forth in this Article 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 Right to Set Off. Buyer shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets or any
Earn-out, amounts finally determined under Section 8.3 to be owed to Buyer by
the Stockholder and/or Tarr under Section 8.1 hereof.
9. NONCOMPETITION
9.1 Prohibited Activities. Tarr acknowledges that he has developed
relationships on behalf of and acquired proprietary and confidential information
about the Company, including, but not limited to, its customers, vendors,
prices, sales strategies and other information, some of which may be regarded
and treated by the Company and Buyer as trade secrets. In order to protect the
Company's and/or Buyer's critical interest in these relationships and
information, Tarr covenants that he will not, for a period of four (4) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for himself or on behalf of or in conjunction with any other person, persons,
partnership, corporation, or business of whatever nature, compete with the
Company by:
(a) engaging in a competitive capacity, whether as an officer,
director, shareholder, owner, partner, member, joint venturer, employee,
independent contractor, consultant, adviser, member, manager or sales
representative, in any business selling any products or services which were sold
by the Company on the Closing Date, within 50 miles of any location where the
Company has an office and/or conducts business ("Territory");
<PAGE>
(b) hiring, or joining with in a competitive business
capacity, any employee of the Company within the Territory;
(c) soliciting or accepting competing business from any person
or entity which was a customer of Company on the Closing Date, or that had been,
within one (1) year prior to the Closing Date, a customer of the Company; or
(d) acquiring or entering into any agreement to acquire any
prospective acquisition candidate that was, to the knowledge of Tarr, either
called upon by the Company as a prospective acquisition candidate or was the
subject of an acquisition analysis by the Company within 3 years prior to the
Closing Date. Tarr, to the extent lacking the knowledge described in the
preceding sentence, shall immediately cease all contact with such prospective
acquisition candidate upon being informed that the Company had called upon such
candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Tarr from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business whose stock is traded on a national
securities exchange or over- the-counter.
9.2 Confidentiality. Tarr recognizes that by reason of his employment
by the Company, he has acquired confidential information and trade secrets
concerning the operation of the Company, the use or disclosure of which could
cause the Company or its affiliates or subsidiaries substantial loss and damages
that could not be readily calculated and for which no remedy at law would be
adequate. Accordingly, Tarr covenants and agrees with the Company and Buyer that
he will not at any time, except in performance of his obligations to the Company
or with the prior written consent of the Company pursuant to authority granted
by a resolution of the Board of Directors of the Company, directly or
indirectly, disclose any secret or confidential information that he may learn or
has learned by reason of his ownership of the Company or his employment by the
Company, or any of its subsidiaries and affiliates, or use any such information
in a manner detrimental to the interests of the Company or Buyer, unless (i)
such information becomes known to the public generally through no fault of Tarr,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Tarr shall give prior written notice thereof to
Buyer and provide Buyer with the opportunity to contest such disclosure and
shall cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not previously disclosed
to the public or to the trade by the Company's or Buyer's management with
respect to the Company's or Buyer's, or any of their affiliates' or
subsidiaries', products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial information
(including the revenues, costs, or profits associated with any of the Company's
products), business plans, prospects, or opportunities but shall exclude any
information already in the public domain.
<PAGE>
9.3 Damages. Because of the difficulty of measuring economic losses to
Buyer as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Buyer for which it
would have no other adequate remedy, Tarr agrees that the foregoing covenant may
be enforced by Buyer in the event of breach by Tarr, by injunctions and
restraining orders.
9.4 Reasonable Restraint. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on Tarr in light of
the activities and business of Buyer on the date of the execution of this
Agreement, assuming the completion of the transactions contemplated hereby.
9.5 Severability; Reformation. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6 Independent Covenant. All of the covenants in this Article 9 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of Tarr against
Buyer, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Buyer of such covenants. The parties expressly
acknowledge that the terms and conditions of this Article 9 are independent of
the terms and conditions of any other agreements including, but not limited to,
any employment agreements entered into in connection with this Agreement. It is
specifically agreed that the period of four (4) years stated at the beginning of
this Article 9 during which the agreements and covenants of Tarr made in this
Article 9 shall be effective, shall be computed by excluding from such
computation any time during which Tarr is found by a court of competent
jurisdiction to have been in violation of any provision of this Article 9. The
covenants contained in Article 9 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
9.7 Materiality. The Company and Tarr hereby agree that the covenants
set forth in this Article 9 are a material and substantial part of the
transactions contemplated by this Agreement, supported by adequate
consideration.
9.8 Construction. For purposes of Sections 9.1 through 9.7 of
this Agreement, inclusive, "Tarr" shall mean both the Trust and Tarr
collectively.
<PAGE>
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the Boards of Managers of Buyer
and the Board of Directors of the Company; or
(b) by the Stockholder, Tarr and the Company as a group, on
the one hand, or by Buyer, on the other hand, if the Closing shall not have
occurred on or before November 20, 1998, provided that the right to terminate
this Agreement under this Section 10.1(b) shall not be available to either party
(with the Stockholder, Tarr and the Company deemed to be a single party for this
purpose) whose material misrepresentation, breach of warranty or failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date; or
(c) by the Stockholder, Tarr and the Company as a group, on
the one hand, or by Buyer, on the other hand, if there is or has been a material
breach, failure to fulfill or default on the part of the other party (with the
Stockholder, Tarr and the Company deemed to be a single party for this purpose)
of any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholder, Tarr and the Company as a group, on
the one hand, or by Buyer, on the other hand, if there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated by this Agreement; or there shall
be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the transactions contemplated by
this Agreement by any governmental entity which would make the consummation of
the transactions contemplated by this Agreement illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10 and 8, and Sections 5.7(b)
and 9.2, shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholder,
Tarr and the Company deemed to be a single party for purposes of this Article
10), shall be liable to the other party to the extent of the expenses incurred
by such other party in connection with this Agreement and the transactions
contemplated hereby, as well as any damages in accordance with applicable law.
<PAGE>
10.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the Stockholder
and Tarr; provided, however that Buyer may assign any of its rights or
obligations under this Agreement to Workflow or any direct or indirect
subsidiary of Workflow in its sole and absolute discretion and without the
consent of the Company, Tarr or the Stockholder; provided, however, that in the
event of such assignment Buyer (and the assignee to whom such rights or
obligations are assigned) shall continue to be liable to the Stockholder for the
payment of the Purchase Price.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer, and the Company, Tarr and the
Stockholder as a group, each represents and warrants to the other that it has
not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
10.7 Expenses. Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The
Stockholder (and not the Company) has and will pay the fees, expenses and
disbursements of the Stockholder, Tarr, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
10.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
<PAGE>
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
SFI of Delaware, LLC
c/o Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
(Telefax: (561) 659-7793)
with a required copy to:
Kaufman & Canoles, P.C.
P.O. Box 3037
Norfolk, VA 23514
Attn: Gus J. James, II, Esq. and T. Richard Litton, Jr., Esq.
(Telefax: (757) 624-3169)
If to the Stockholder or Tarr to:
Jack Tarr
30542 Steeplechase Drive
San Juan Capistrano, CA 92675
(Telefax: (949) 496-1596)
with a required copy to:
Steve M. Dicterow, Esq.
Law Offices of Gary B. Ross
8001 Irvine Center Drive, Suite 1500
Irvine, CA 92618
(Telefax: (714) 753-1998)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
<PAGE>
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any disputes
arising out of, in connection with or with respect to this Agreement, the
subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of Wilmington,
Delaware and nowhere else. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of such court for the purposes of any suit, civil action or
other proceeding arising out of, in connection with or with respect to this
Agreement, the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby
(collectively, "Suit"). Each of the parties hereto hereby waives and agrees not
to assert by way of motion, as a defense or otherwise in any such Suit, any
claim that it is not subject to the jurisdiction of the above courts, that such
Suit is brought in an inconvenient forum, or that the venue of such Suit is
improper.
10.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.13 Mutual Drafting; Construction. This Agreement is the mutual
product of the parties hereto, and each provision hereof has been subject to the
mutual consultation, negotiation and agreement of each of the parties, and shall
not be construed for or against any party hereto. As used in this Agreement, the
term "person" shall mean an individual, corporation, partnership, limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
10.14 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[Execution Page Following]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER - SFI OF DELAWARE, LLC
By: /s/ Thomas B. D'Agostino, Jr.
------------------------------------
Name: Thomas B. D'Agostino, Jr.
Title: President
THE COMPANY - CALTAR, INC.
By: /s/ Jack Tarr
--------------------------------
Name: Jack Tarr
Title: President
STOCKHOLDER:
/s/ Jack Tarr
----------------------------------
Jack Tarr, Trustee of the Tarr Family Trust
u/t/d October 3, 1991
/s/ Phyllis T. Tarr
----------------------------------
Phyllis T. Tarr, Trustee of the Tarr Family Trust
u/t/d October 3, 1991
/s/ Jack Tarr
----------------------------------
Jack Tarr, in his individual capacity
PURCHASE AGREEMENT
By and Among
Workflow Management, Inc.
DirectPro LLC
and
The Members Named Therein
made effective as of November 30, 1998
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 30th day of November, 1998, by and among Workflow Management, Inc., a
Delaware corporation ("Buyer"), DirectPro LLC, a New York limited liability
company (the "Company"), Robert Sands ("RS") and TLG Realty LLC, a New York
limited liability company ("TLG"), the sole members of the Company (each a
"Member" and collectively, the "Members"), and Richard Schlanger and Robert
Fishbein, the sole members of TLG (each a "TLG Member" and collectively the "TLG
Members").
BACKGROUND
The Members in the aggregate own all of the membership interests of
the Company. This Agreement contemplates a transaction in which the Buyer will
purchase from the Members, and the Members will sell to the Buyer, all of the
membership interests of the Company (the "Membership Interests") for the cash
consideration set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. PURCHASE OF MEMBERSHIP INTERESTS.
1.1. Membership Interests. Subject to the terms
and conditions of this Agreement, at the Closing (as defined below), the Members
will sell to Buyer, and Buyer will purchase from the Members, the Membership
Interests for the Purchase Price (as defined below).
1.2. Purchase Price.
(a) For purposes of this Agreement, the
"Purchase Price" shall be the amounts payable to the Members by Buyer as set
forth below in this Section 1.2(a), which shall be payable in installments
pursuant to Section 453(b) of the Internal Revenue Code of 1986, as amended
("Code") in the following manner:
(i) $6,690,215 of the Purchase Price shall be payable
in cash ("Cash Purchase Price"), as adjusted pursuant to Section 1.3. The Cash
Purchase Price, as so adjusted, shall first be applied to satisfy the escrow
obligations set forth in Section 1.4 and the balance shall be paid at Closing as
set forth in Section 1.5(a).
(ii) Certain payments shall be made to the Members
based upon the "Adjusted EBITDA" of the Company, as specifically set forth in
Section 1.7 hereof. For purposes of the Code, 4.51% of such payments shall be
treated as interest for income tax purposes, which is equal to the Applicable
Federal Rate for Mid-Term Annual obligations as published by the Internal
Revenue Service for November 1998 in Revenue Ruling 98-52.
(b) The Purchase Price has been calculated
based upon the assumption that (i) the net worth of the Company, calculated in
accordance with generally accepted accounting principles ("GAAP") consistently
applied, is equal to or greater than $4,179 (the "Net Worth Target") as of the
Closing and (ii) the sum of the Company's cash, cash equivalents, marketable
securities, and accounts receivable less accounts payable, calculated in
accordance with GAAP consistently applied, is equal to or greater than
$1,037,218 as of the Closing ("Net Working Capital Target"); provided, however,
that notwithstanding anything in GAAP to the contrary the Net Worth Target and
Net Working Capital Target shall be calculated for purposes of this Agreement
after giving effect to any expenses incurred by the Company (or the Members and
paid by the Company) in connection with the transactions contemplated by this
Agreement, distributions made by the Company to any of the Members, and the
payments referred to in Section 1.2(d).
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(c) In addition to the Purchase Price, at
the Closing the Buyer shall pay to TLG $700,000 in full satisfaction of all
amounts owed by the Company to TLG ("TLG Debt").
(d) Pursuant to the terms of a Settlement
Agreement between the Company and Adcom, Inc. ("Adcom") dated November 30, 1998
("Settlement Agreement"), on or before the Closing Date the Company and/or the
Members shall pay, discharge, and satisfy in full certain portions of the
liability of the Company reflected as the "Asset Purchase Obligation" on the
Company Financial Statements (as defined in Section 3.10) and as further
evidenced by the Consulting Agreement dated September 6, 1996, executed by the
Company and Adcom (the "Asset Purchase Obligation"), all as specifically
reflected in the Settlement Agreement; provided, however, that the Members (and
not the Company) shall pay such portions of the Asset Purchase Obligation
contemplated by the Settlement Agreement to the extent such payment by the
Company would cause the Actual Company Net Worth (as defined in Section 1.3.(b))
to be less than the Net Worth Target or the Actual Company Net Working Capital
(as defined in Section 1.3(b)) to be less than the Net Working Capital Target.
After the Closing Date, the Company shall be liable to perform the obligations
set forth in the Settlement Agreement (except for Section 1.B. of the Settlement
Agreement).
1.3. Post-Closing Adjustment.
(a) The Cash Purchase Price shall be subject to adjustment
after the Closing Date as specified in this Section 1.3.
(b) Within one hundred twenty (120) days following the
Closing Date, Buyer shall cause PriceWaterhouseCoopers ("Buyer's Accountant") to
audit the Company's books to determine whether the Net Worth Target and the Net
Working Capital Target have been met (the "Post-Closing Audit"). The parties
acknowledge and agree that for purposes of determining the net worth and net
working capital of the Company as of the Closing Date, the value of the assets
of the Company shall, except with the prior written consent of Buyer, be
calculated as provided in the last paragraph of Section 6.8 and shall be based
upon a balance sheet which is consistent with the Company's unaudited balance
sheet as of September 30, 1998 and income statement, statement of cash flows and
statement of changes in members' equity for the nine-month period then ended
(collectively, the "Interim Financials"). In the event that the Buyer's
Accountant determines that the actual Company net worth as of the Closing Date
or actual Company net working capital as of the Closing Date were less than the
Net Worth Target or Net Working Capital Target, respectively, Buyer shall
deliver a written notice (the "Financial Adjustment Notice") to the Members'
Representative (as defined in Section 1.6), setting forth the determination of
the actual Company net worth (the "Actual Company Net Worth") and actual Company
net working capital ("Actual Company Net Working Capital"). Subject to the
resolution of any dispute in connection with such determination as set forth in
Section 1.3(c), (i) if the Actual Company Net Worth or Actual Company Net
Working Capital is less than the Net Worth Target or Net Working Capital Target,
respectively, the Purchase Price, at the option of the Buyer, shall be adjusted
by the greater of (x) the difference between the Net Worth Target and the Actual
Closing Net Worth and (y) the difference between the Net Working Capital Target
and Actual Closing Net Working Capital (any such adjustment the "Purchase Price
Adjustment").
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(c) The Members' Representative shall have thirty (30) days
from the receipt of a Financial Adjustment Notice to notify Buyer if the Members
dispute such Financial Adjustment Notice. If Buyer has not received a notice of
such dispute within such thirty (30) day period, Buyer shall be entitled to
receive from the Members (which may, at Buyer's sole discretion, be from the
Pledged Assets as defined in Section 1.4) the Purchase Price Adjustment. If,
however, the Members' Representative has delivered notice of such a dispute to
the Buyer within such thirty (30) day period, then Buyer's Accountant and an
accountant selected by the Members ("Members' Accountant") shall meet to discuss
resolution of such dispute and if within 10 business days thereafter the Buyer's
Accountant and Members' Accountant have not been able to resolve such dispute,
then Buyer's Accountant and Members' Accountant shall mutually agree upon and
select an independent accounting firm that has not represented any of the
parties hereto within the preceding two (2) years. If Buyer's Accountant and
Members' Accountant cannot agree upon such independent accounting firm, then the
selection shall be made by an appropriate officer of the New York State Society
of Certified Public Accountants. The independent accounting firm so selected
shall review the Company's books and the Financial Adjustment Notice (and
related information) to determine the amount, if any, of the Purchase Price
Adjustment. The independent accounting firm shall be directed to consider only
those agreements, contracts, commitments or other documents (or summaries
thereof) that were either (i) delivered or made available to Buyer's Accountant
in connection with the transactions contemplated hereby, or (ii) reviewed by
Buyer's Accountant and Members' Accountant during the course of the Post-Closing
Audit. The independent accounting firm shall make its determination of the
Purchase Price Adjustment, if any, within thirty (30) days of its selection. The
determination of the independent accounting firm shall be final and binding on
the parties hereto. If there is a determination of a Purchase Price Adjustment,
Buyer shall be entitled to receive from the Members (which may, at Buyer's sole
discretion, be from the Pledged Assets as defined in Section 1.4) the Purchase
Price Adjustment. The costs of the independent accounting firm shall be borne by
the party (either Buyer or the Members as a group) whose determination of the
Company's net worth at Closing was further from the determination of the
independent accounting firm, or equally by Buyer and the Members in the event
that the determination by the independent accounting firm is equidistant between
the Net Worth Target and the Actual Company Net Worth.
(d) Buyer acknowledges that, prior to Closing, the Company
has made distributions to the Members or other payments in an effort to ensure
that the Actual Company Net Worth and Actual Company Net Working Capital are
equal to, but not greater than, the Net Worth Target and Net Working Capital
Target. Except in the event of fraud, willful misconduct, or gross negligence by
the Members and the Company prior to Closing, the Buyer acknowledges that its
sole remedy is a Purchase Price Adjustment pursuant to this Section 1.3 in the
event that the Actual Company Net Worth or Actual Company Net Working Capital
are less than the Net Worth Target or Net Working Capital Target, respectively.
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1.4. Pledged Assets.
(a) As collateral security for the payment of any
Post-Closing adjustment to the Cash Purchase Price under Section 1.3, or any
indemnification obligations of the Members or TLG Members pursuant to Article 8,
the Members shall, and by execution hereof do, transfer to Kaufman & Canoles, a
Virginia professional corporation ("Escrow Agent"), $500,000 of the Cash
Purchase Price (the "Pledged Assets").
(b) The Pledged Assets shall be held by the Escrow Agent
pursuant to the terms and conditions set forth in the Escrow Agreement ("Escrow
Agreement") dated as of the date hereof by and among Buyer, the Members, the TLG
Members and the Escrow Agent.
(c) The Pledged Assets shall be available to satisfy any
Post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3 and
any indemnification obligations of the Members or TLG Members pursuant to
Article 8, until May 31, 1999, (the "Release Date"). Promptly following the
Release Date, subject to the specific terms and conditions of the Escrow
Agreement, the Escrow Agent shall return or cause to be returned to the Members
(in such proportions as directed by the Members' Representative) the Pledged
Assets, less Pledged Assets having an aggregate value equal to the amount of (i)
any Post-Closing adjustment to the Cash Purchase Price under Section 1.3
(including any Post-Closing adjustment to the Cash Purchase Price that is
subject to dispute under the terms and conditions of Section 1.3), (ii) any
pending claim for indemnification made by any Indemnified Party (as defined in
Article 8), and (iii) any indemnification obligations of the Members pursuant to
Article 8.
1.5. Payment of Cash; Ownership Rights in Membership Interests.
(a) Buyer to Provide Cash. In exchange for the Membership
Interests, Buyer shall cause to be paid to the Members by wire transfer in
immediately available federal funds the Cash Purchase Price and shall pay to TLG
the TLG Debt. Such payment of the Cash Purchase Price and TLG Debt shall be made
as follows:
(i) At the Closing $6,890,215 shall be
paid to Tannenbaum Dubin & Robinson, LLP ("TD&R"), as attorneys for the Members,
which reflects payment of (a) the Cash Purchase Price less the Pledged Assets
and (b) the TLG Debt; and
(ii) At the Closing $500,000, which
represents the Pledged Assets, shall be delivered to the Escrow Agent in
accordance with Section 1.4.
In the event of any additional payments
pursuant to Sections 1.4 and 1.7 such payments shall also be made by wire
transfer in immediately available federal funds as directed by the Members'
Representative. Buyer shall have no liability of any nature whatsoever for any
acts or omissions by TD&R in connection with TD&R's distributions of (or failure
to distribute) the Cash Purchase Price or the payments of the TLG Debt to the
Members.
(b) No Further Ownership Rights in
Membership Interests of the Company. The payment of the Cash Purchase Price to
the Members shall be deemed to have been delivered in full satisfaction of all
rights pertaining to the Membership Interests, and following the Closing, the
Members shall have no further rights to, or ownership in, such Membership
Interests.
1.6. Members' Representative.
(a) Each Member, by signing this Agreement, designates
Marvin S. Robinson to be the Members' Representative for purposes of this
Agreement. The Members shall be bound by any and all actions taken by the
Members' Representative on their behalf. The Members (and not the Company or the
Buyer) shall pay all costs, fees and expenses charged by the Members'
Representative after the Closing Date in connection with the performance of his
duties and provision of his services under the terms of this Agreement.
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(b) Buyer shall be entitled to rely upon any communication
or writings given or executed by the Members' Representative. All communications
or writings to be sent to the Members pursuant to this Agreement may be
addressed to the Members' Representative and any communication or writing so
sent shall be deemed notice to all of the Members hereunder. The Members hereby
consent and agree that the Members' Representative is authorized to accept
deliveries, including any notice, on behalf of the Members pursuant hereto.
(c) The Members' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Member, with full power
in his or its name and on his or its behalf to act according to the terms of
this Agreement in the absolute discretion of the Members' Representative; and in
general to do all things and to perform all acts including, without limitation,
executing and delivering all agreements, certificates, receipts, instructions
and other instruments contemplated by or deemed advisable in connection with
Article 8 of this Agreement. This power of attorney and all authority hereby
conferred is granted subject to the interest of the other Members hereunder and
in consideration of the mutual covenants and agreements made herein, and shall
be irrevocable and shall not be terminated by any act of any Member, by
operation of law, whether by such Member's death or any other event.
1.7. Post-Closing Earn-Out.
(a) For (i) the period commencing on December 1, 1998, and
ending December 31, 1998 ("Initial Fiscal Period"), (ii) for the full calendar
years 1999 and 2000, and (iii) the period commencing January 1, 2001, and ending
on November 30, 2001 (such periods individually an "Annual Earn-out Period"),
the Members shall be entitled to receive from the Buyer fifty percent (50%) of
the Adjusted EBITDA (as defined herein) of the Company for any Annual Earn-out
Period, subject to the Maximum Earn-out Obligation (as defined in Section
1.7(i)) and such other specific terms, conditions and limitations as are set
forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall
be payable in cash by March 31 of the year following the Annual Earn-out Period
for which an Earn-out is due ("Earn-out Payment Date"), such that the first
Earn-out, if any, would be payable March 31, 1999, and the last Earn-out, if
any, would be payable March 31, 2002. Unless otherwise directed in writing by
the Members' Representative, Earn-outs shall be paid to TD&R, as attorneys for
the Members. Any payment of the Earn-out not paid on or before an Earn-out
Payment Date shall bear interest thereafter at the rate of 18% per annum, or the
highest legal rate chargeable under the laws of the State of Delaware, whichever
is less.
(b) "Adjusted EBITDA" for any Annual Earn-out Period shall
mean the Company's earnings before interest, taxes, depreciation and
amortization as adjusted to reflect add-backs of one time, non-recurring costs
incurred by the Company, as specifically agreed to by the Company and the
Members and reflected on the Earn-out Statements (as defined below) ("Add
Backs"). The Company specifically agrees that such Add-Backs shall include bonus
payments payable pursuant to Exhibit A of the Employment Agreement being entered
into on the date hereof by the Company and RS. Buyer shall prepare a statement
of Adjusted EBITDA for each Annual Earn-out Period (collectively, "Earn-out
Statements"). Each Earn-out Statement shall be delivered to the Members'
Representative no later than March 31 of each year following the Annual Earn-out
Period.
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(c) The Members' Representative shall have sixty (60) days
from the receipt of any Earn-out Statement to notify the Buyer if it disputes
such Earn-out Statement. If the Members' Representative has delivered notice of
such a dispute to the Buyer within such sixty (60) day period, then Buyer's
Accountant and Members' Accountant shall meet to discuss resolution of such
dispute and if within 10 business days thereafter, the Buyer's Accountant and
Members' Accountant are not able to resolve such dispute, then Buyer's
Accountant and Members' Accountant shall mutually agree upon and select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years. If the Buyer's Accountant and Members'
Accountant cannot agree upon such independent accounting firm, then the
selection shall be made by an appropriate officer of the New York State Society
of Certified Public Accountants. The independent accounting firm so selected
shall review the Company's books and the Earn-out Statements (and related
information) to determine the amount, if any, of the Earn-out. The independent
accounting firm shall be directed to consider all agreements, contracts,
commitments or other documents (or summaries thereof) that it determines should
be considered in accordance with GAAP and the terms of this Agreement to make
the determination of the Earn-out. The independent accounting firm shall make
its determination of the Earn-out, if any, within thirty (30) days of its
selection. The determination of the independent accounting firm shall be final
and binding on the parties hereto. If there is a determination that the Members
are owed an Earn-out in excess of that paid by Buyer for any particular Annual
Earn-out Period, Buyer shall immediately pay the difference between the Earn-out
previously paid and the Earn-out owed to the Members as directed by the Members'
Representative. If there is a determination that the Buyer has paid an Earn-out
in excess of that which is due to the Members for any particular Annual Earn-out
Period, then the Members shall immediately refund such excess to the Buyer. The
costs of the independent accounting firm shall be borne by the party (either
Buyer or the Members as a group) whose determination of the Earn-out was further
from the determination of the independent accounting firm, or equally by Buyer
and the Members as a group in the event that the determination by the
independent accounting firm is equidistant between the determination of the
Earn-out by the Buyer and Members, respectively.
(d) To the extent that the Company has a negative Adjusted
EBITDA during any Annual Earn-out Period (such amount an "Adjusted EBITDA
Loss"), the Adjusted EBITDA Loss shall be carried forward to the subsequent
Annual Earn-out Period(s) and aggregated with the Adjusted EBITDA (or Adjusted
EBITDA Loss) for such subsequent Annual Earn-out Period(s) for purposes of
determining the Earn-out, if any, due for such subsequent Annual Earn-out
Period(s). All Adjusted EBITDA Losses shall continue to be carried forward on an
annual basis until such time as Adjusted EBITDA profits are fully offset by the
total amount of the Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not
effect prior payments of Earn-outs for Annual Earn-out Periods in which the
Company had positive Adjusted EBITDA.
(e) In the event that, after the date of this Agreement,
the Company is merged (or otherwise consolidated) into Buyer or any direct or
indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that
the Company is not the surviving entity under applicable law, the Earn-out shall
only be payable with respect to the business and operations conducted by the
Company as of the date of this Agreement and without reference to the business
and operations of the Merger Affiliate. For purposes of calculating the Earn-out
payable under this Section 1.7 after a merger or other consolidation by the
Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to
(i) conduct the Company's former business and operations as a division of the
Merger Affiliate ("Company Division") and (ii) maintain such financial reporting
systems as are necessary to accurately calculate the Adjusted EBITDA (or
Adjusted EBITDA Losses) of the Company Division.
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(f) Except as otherwise expressly agreed to by Buyer, the
Earn-out shall only be payable with respect to the business and operations
currently conducted by the Company (or by the Company Division) and without
reference to any other entity hereafter merged into or otherwise consolidated
with the Company. In the event that the Buyer causes any entity to merge or
otherwise consolidate into the Company such that the Company is the surviving
entity under applicable law, the Company shall maintain such financial reporting
systems as are necessary to accurately calculate the Adjusted EBITDA (or
Adjusted EBITDA Losses) of the Company (or the Company Division) without taking
into account the results of any other operations of the Company or any such
other entity. In addition, no Earn-out shall be payable with respect to any
Adjusted EBITDA attributable to product lines offered by Buyer or their direct
or indirect subsidiaries that are not currently offered by the Company.
(g) Notwithstanding anything in this Section 1.7 to the
contrary, for purposes of determining Adjusted EBITDA under this Section 1.7, no
effect shall be given to (i) any corporate overhead expenses charged by Buyer to
the Company or (ii) any accounting or legal expenses charged or billed to the
Company in excess of $50,000 during any one Annual Earn-out Period (or as
appropriately pro-rated for any Annual Earn-out Period that is less than twelve
(12) months) other than legal expenses incurred by the Buyer or the Company in
connection with matters directly related to the business, assets or properties
of the Company.
(h) Notwithstanding anything in this Section 1.7 to the
contrary, Buyer shall have the right to reduce any amounts otherwise payable as
an Earn-out by the amount of any indemnification obligations of the Members or
TLG Members under Article 8.
(i) Notwithstanding anything in this Section 1.7 to the
contrary, in no event shall the aggregate Earn-outs paid to the Members under
this Section 1.7 exceed $2,070,058 ("Maximum Earn-out Obligation"). At such time
as Buyer has paid to the Members Earn-outs equal to the Maximum Earn-out
Obligation, no further amounts shall be owed by Buyer to the Members under this
Section 1.7. In the event that Buyer fails to (i) prepare an Earn-out Statement
for any Earn-out Period and (ii) pay an Earn-out to the Members (if due) within
thirty (30) days of an Earn-out Payment Date, Buyer shall pay the difference
between $2,070,058 and any payments previously made on account of the Earn-out
in equal annual installments on March 31, in each of 1999 (if applicable), 2000
(if applicable), 2001 (if applicable), and 2002, together with interest on the
declining balance from the Closing at 12% per annum.
1.8. Accounting Terms. Except as otherwise expressly provided
herein or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING.
The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place through the delivery of executed
originals or facsimile counterparts of all documents required hereunder on such
date that all conditions to Closing shall have been satisfied or waived, or at
such other time and date as Buyer, the Company and the Members may mutually
agree, which date shall be referred to as the "Closing Date."
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
To induce Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Company, the
Members and the TLG Members jointly and severally, represents and warrants to
Buyer as follows (for purposes of this Agreement, the phrases "knowledge of the
Company" or the "Company's knowledge," or words of similar import, mean the
knowledge of the Members, the TLG Members and the managers and officers of the
Company and its Subsidiary (as defined in Section 3.6(a)), including facts of
which the managers and officers, in the reasonably prudent exercise of their
duties, should be aware):
3.1. Due Organization. The Company and its Subsidiary are
limited liability companies duly organized, validly existing and in good
standing under the laws of the jurisdiction of their organization and are duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to own, operate and lease their
properties and to carry on their business in the places and in the manner as now
conducted. Schedule 3.l hereto contains a list of all jurisdictions in which the
Company and its Subsidiary are authorized or qualified to do business. The
Company and its Subsidiary are in good standing as foreign limited liability
companies in each jurisdiction in which the character of the property owned,
leased or operated by the Company and its Subsidiary or the nature of the
business or activities conducted by the Company and its Subsidiary makes such
qualification necessary. The Company and its Subsidiary have delivered to Buyer
true, complete and correct copies of the Articles of Organization and Operating
Agreements of the Company and its Subsidiary. Such Articles of Organization and
Operating Agreements are collectively referred to as the "Charter Documents."
The Company and its Subsidiary are not in violation of any Charter Documents.
There are no minute books for the Company or its Subsidiary.
3.2. Authorization; Validity. The Company has the full legal
right, power and authority to enter into this Agreement and the transactions
contemplated hereby and to perform its obligations pursuant to the terms of this
Agreement. Each Member and TLG Member has the full legal right and authority to
enter into this Agreement and the transactions contemplated hereby and to
perform its respective obligations pursuant to the terms of this Agreement. The
execution and delivery of this Agreement by the Company and the performance by
the Company of the transactions contemplated herein have been duly and validly
authorized by the Members and this Agreement has been duly and validly
authorized by all necessary action. This Agreement is a legal, valid and binding
obligation of the Company, each Member, and each TLG Member enforceable in
accordance with its terms.
3.3. No Conflicts. The execution, delivery and performance of
this Agreement, the consummation of the transactions contemplated hereby, and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of,
any of the Charter Documents;
(b) Except as set forth on Schedule 3.19(d), conflict with,
or result in a default (or would constitute a default but for any requirement of
notice or lapse of time or both) under, any document, agreement or other
instrument to which the Company or its Subsidiary or any Member or TLG Member is
a party or by which the Company or its Subsidiary or any Member or TLG Member is
bound, or result in the creation or imposition of any lien, charge or
encumbrance on any of the Company's or its Subsidiary's properties pursuant to
(i) any law or regulation to which the Company or its Subsidiary or any Member
or TLG Member or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company's or its Subsidiary or any Member
or TLG Member is bound or any of their respective property is subject;
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(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company or
its Subsidiary; or
(d) violate any law, order, judgment, rule, regulation,
decree or ordinance to which the Company or its Subsidiary or any Member or TLG
Member is subject or by which the Company or its Subsidiary or any Member or TLG
Member is bound including, without limitation, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), together with all rules and
regulations promulgated thereunder.
3.4. Matters Relating to Membership Interests. The Membership
Interests are owned of record and beneficially by the Members in the amounts set
forth in Schedule 3.4 free and clear of all Liens except for any Liens arising
pursuant to Charter Documents (defined below). No person other than the Members
owns any membership interest or other equitable interest in the Company. All of
the Membership Interests were offered, issued, sold and delivered by the Company
and its Subsidiary in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of the Membership Interests
was issued in violation of any preemptive or similar rights. There are no voting
agreements or voting trusts with respect to the Membership Interests of the
Company or the membership interests of the Company's Subsidiary. For purposes of
this Agreement, "Lien" means any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge, preference, priority or other security agreement, option,
warrant, attachment, right of first refusal, preemptive, conversion, put, call
or other claim or right, restriction on transfer (other than restrictions
imposed by federal and state securities laws), or preferential arrangement of
any kind or nature whatsoever (including any restriction on the transfer of any
assets, any conditional sale or other title retention agreement, any financing
lease involving substantially the same economic effect as any of the foregoing
and the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
3.5. Options and Similar Rights with Respect to Membership
Interests. Except as set forth in the Charter Documents, no option, warrant,
call, subscription right, conversion right or other contract or commitment of
any kind exists of any character, written or oral, which may obligate the
Company or its Subsidiary to issue, sell or otherwise become outstanding any
membership interests or other equity securities. Neither the Company nor its
Subsidiary have any obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of their equity securities or any interests therein or to
pay or make any distribution in respect thereof. As a result of the transactions
contemplated by this Agreement, Buyer will be the record and beneficial owner of
all membership and equitable interests of the Company and rights to acquire
membership and equitable interests of the Company.
3.6. Subsidiary, Stock, and Notes.
(a) The Company has no Subsidiary other than DirectPro
West, LLC, an Ohio limited liability company. For purposes of this Agreement,
"Subsidiary" means any corporation, partnership, limited liability company,
association or other business entity of which a person (as defined in Section
10.14) owns, directly or indirectly, more than 50% of the voting securities
thereof.
<PAGE>
(b) Except as set forth on Schedule 3.6(b), neither the
Company nor its Subsidiary presently own, of record or beneficially, or control,
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, limited liability
company, association or other business entity, nor are the Company or its
Subsidiary, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company or its
Subsidiary.
3.7. Complete Copies of Materials. The Company has delivered to
Buyer true and complete copies of each agreement, contract, commitment unless
otherwise indicated in the Schedules or other document (or summaries thereof)
that is referred to in the Schedules unless otherwise indicated in the Schedules
or that has been requested by Buyer in writing.
3.8. Absence of Claims Against Company. No Member
or TLG Member has any claims against the Company or its
Subsidiary.
3.9. Company Financial Conditions.
(a) The Company's net worth (i) as of
December 31, 1997, was not less than $4,179, and (ii) as of the Closing will not
be less than the Net Worth Target subject to Section 1.3(d).
(b) The Company's sales for (i) its fiscal
year ending December 31, 1997 were not less than $4,760,001 and (ii) subject to
normal year end adjustment, the nine-month period ending September 30, 1998 were
not less than $4,026,544.
(c) The Company's Adjusted EBITDA (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for (i) its fiscal year
ending December 31, 1997 was not less than $1,379,234 and (ii) the nine-month
period ended September 30, 1998, was not less than $1,076,211.
(d) The sum of the Company's cash, cash
equivalents, marketable securities, and accounts receivable less the Company's
accounts payable ("Company Net Working Capital") as of the Closing will be no
less than the Company Net Working Capital Target subject to Section 1.3(d).
(e) The sum of the Company's total
obligations under capital leases shall be no greater than $55,858 as of the
Closing. For purposes of Section 3.9(a) and (c), calculation of amounts as of
the Closing shall be made in accordance with the last paragraph of Section 6.8.
3.10. Financial Statements. Schedule 3.10 includes (a) true,
complete and correct copies of the Company's audited balance sheet as of
December 31, 1997 (the end of its most recent completed fiscal year), and
statement of income, statement of cash flows and statement of changes in
members' equity for the year ended December 31, 1997 (collectively the "Audited
Financials") and (b) true, complete and correct copies of the Interim
Financials, which includes the Company's consolidated, unaudited balance sheet
(the "Interim Balance Sheet") as of September 30, 1998 (the "Balance Sheet
Date") (the Interim Financials together with the Audited Financials, the
"Company Financial Statements"). Except as noted on the auditors' report
accompanying the Audited Financials, the Company Financial Statements have been
prepared in accordance with GAAP consistently applied, subject, in the case of
the Interim Financials, (i) to normal year-end audit adjustments, which
individually or in the aggregate will not be material and (ii) the exceptions
stated on Schedule 3.10. Each balance sheet included in the Company Financial
Statements presents fairly the financial condition of the Company and its
Subsidiary on a consolidated basis as of the date indicated thereon except that
the Subsidiary was not in existence in 1997, and each of the income statements,
statement of cash flows and statement of changes in members' equity included in
the Company Financial Statements presents fairly the results of operations of
the Company and its Subsidiary on a consolidated basis for the periods indicated
thereon except that the Subsidiary was not in existence in 1997. Since the dates
of the Company Financial Statements, there have been no material changes in the
Company's accounting policies.
<PAGE>
3.11.Liabilities and Obligations.
(a) As of the Closing Date, the Company and its Subsidiary
are not liable for or subject to any liabilities except for: (i) those
liabilities reflected on the Interim Balance Sheet and not previously paid or
discharged;
(ii) those liabilities arising in the
ordinary course of their business consistent with past practice under any
contract, commitment or agreement specifically disclosed on any Schedule to this
Agreement or not required to be disclosed thereon because of the term or amount
involved or otherwise; and
(iii) those liabilities incurred since
the Balance Sheet Date in the ordinary course of business consistent with past
practice, which liabilities are not, individually or in the aggregate, material.
(b) Except for the Subsidiary and the creation of the
Techcom division, there are no plans or projects involving the opening of new
operations, expansion of any existing operations or the acquisition of any real
property or existing business, to which management of the Company or its
Subsidiary has made any material expenditure in the two-year period prior to the
date of this Agreement, which if pursued by the Company or its Subsidiary would
require additional material expenditures of capital.
(c) For purposes of this Section 3.11, the term
"liabilities" shall include without limitation any direct or indirect liability,
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, either accrued, absolute, contingent,
mature, unmature or otherwise and whether known or unknown, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured. Schedule
3.11(c) contains a complete list of all indebtedness of the Company and its
Subsidiary as of the Closing which is in excess of $5,000 to any one obligee.
3.12. Books and Records. The Company has made and kept books and
records and accounts, which, in reasonable detail, accurately and fairly reflect
the activities of the Company and its Subsidiary. Neither the Company nor its
Subsidiary has engaged in any transaction, maintained any bank account, or used
any corporate funds except for transactions, bank accounts, and funds which have
been and are reflected in their normally maintained books and records.
3.13. Bank Accounts; Powers of Attorney. Schedule 3.13 sets
forth a complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company or its Subsidiary has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or
have access thereto; and
(e) the name of each person, corporation, firm or other
entity holding a general or special power of attorney from the Company or its
Subsidiary and a description of the terms of such power.
3.14. Accounts and Notes Receivable. Schedule 3.14 is a complete
and accurate list, as of November 23, 1998, of the accounts and notes receivable
of the Company and its Subsidiary (including without limitation receivables from
and advances to employees and the Members), which includes an aging of all
accounts and notes receivable showing amounts due in thirty (30) day aging
categories (collectively, the "Accounts Receivable"). All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are current and collectible net of any respective reserves shown on the
Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within 120 days after
the day on which it first became due and payable. There is no contest, claim, or
right of set-off, other than rebates and returns in the ordinary course of
business, under any contract with any obligor of an Account Receivable relating
to the amount or validity of such Account Receivable.
3.15. Permits. The Company and its Subsidiary own or hold all
licenses, franchises, permits and other governmental authorizations, including
without limitation permits, titles (including without limitation motor vehicle
titles and current registrations), fuel permits, licenses and franchises
necessary for the continued operation of their business as currently being
conducted (the "Permits"). The Permits are valid, and neither the Company nor
its Subsidiary have received any notice that any governmental authority intends
to modify, cancel, terminate or fail to renew any Permit. No present or former
officer, manager, member or employee of the Company or any Subsidiary or
affiliate thereof, or any other person, firm, corporation or other entity, owns
or has any proprietary, financial or other interest (direct or indirect) in any
Permits. The Company and its Subsidiary have conducted and are conducting their
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and are not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company or its Subsidiary, by any Permit.
3.16. Real Property.
(a) For purposes of this Agreement, "Real Property" means
all interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company or its Subsidiary, together with any additions
thereto or replacements thereof. The representations set forth in this Section
3.16 are limited to the portion of the Real Property which is leased by the
Company or its Subsidiary.
(b) Schedule 3.16(b) contains a complete and accurate
description of all Real Property leased by the Company or its Subsidiary,
(including street address, legal description (where known), owner, and use
thereof) and, to the Company's knowledge, any claims, liabilities, security
interests, mortgages, liens, pledges, conditions, charges, covenants, easements,
restrictions, encroachments, leases, or encumbrances of any nature thereon
("Encumbrances"). Neither the Company nor its Subsidiary own any Real Property.
The Real Property listed on Schedule 3.16 includes all interests in real
property necessary to conduct the business and operations of the Company and its
Subsidiary.
<PAGE>
(c) Except as set forth in Schedule 3.16(c):
(i) The Company and its Subsidiary have good and valid
rights of ingress and egress to and from all Real Property from and to the
public street systems for all usual street, road and utility purposes.
(ii) The Real Property and all present uses and
operations of the Real Property comply with all applicable statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property except
that the Company makes no representation with respect to Laws for which the
landlord has the sole obligation for compliance pursuant to such law or the
applicable lease. The Company and its Subsidiary have obtained all approvals of
governmental authorities (including certificates of use and occupancy, licenses
and permits) required in connection with the use, occupation, and operation of
the Real Property.
(iii) There are no pending or, to the Company's
knowledge, threatened condemnation, fire, health, safety, building, zoning or
other land use regulatory proceedings, lawsuits or administrative actions
relating to any portion of the Real Property or any other matters which do or
may adversely effect the current use, occupancy or value thereof, nor has the
Company, its Subsidiary or any of the Members received notice of any pending or
threatened special assessment proceedings affecting any portion of the Real
Property which is not in accordance with the leases for the Real Property.
(iv) No portion of the Real Property has suffered any
damage by fire or other casualty which has not heretofore been completely
repaired and restored to its original condition.
(vi) There are no parties other than the Company or
its Subsidiary in possession of any of the Real Property or any portion thereof,
and there are no leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any party or parties the right of use or occupancy
of the Real Property or any portion thereof.
(vii) Neither the Company nor its Subsidiary are
parties to any outstanding options or rights of first refusal to purchase the
Real Property, or any portion thereof or interest therein. The Company and its
Subsidiary have not transferred any air rights or development rights relating to
the Real Property.
(viii) Neither the Company nor its Subsidiary are
parties to any service contracts or other agreements relating to the use or
operation of the Real Property.
(ix) To the Company's knowledge, no portion of the
Real Property is located in a wetlands area, as defined by Laws, or in a
designated or recognized flood plain, flood plain district, flood hazard area or
area of similar characterization. No commercial use of any portion of the Real
Property will violate any requirement of the United States Corps of Engineers or
Laws relating to wetlands areas.
<PAGE>
(x) All real property taxes and assessments that have
become due and payable by the Company or its Subsidiary prior to the Closing and
which have been billed by the landlords with respect to the Real Property have
been paid or will be paid at or prior to Closing or will be accrued as an
account payable.
(xi) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company or its Subsidiary lease from any other party any real property,
including all amendments, renewals, extensions, modifications or supplements to
any of the foregoing or substitutions for any of the foregoing (collectively,
the "Leases") are valid and in full force and effect. The Company has provided
Buyer with true and complete copies of all of the Leases, all amendments,
renewals, extensions, modifications or supplements thereto, and all
correspondence pursuant to which any party to any of the Leases declared a
default thereunder or provided notice of the exercise of any option granted to
such party under such Lease. The Leases and the Company's interests thereunder
are free of all Liens.
(xii) None of the Leases requires the consent or
approval of any party thereto in connection with the consummation of the
transactions contemplated hereby.
3.17.Personal Property.
(a) Schedule 3.17(a) sets forth a complete and accurate
list of all personal property included on the Interim Balance Sheet and all
other personal property owned or leased by the Company or its Subsidiary with a
current book value in excess of $2,500 both (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, including in each case true,
complete and correct copies of leases for material equipment and an indication
as to which assets are currently owned, or were formerly owned, by any Member or
business or personal affiliates of any Member or of the Company or its
Subsidiary.
(b) The Company and its Subsidiary currently own or lease
all personal property necessary to conduct the business and operations of the
Company and its Subsidiary as they are currently being conducted.
<PAGE>
(c) Except as set forth on Schedule 3.17, all of the trucks
and other material, machinery and equipment of the Company and its Subsidiary,
including those listed on Schedule 3.17(a), are in good working order and
condition, ordinary wear and tear excepted. All leases set forth on Schedule
3.17(a) are in full force and effect and constitute valid and binding
agreements, and the Company and its Subsidiary are not in breach of any of their
terms. All fixed assets used by the Company or its Subsidiary that are material
to the operation of their business are either owned by the Company or its
Subsidiary or leased under an agreement listed on Schedule 3.17(a).
3.18.Intellectual Property.
(a) The Company and its Subsidiary are the true and lawful
owners of, or are licensed or otherwise possess legally enforceable rights to
use the registered and unregistered Marks (as defined below) listed on Schedule
3.18(a). Such schedule lists (i) all of the Marks registered in the United
States Patent and Trademark Office ("PTO") or the equivalent thereof in any
state of the United States or in any foreign country, and (ii) all of the
unregistered Marks, that the Company or its Subsidiary now own or use in
connection with their business. Except with respect to those Marks shown as
licensed on Schedule 3.18(a), the Company and its Subsidiary own all of the
registered and unregistered trademarks, service marks, and trade names that they
use. The Marks listed on Schedule 3.18(a) will not cease to be valid rights of
the Company or its Subsidiary by reason of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby. For purposes of this Section 3.18, the term "Mark" shall
mean all right, title and interest in and to any United States or foreign
trademarks, service marks and trade names now held by the Company or its
Subsidiary, including any registration or application for registration of any
trademarks and services marks in the PTO or the equivalent thereof in any state
of the United States or in any foreign country, as well as any unregistered
marks used by the Company or its Subsidiary, and any trade dress (including
logos, designs, company names, business names, fictitious names and other
business identifiers) used by the Company or its Subsidiary in the United States
or any foreign country.
(b) The Company and its Subsidiary are the true and lawful
owners of, or are licensed or otherwise possess legally enforceable rights to
use, all rights in the Patents (as defined below) listed on Schedule 3.18(b)(i)
and in the Copyright (as defined below) registrations listed on Schedule
3.18(b)(ii). Such Patents and Copyrights constitute all of the Patents and
Copyrights that the Company or its Subsidiary now own or are licensed to use.
The Company or its Subsidiary own or are licensed to practice under all patents
and copyright registrations that the Company or its Subsidiary now own or use in
connection with their business. For purposes of this Section 3.18, the term
"Patent" shall mean any United States or foreign patent to which the Company or
its Subsidiary has title as of the date of this Agreement, as well as any
application for a United States or foreign patent made by the Company or its
Subsidiary; the term "Copyright" shall mean any United States or foreign
copyright owned by the Company or its Subsidiary as of the date of this
Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by the
Company or its Subsidiary.
(c) The Company and its Subsidiary are the true and lawful
owners of, or are licensed or otherwise possess legally enforceable rights to
use, all rights in the trade secrets, franchises, or similar rights
(collectively, "Other Rights") listed on Schedule 3.18(c). Those Other Rights
constitute all of the Other Rights that the Company or its Subsidiary now own or
are licensed to use. The Company or its Subsidiary own or are licensed to
practice under all trade secrets, franchises or similar rights that they own,
use or practice under.
<PAGE>
(d) The Marks, Patents, Copyrights, and Other Rights listed
on Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company or its Subsidiary is referred to herein collectively as the
"Company Intellectual Property." All other Intellectual Property is referred to
herein collectively as the "Third Party Intellectual Property." Except as
indicated on Schedule 3.18(d), neither the Company nor its Subsidiary have any
obligation to compensate any person for the use of any Intellectual Property nor
has the Company or its Subsidiary granted to any person any license, option or
other rights to use in any manner any Intellectual Property, whether requiring
the payment of royalties or not.
(e) Neither the Company nor its Subsidiary are, nor will
they be as a result of the execution and delivery of this Agreement or the
performance of their obligations hereunder, in violation of any Third Party
Intellectual Property license, sublicense or agreement described in Schedule
3.18(a), (b), or (c). No claims with respect to the Company Intellectual
Property or Third Party Intellectual Property are currently pending or, to the
knowledge of the Company, are threatened by any person, nor, to the Company's
knowledge, do any grounds for any claims exist: (i) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or licensed
or proposed for use, sale or license by the Company or its Subsidiary infringes
on any copyright, patent, trademark, service mark or trade secret; (ii) against
the use by the Company or its Subsidiary of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's or its Subsidiary's business as currently
conducted by the Company or its Subsidiary; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property or other
trade secret material to the Company or its Subsidiary; or (iv) challenging the
Company's or its Subsidiary's license or legally enforceable right to use of the
Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor its Subsidiary
(x) has been sued or charged in writing as a defendant in any claim, suit,
action or proceeding which involves a claim or infringement of trade secrets,
any patents, trademarks, service marks, or copyrights and which has not been
finally terminated or been informed or notified by any third party that the
Company or its Subsidiary may be engaged in such infringement or (y) has
knowledge of any infringement liability with respect to, or infringement by, the
Company or its Subsidiary of any trade secret, patent, trademark, service mark,
or copyright of another.
3.19.Significant Customers; Material Contracts and
Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate
list of all Significant Customers and Significant Suppliers. For purposes of
this Agreement, "Significant Customers" are the twelve (12) customers that have
effected the most purchases, in dollar terms, from the Company and its
Subsidiary on a consolidated basis during each of the past four (4) fiscal
quarters, and "Significant Suppliers" are the twenty (20) suppliers who supplied
the largest amount by dollar volume of products or services to the Company and
its Subsidiary on a consolidated basis during the twelve (12) months ending on
the Balance Sheet Date.
<PAGE>
(b) Schedule 3.19(b) contains a complete and accurate list
of all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company or its Subsidiary are a party or
by which they or their properties are bound (including without limitation
contracts with Significant Customers, joint venture or partnership agreements,
contracts with any labor organizations, employment agreements, consulting
agreements, loan agreements, indemnity or guaranty agreements, bonds, mortgages,
options to purchase land, liens, pledges or other security agreements) (i) to
which the Company and any affiliate or Subsidiary of the Company or any officer,
manager or member of the Company or any Subsidiary are parties ("Related Party
Agreements"); (ii) that may give rise to obligations or liabilities exceeding,
during the current term thereof, $5,000, or (iii) that may generate revenues or
income exceeding, during the current term thereof, $5,000 (collectively with the
Related Party Agreements, the "Material Contracts"). The Company has delivered
to Buyer true, complete and correct copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.19(c), (i)
none of the Significant Customers has canceled or substantially reduced or, to
the knowledge of the Company, is currently attempting or threatening to cancel
or substantially reduce, any purchases from the Company or its Subsidiary, (ii)
none of the Significant Suppliers has canceled or substantially reduced or, to
the knowledge of the Company, is currently attempting to cancel or substantially
reduce, the supply of products or services to the Company or its Subsidiary,
(iii) the Company and its Subsidiary have complied with all of their commitments
and obligations and are not in default under any of the Material Contracts, and
no notice of default has been received with respect to any thereof, and (iv)
there are no Material Contracts that were not negotiated at arm's length. The
Company and its Subsidiary have not received any material customer complaints
concerning their products and/or services, nor have they had any of their
products returned by a purchaser thereof except for normal warranty returns
consistent with past history and those returns that would not result in a
reversal of any material revenue.
(d) Each Material Contract, except those terminated
pursuant to Section 5.5, is valid and binding on the Company or its Subsidiary
and is in full force and effect and is not subject to any default thereunder by
any party obligated to the Company or its Subsidiary pursuant thereto. The
Company and its Subsidiary have obtained all necessary consents, waivers and
approvals of parties to any Material Contracts that are required in connection
with any of the transactions contemplated hereby, or are required by any
governmental agency or other third party or are advisable in order that any such
Material Contract remain in effect without modification after the transactions
contemplated by this Agreement and without giving rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
(e) The Company is not a "women's business enterprise"
("WBE") or "woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5,
or a "minority business enterprise" ("MBE") or "minority-owned business concern"
as defined in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to
any of its customers.
(f) The outstanding balance on all loans or credit
agreements either (i) between the Company or its Subsidiary and any person in
which any of the Members owns a material interest, or (ii) guaranteed by the
Company or its Subsidiary for the benefit of any person in which any of the
Members owns a material interest, are set forth in Schedule 3.19(f).
<PAGE>
(g) The pledge, hypothecation or mortgage of all or
substantially all of the Company's and its Subsidiary's assets (including,
without limitation, a pledge of the Company's and its Subsidiary's contract
rights under any Material Contract) will not, except as set forth on Schedule
3.19(g), (i) result in the breach or violation of, (ii)constitute a default
under, (iii) create a right of termination under, or (iv) result in the creation
or imposition of (or the obligation to create or impose) any lien upon any of
the assets of the Company or its Subsidiary (other than a lien created pursuant
to the pledge, hypothecation or mortgage described at the start of this Section
3.19(g)) pursuant to any of the terms and provisions of, any Material Contract
to which the Company or its Subsidiary is a party or by which the property of
the Company or its Subsidiary is bound.
3.20.Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company and
its Subsidiary are not parties to any government contracts.
(b) The Company and its Subsidiary have not been suspended
or debarred from bidding on contracts or subcontracts for any agency or
instrumentality of the United States Government or any state or local
government, nor, to the knowledge of the Company, has any suspension or
debarment action been threatened or commenced. There is no valid basis for the
Company's or its Subsidiary's suspension or debarment from bidding on contracts
or subcontracts for any agency of the United States Government or any state or
local government.
(c) Except as set forth in Schedule 3.20, neither the
Company nor its Subsidiary have been, nor are they now being, audited or
investigated by any government agency, or the inspector general or auditor
general or similar functionary of any agency or instrumentality, nor, to the
knowledge of the Company, has such audit or investigation been threatened.
(d) The Company and its Subsidiary have no dispute pending
before a contracting office of, nor any current claim pending against, any
agency or instrumentality of the United States Government or any state or local
government, relating to a contract.
(e) The Company and its Subsidiary have not, with respect
to any government contract, received a cure notice advising the Company or its
Subsidiary that they are or were in default or would, if they failed to take
remedial action, be in default under such contract.
(f) The Company and its Subsidiary have not submitted any
inaccurate, untruthful, or misleading cost or pricing data, certification, bid,
proposal, report, claim, or any other information relating to a contract to any
agency or instrumentality of the United States Government or any state or local
government.
(g) No employee, agent, consultant, representative, or
affiliate of the Company or its Subsidiary are in receipt or possession of any
competitor or government proprietary or procurement sensitive information
related to the Company's or its Subsidiary's business under circumstances where
there is reason to believe that such receipt or possession is unlawful or
unauthorized.
<PAGE>
(h) Each of the Company's and its Subsidiary's government
contracts has been issued, awarded or novated to the Company or its Subsidiary
in the Company's or its Subsidiary's name.
3.21. Insurance. Schedule 3.21 sets forth a complete and
accurate list, as of the Balance Sheet Date, of all insurance policies carried
by the Company or its Subsidiary and all insurance loss runs or workmen's
compensation claims received for the past two (2) policy years. The Company and
its Subsidiary have delivered to Buyer true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company and its
Subsidiary are otherwise in full compliance with the terms of such policies.
Such policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company and its Subsidiary.
To the knowledge of the Company, there have been no threatened terminations of,
or material premium increases with respect to, any of such policies.
3.22.Environmental Matters.
(a) The Company and its Subsidiary and any other person or
entity for whose conduct the Company and its Subsidiary are or may be held
responsible, have no liability under, have never violated, and are presently in
compliance with any and all environmental, health or safety-related laws,
regulations, ordinances or by-laws at the federal, state and local level (the
"Environmental Laws") applicable to the Real Property and any facilities and
operations thereon, except as listed in Schedule 3.22(a).
(b) There exist no conditions with respect to the
environment on the Real Property, or off the Real Property caused by the Company
or its Subsidiary, whether or not yet discovered, that could or do result in any
damage, loss, cost, expense, claim, demand, order or liability to or against the
Company or its Subsidiary by any third party including, without limitation, any
condition resulting from the operation of the Company's and its Subsidiary's
business and/or the operation of the business of any other property owner or
operator in the vicinity of the Real Property and/or any activity or operation
formerly conducted by any person or entity on or off the Real Property, except
as set forth in Schedule 3.22(b).
(c) The Company and its Subsidiary, and any other person or
entity for whose conduct the Company or its Subsidiary are or may be held
responsible, have not generated, manufactured, refined, transported, treated,
stored, handled, disposed, transferred, produced, or processed any pollutant,
toxic substance, hazardous waste, hazardous material, hazardous substance, or
oil as defined in or pursuant to the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. ss. 6901 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the
Federal Clean Water Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other
federal, state, or local environmental law, regulation, ordinance, rule, or
bylaw, whether existing as of the date hereof, previously enforced, or
subsequently enacted ("Hazardous Material") or any solid waste at the Real
Property, or at any other location, except in compliance with all applicable
Environmental Laws and except as listed in Schedule 3.22(c).
(d) The Company has no knowledge of the releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing, or dumping into the soil, surface waters, ground
waters, land, stream sediments, surface or subsurface strata, ambient air, sewer
system, or any environmental medium with respect to the Real Property
("Environmental Condition") except as listed in Schedule 3.22(d).
<PAGE>
(e) To the Company's knowledge, no Lien has been imposed on
the Real Property by any governmental entity at the federal, state, or local
level in connection with the presence on or off the Real Property of any
Hazardous Material, except as listed in Schedule 3.22(e).
(f) The Company and its Subsidiary have not, and any other
person or entity for whose conduct the Company or its Subsidiary are or may be
held responsible have not, (i) entered into or been subject to any consent
decree, compliance order, or administrative order with respect to the Real
Property or any facilities or operations thereon; (ii) received notice under the
citizen suit provision of any of the Environmental Laws in connection with the
Real Property or any facilities or operations thereon; (iii) received any
request for information, notice, demand letter, administrative inquiry, or
formal or informal compliant or claim with respect to any Environmental
Condition relating to the Real Property or any facilities or operations thereon;
or (iv) been subject to or threatened with any governmental or citizen
enforcement action with respect to the Real Property or any facilities or
operations thereon, except as set forth in Schedule 3.22(f); and the Company and
its Subsidiary, and any other person or entity for whose conduct they are or may
be held responsible, have no knowledge that any of the above will be
forthcoming.
(g) The Company and its Subsidiary have all permits
necessary pursuant to Environmental Laws for their activities and operations at
the Real Property and for any past or ongoing alterations or improvements at the
Real Property, which permits are listed in Schedule 3.22(g).
(h) To the Company's knowledge, none of the following
exists at the Real Property: (1) underground storage tanks, (2)
asbestos-containing materials in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, (4) lead paint, pipes or solder,
or (5) landfills, surface impoundments or disposal areas, except as listed in
Schedule 3.22(h).
(i) The Company has provided to Buyer copies of all
documents, records and information in its possession or control or available to
the Company concerning Environmental Conditions relevant to the Real Property or
any facilities or operations thereon, whether generated by Company, its
Subsidiary or others, including, without limitation, environmental audits,
environmental risk assessments, or site assessments of the Real Property and/or
any adjacent property or other property in the vicinity of the Real Property
owned or operated by the Company, its Subsidiary or others, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
environmental agency reports and correspondence. Furthermore, the Members shall
have an ongoing obligation to immediately provide to Buyer copies of any
additional such documents that come into the possession or control of or become
available to the Members subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or
caused to be taken all actions necessary to ensure that as of the Closing Date
the Real Property, all activities and operations thereon, and all alterations
and improvements thereto, comply with all applicable Environmental Laws and with
any and all agreements with governmental entities, court orders, and
administrative orders regarding Environmental Conditions.
<PAGE>
3.23.Labor and Employment Matters. With respect to employees of
and service providers to the Company and its Subsidiary:
(a) the Company and its Subsidiary are and have been in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including without limitation any such laws respecting
employment discrimination, workers' compensation, family and medical leave, the
Immigration Reform and Control Act, and occupational safety and health
requirements, and have not and are not engaged in any unfair labor practice;
(b) there is not now, nor since the Company's or its
Subsidiary's respective inception has there been, any unfair labor practice
complaint against the Company or its Subsidiary pending or, to the Company's
knowledge, threatened, before the National Labor Relations Board or any other
comparable authority;
(c) there is not now, nor within the past three (3) years
has there been, any labor strike, slowdown or stoppage actually pending or, to
the Company's knowledge, threatened, against or directly affecting the Company
or its Subsidiary;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(e) no grievance or arbitration proceeding arising out of
or under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company and its Subsidiary are not
and have never been represented by any labor union, and no collective bargaining
agreement is binding and in force against the Company or its Subsidiary or
currently being negotiated by the Company or its Subsidiary; and
(g) all persons classified by the Company and its
Subsidiary as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the Company and its Subsidiary have
fully and accurately reported their compensation on IRS Forms 1099 when required
to do so.
3.24. Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any
benefit arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former managers, directors, employees, agents,
or independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, managers or
agents.
<PAGE>
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or its Subsidiary or with
respect to which the Company or its Subsidiary has or may have any liability
(whether actual, contingent, with respect to any of assets or otherwise) as of
the Closing Date, in each case with respect to any present or former directors,
managers, employees, or agents of the Company or its Subsidiary.
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company or its Subsidiary is the "plan
sponsor" (as defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan
maintained by the Company or its Subsidiary or to which the Company or its
Subsidiary is obligated to make payments, in each case with respect to any
present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that, together
with the Company or its Subsidiary, would be or was at any time treated as a
single employer under Section 414 of the Code or Section 4001 of ERISA and any
general partnership of which the Company or its Subsidiary is or has been a
general partner.
(vii) "Multiemployer Plan" means any Employee Benefit
Plan described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit
Plan that meets, purports to meet, or is intended to meet the requirements of
Section 401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.24(b) contains a complete and accurate list
of all Company Plans and Company Benefit Arrangements. Schedule 3.24(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans
and Benefit Arrangements:
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the last Internal Revenue Service
determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted by
the Company or its Subsidiary to obtain those letters; (D) the most recent
summary plan description; (E) the most recent written descriptions of all
non-written agreements relating to any such plan or arrangement; (F) all reports
submitted within the four (4) years preceding the date of this Agreement by
third-party administrators, actuaries, investment managers, consultants, or
other independent contractors; (G) all notices that were given within the three
(3) years preceding the date of this Agreement by the IRS, Department of Labor,
or any other governmental agency or entity with respect to any plan or
arrangement; and (H) employee manuals or handbooks containing personnel or
employee relations policies;
<PAGE>
(ii) the DirectPro LLC Retirement Savings Plan (the
"Company 401(k) Plan") is the only Qualified Plan. Neither the Company nor its
Subsidiary have ever maintained or contributed to another Qualified Plan. The
Company 401(k) Plan qualifies under Section 401(a) of the Code, and any trusts
maintained pursuant thereto are exempt from federal income taxation under
Section 501 of the Code, and nothing has occurred with respect to the design or
operation of any Qualified Plans that could cause the loss of such qualification
or exemption or the imposition of any liability, lien, penalty, or tax under
ERISA or the Code;
(iii) the Company and its Subsidiary have never
sponsored or maintained, had any obligation to sponsor or maintain, or had any
liability (whether actual or contingent, with respect to any of its assets or
otherwise) with respect to any Employee Benefit Plan subject to Section 302 of
ERISA or Section 412 of the Code or Title IV of ERISA (including any
Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
(v) there are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are not Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company, its Subsidiary or any Member, and no claims
or lawsuits have been asserted, instituted or, to the knowledge of the Company,
threatened by, against, or relating to any Company Plan or Company Benefit
Arrangement, against the assets of any trust or other funding arrangement under
any such Company Plan, by or against the Company or its Subsidiary with respect
to any Company Plan or Company Benefit Arrangement, or by or against the plan
administrator or any fiduciary of any Company Plan or Company Benefit
Arrangement, and the Company does not have knowledge of any fact that could form
the basis for any such claim or lawsuit. The Company Plans and Company Benefit
Arrangements are not presently under audit or examination (nor has notice been
received of a potential audit or examination) by the IRS, the Department of
Labor, or any other governmental agency or entity, and no matters are pending
with respect to the Company 401(k) Plan under the IRS's Voluntary Compliance
Resolution program, its Closing Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit
Arrangement contains any provision or is subject to any law that would prohibit
the transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan,
there has occurred no non-exempt "prohibited transaction" (within the meaning of
Section 4975 of the Code) or transaction prohibited by Section 406 of ERISA or
breach of any fiduciary duty described in Section 404 of ERISA that would, if
successful, result in any liability for the Company or its Subsidiary or any
member, officer, manager, or employee of the Company or its Subsidiary;
(viii) all reporting, disclosure,
and notice requirements of ERISA and the Code have been fully and completely
satisfied with respect to each Company Plan and each Company Benefit
Arrangement;
<PAGE>
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be made or taken until
after the Closing Date and (B) are disclosed on Schedule 3.24(c);
(x) payment has been made of all amounts that the
Company and its Subsidiary are required to pay as contributions to the Company
Benefit Plans as of the last day of the most recent fiscal year of each of the
plans ended before the date of this Agreement; all benefits accrued under any
unfunded Company Plan or Company Benefit Arrangement will have been paid,
accrued, or otherwise adequately reserved in accordance with GAAP as of the
Balance Sheet Date; and all monies withheld from employee paychecks with respect
to Company Plans have been transferred to the appropriate plan within 30 days of
such withholding;
(xi) the Company and its Subsidiary have not prepaid
or prefunded any Welfare Plan through a trust, reserve, premium stabilization,
or similar account, nor do they provide benefits through a voluntary employee
beneficiary association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been
made by the Company to any person with regard to any Company Plan or Company
Benefit Arrangement that was not in accordance with the Company Plan or Company
Benefit Arrangement and that could have an adverse economic consequence to the
Company or its Subsidiary;
(xiii) the Company and its Subsidiary have no
liability (whether actual, contingent, with respect to any of its assets or
otherwise) with respect to any Employee Benefit Plan or Benefit Arrangement that
is not a Company Benefit Arrangement or with respect to any Employee Benefit
Plan sponsored or maintained (or which has been or should have been sponsored or
maintained) by any ERISA Affiliate;
(xiv) all group health plans of the Company, its
Subsidiary and its affiliates have been operated in material compliance with the
requirements of Sections 4980B (and its predecessor) and 5000 of the Code, and
the Company has provided, or will have provided before the Closing Date, to
individuals entitled thereto all required notices and coverage pursuant to
Section 4980B with respect to any "qualifying event" (as defined therein)
occurring before or on the Closing Date;
(xv) no employee or former employee of the Company or
its Subsidiary or beneficiary of any such employee or former employee is, by
reason of such employee's or former employee's employment, entitled to receive
any benefits, including, without limitation, death or medical benefits (whether
or not insured) beyond retirement or other termination of employment as
described in Statement of Financial Accounting Standards No. 106, other than (i)
death or retirement benefits under a Qualified Plan, (ii) deferred compensation
benefits accrued as liabilities on the Interim Balance Sheet or (iii)
continuation coverage mandated under Section 4980B of the Code or other
applicable law.
<PAGE>
(d) Schedule 3.24(d) hereto contains the
most recent quarterly listing of workers' compensation claims and a schedule of
workers' compensation claims of the Company and its Subsidiary for the last
three (3) fiscal years.
(e) Schedule 3.24(e) hereto sets forth an
accurate list, as of the date hereof, of all employees of the Company who may
earn more than $50,000 in 1998, all officers and all managers, and lists all
employment agreements with such employees, officers and managers and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation respectively) of each such person as of (a) the Balance Sheet Date
and (b) the date hereof.
(f) Neither the Company nor its Subsidiary
have declared or paid any bonus compensation in contemplation of the
transactions contemplated by this Agreement.
3.25.Taxes.
(a) (i) The Company and its Subsidiary have
timely filed all Tax Returns which were required to be filed on or before the
Closing Date, and all such Tax Returns are true, correct, and complete in all
respects.
(ii) The Company and its Subsidiary have
paid in full on a timely basis all Taxes owed by them, whether or not shown on
any Tax Return.
(iii) The amount of the Company's and its
Subsidiary's liability for unpaid Taxes as of the Balance Sheet Date did not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) shown on the Interim Balance Sheet, and the amount
of the Company's and its Subsidiary's liability for unpaid Taxes for all periods
or portions thereof ending on or before the Closing Date will not exceed the
amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and records of the
Company on the Closing Date.
(iv) Except as set forth on Schedule
3.25, there are no ongoing examinations or claims against the Company or its
Subsidiary for Taxes, and no notice of any audit, examination, or claim for
Taxes, whether pending or threatened, has been received.
(v) The Company has a taxable year
ended on December 31, in each year commencing 1996.
(vi) The Company has always used the
accrual method of accounting for income Tax purposes. The Company has not agreed
to, and is not and will not be required to, make any adjustments under Code
Section 481(a) as a result of a change in accounting methods.
(vii) The Company and its
Subsidiary have withheld and paid over to the proper governmental authorities
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid to any
employee, independent contractor, creditor, or other third party.
(viii) There have been no Tax
examinations or extensions of statutory limitations for the collection or
assessment of Taxes. Copies of the Tax Returns of the Company and its Subsidiary
for the last fiscal year have been delivered to Buyer.
(ix) There are (and as of immediately
following the Closing there will be) no Liens on the assets of the Company or
its Subsidiary relating to or attributable to Taxes.
<PAGE>
(x) To the Company's knowledge, there is no basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or its
Subsidiary or otherwise have an adverse effect on the Company, its Subsidiary or
their business.
(xi) None of the Company's or its Subsidiary's assets
are treated as "tax exempt use property" within the meaning of Section 168(h) of
the Code.
(xii)There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or its Subsidiary that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Sections 280G, 404 or
162 of the Code.
(xiii) Intentionally Omitted.
(xiv) The Company and its Subsidiary are not, and have
not been at any time, a party to a tax sharing, tax indemnity or tax allocation
agreement, and the Company and its Subsidiary have not assumed the tax liability
of any other person under contract.
(xv) The Company and its Subsidiary are not, and have
not been at any time, a "United States real property holding corporation" within
the meaning of Section 897(c)(2) of the Code.
(xvi)The Company's and its Subsidiary's tax basis in
their assets for purposes of determining their future amortization, depreciation
and other federal income tax deductions are accurately reflected on the
Company's tax books and records.
(xvii) The Company and its Subsidiary have not been a
member of an affiliated group filing a consolidated federal income Tax Return
and do not have any liability for the Taxes of another person under Treas. Reg.
ss. 1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(xviii) The Company has, since inception, been a
limited liability company taxed as a partnership under the Code.
(xix)The Company's "tax matters partner" "Tax Matters
Partner") under the Code has been RS since August 31, 1996.
(xx) Neither the Company nor the Tax
Matters Partner has ever received a Notice of Beginning of Administrative
Proceeding.
(xxi)The Company is registered for state
and local Tax purposes in the states and localities identified on Schedule
3.26(a). Such states and localities constitute all the states and localities
where the Company is required to be registered for state and local Tax purposes.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
<PAGE>
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.26.Conformity with Law; Litigation.
(a) The Company and its Subsidiary have not
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it.
(b) No Member has, at any time: (i)
committed any criminal act (except for minor traffic violations); (ii) engaged
in acts of fraud, dishonesty, gross negligence or moral turpitude; (iii) filed
for personal bankruptcy; or (iv) been an officer, director, manager, trustee or
controlling shareholder of a company that filed for bankruptcy or Chapter 11
protection.
(c) Except as set forth on Schedule 3.26(c),
there are no claims, actions, suits or proceedings, pending or, to the knowledge
of the Company, threatened against or affecting the Company or its Subsidiary at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. There are no
judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against the
Company or its Subsidiary or against any of their properties or business.
3.27.Relations with Governments. The Company and its Subsidiary
have not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office, nor have they
otherwise taken any action that would cause the Company or its Subsidiary to be
in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any
law of similar effect.
3.28.Absence of Changes. Since the Balance Sheet Date, the
Company and its Subsidiary have conducted their business in the ordinary course
and, except as contemplated herein or as set forth on Schedule 3.28, there has
not been:
(a) any change, by itself or together with
other changes, that has affected adversely, or is likely to affect adversely,
the business, operations, affairs, prospects, properties, assets, profits or
condition (financial or otherwise) of the Company and its Subsidiary taken as a
whole;
(b) any damage, destruction or loss (whether
or not covered by insurance) adversely affecting the properties
or business of the Company and its Subsidiary taken as a whole;
(c) any change in the Company's ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(d) any declaration or payment of any
distribution in respect of the Company's membership interests, or any direct or
indirect redemption, purchase or other acquisition of any of the membership
interests of the Company or its Subsidiary, except for such cash distributions
to the Members as have not resulted in the Company Net Working Capital being
less than the Company Net Working Capital Target (any such distribution a
"Permissible Distribution") subject to Section 1.3(d);
<PAGE>
(e) any increase in the compensation, bonus, sales
commissions or fee arrangements payable or to become payable by the Company or
its Subsidiary to any of their officers, managers, members, employees,
consultants or agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice, nor has the Company or
its Subsidiary entered into or amended any Company Benefit Arrangement, Company
Plan, employment, severance or other agreement relating to compensation or
fringe benefits;
(f) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company and its Subsidiary
taken as a whole;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company or its
Subsidiary to any person, including without limitation the Members and their
affiliates;
(h) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company or its Subsidiary,
including without limitation any indebtedness or obligation of the Members and
their affiliates, provided that the Company and its Subsidiary may negotiate and
adjust bills in the course of good faith disputes with customers in a manner
consistent with past practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or its Subsidiary or requiring consent of any
party to the transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company and its Subsidiary taken as a
whole;
(k) any waiver of any material rights or claims of the
Company or its Subsidiary;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company or its
Subsidiary are a party;
(m) any transaction by the Company or its Subsidiary
outside the ordinary course of business;
(n) any capital expenditure by the Company or its
Subsidiary, either individually or in the aggregate, exceeding $5,000;
(o) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by the
Company or the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company or its
Subsidiary of any mortgage, pledge, security interest or lien or other
encumbrance on any asset (other than liens arising under existing lease
financing arrangements which are not material and liens for Taxes not yet due
and payable);
<PAGE>
(q) any entry into, amendment of, relinquishment,
termination or non- renewal by the Company or its Subsidiary of any contract,
lease transaction, commitment or other right or obligation requiring aggregate
payments by the Company or its Subsidiary in excess of $5,000;
(r) any loan by the Company or its Subsidiary to any person
or entity, incurring by the Company or its Subsidiary of any indebtedness,
guaranteeing by the Company or its Subsidiary of any indebtedness, issuance or
sale of any debt securities of the Company or its Subsidiary or guaranteeing of
any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or its Subsidiary or any of their affairs; or
(t) negotiation or agreement by the Company or its
Subsidiary or any officer or employee thereof to do any of the things described
in the preceding clauses (a) through (s) (other than negotiations with Buyer and
its representatives regarding the transactions contemplated by this Agreement).
3.29. Disclosure. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to Buyer pursuant hereto or in connection with this Agreement
or the transactions contemplated hereby, are and will be complete and accurate
in all material respects. No representation or warranty by the Members, TLG
Members or the Company contained in this Agreement, in the Schedules attached
hereto or in any certificate furnished or to be furnished by the Members, TLG
Members or the Company to Buyer in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make any statement
contained herein or therein not misleading. There is no fact known to any Member
that has specific application to such Member or the Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as such Member can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company and its Subsidiary taken as a whole that has not been set forth in this
Agreement or any Schedule hereto. Certain matters regarding the Company are set
forth on Schedule 3.29.
3.30. Predecessor Status; Etc. Schedule 3.30 sets forth a
listing of all legal names, trade names, fictitious names or other names
(including, without limitation, any names of divisions or operations) of the
Company and its Subsidiary and all of their predecessor companies during the
five-year period immediately preceding the Closing, including without limitation
the names of any entities from whom the Company or its Subsidiary has acquired
material assets. During the five (5) year period immediately preceding the
Closing, the Company and its Subsidiary have operated only under the names set
forth on Schedule 3.30 in the jurisdiction or jurisdictions set forth on
Schedule 3.30 and have not been a subsidiary or division of another entity or a
part of an acquisition which was later rescinded.
3.31. Location of Chief Executive Offices. Schedule 3.31 sets
forth the location of the Company's chief executive offices.
<PAGE>
3.32. Location of Equipment. All equipment held on the date
hereof by the Company or its Subsidiary is located at one of the locations shown
on Schedule 3.32. For purposes of this Agreement, the term "equipment" shall
mean any "equipment" of any nature owned by the Company or its Subsidiary as of
the date hereof, and, in any event, shall include, but shall not be limited to,
all machinery, equipment, furnishings, fixtures and vehicles owned by the
Company or its Subsidiary as of the date hereof, wherever located, together with
all attachments, components, parts, equipment and accessories installed thereon
or affixed thereto.
3.33. Year 2000 Compliance. To the extent the Company and its
Subsidiary may not be Year 2000 Compliant and Ready (as defined below) at any
time prior to January 1, 1999, the Company has no reason to believe that such
status will result in a material adverse affect on the Company's and its
Subsidiary's business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise). For purposes of this Agreement, the term "Year 2000 Compliant and
Ready," with respect to any person, means that the hardware and software systems
and components (including without limitation imbedded microchips) owned,
licensed or used by such person in connection with its business operations will
(without any additional cost or the need for human intervention) (i) accurately
process information involving any and all dates before, during and/or after
January 1, 2000, including without limitation recognizing and processing input,
providing output, storing information and performing date-related calculations,
all without creating any ambiguity as to the century and without any other error
or malfunction, (ii) operate accurately without material interruption or
malfunction on and in respect of any and all dates before, during and/or after
January 1, 2000, and (iii) where applicable, respond to and process two digit
year input without creating any ambiguity as to the century.
3.34. Inventory. The Company does not own or otherwise possess
any inventory.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
To induce the Company, the Members and the TLG
Members to enter into this Agreement and consummate the transactions
contemplated hereby, Buyer represents and warrants to the Company and the
Members 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 Delaware,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted and is qualified to do
business in each jurisdiction in which the character of the property owned,
leased or operated by Buyer or the nature of the business or activities
conducted by Buyer makes such qualification necessary.
4.2. Authorization; Validity of Obligations. The representative
of Buyer executing this Agreement has all requisite corporate power and
authority to enter into and bind Buyer to the terms of this Agreement. Buyer has
the full legal right, power and corporate authority to enter into this Agreement
and to perform its obligations pursuant to the terms of this Agreement. The
execution and delivery of this Agreement by Buyer and the performance by Buyer
of the transactions contemplated herein has been duly and validly authorized by
the Board of Directors of Buyer and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of Buyer enforceable in accordance with its terms.
<PAGE>
4.3. No Conflicts. The execution, delivery and performance of
this Agreement, the consummation of the transactions herein contemplated hereby
and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of
the Buyer's Certificate of Incorporation or Bylaws;
(b) conflict with, or result in a default (or would
constitute a default but for a requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which Buyer is a party or
by which it is bound, or result in the creation or imposition of any lien,
charge or encumbrance on any of Buyer's properties pursuant to (i) any law or
regulation to which Buyer or any of its property is subject, or (ii) any
judgment, order or decree to which Buyer is bound or any of its property is
subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) violate any law, order, judgment, rule, regulation,
decree or ordinance to which Buyer is subject, or by which Buyer is bound
(including, without limitation, the HSR Act, together with all rules and
regulations promulgated thereunder).
5. COVENANTS.
5.1. Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Members, on the
other, for certain tax matters following the Closing Date:
(i) Members shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. The Members shall pay to the Company
on or before the due date of such Tax Returns the amount of all Taxes shown as
due on such Tax Returns to the extent that such Taxes are not reflected in the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. Such Tax
Returns shall be prepared and filed in accordance with applicable law and in a
manner consistent with past practices and shall be subject to review and
approval by Buyer. To the extent reasonably requested by the Members or required
by law, Buyer and the Company shall participate in the filing of any Tax Returns
filed pursuant to this paragraph.
(ii) Except as set forth in Section 5.1(a)(v) with
respect to income Tax Returns for the Company for the 1998 calendar year, the
Company shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns for Tax periods which begin before the Closing Date and end after
the Closing Date. The Members shall pay to the Company within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. For purposes of
this Section 5.1, in the case of any Taxes that are imposed on a periodic basis
and are payable for a Taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
Taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
<PAGE>
(iii) Buyer and the Company on one hand and Members on
the other hand shall (A) cooperate fully, as reasonably requested, in connection
with the preparation and filing of Tax Returns pursuant to this Section 5.1 and
any audit, litigation or other proceeding with respect to Taxes; (B) make
available to the other, as reasonably requested, all information, records or
documents with respect to Tax matters pertinent to the Company for all periods
ending prior to or including the Closing Date; and (C) preserve information,
records or documents relating to Tax matters pertinent to the Company that are
in their possession or under their control until the expiration of any
applicable statute of limitations or extensions thereof.
(iv) The Members shall timely pay all
transfer, documentary, sales, use, stamp, registration and other Taxes and fees
arising from or relating to the transactions contemplated by this Agreement, and
the Members shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
Buyer and the Company will join in the execution of any such Tax Returns and
other documentation.
(v) The Members and Buyer agree that
the Buyer's purchase of the Membership Interests will cause a termination of the
partnership status of the Company for purposes of the Code. Pursuant to Section
706(c)(1) and (2) of the Code, the tax year of the Company taxed as a
partnership will close on the Closing Date and items of income, loss, deduction
or credit shall be assigned to that short taxable year in accordance with the
Company's normal method of accounting. The Members and the Company shall file
income Tax Returns for the 1998 calendar tax year in a manner consistent with
the foregoing.
(b) The Company shall, prior to Closing,
maintain its status as a limited liability company taxed as a partnership for
federal and state income tax purposes.
(c) On or after the Closing Date, the
Company and the Tax Matters Partner will cooperate and execute such documents as
are necessary to designate Buyer as the "tax matters partner" of the Company for
purposes of the Code.
5.2. Accounts Receivable. In the event that all Accounts
Receivable are not collected in full (net of reserves specified in Section 3.14)
within 120 days after the Closing then, at the request of the Company or Buyer,
the Members shall pay the Company an amount equal to the Accounts Receivable not
so collected, and upon receipt of such payment the Company shall assign to the
Members making the payment all rights with respect to the uncollected Accounts
Receivable giving rise to the payment and shall also thereafter promptly remit
any excess collections received by it with respect to such assigned Accounts
Receivable.
5.3. Notice to Bargaining Agents. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by Buyer, and shall provide Buyer with proof that any
required notice has been sent.
<PAGE>
5.4. Employee Benefit Plans. If reasonably requested by Buyer,
the Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing.
5.5. Related Party Agreements. The Company and/or the Members,
as the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company or Members to terminate.
5.6. Cooperation.
(a) The Company, Members, and Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement including any
documentation reasonably required by Buyer's independent public accountants (in
connection with such accountant's audit of the Company) or the Nasdaq National
Market.
(b) The Members and the Company shall cooperate and use
their reasonable efforts to have the present officers, managers and employees of
the Company cooperate with Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
<PAGE>
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby.
5.7. Access to Information; Confidentiality;
Public Disclosure.
(a) Prior to the Closing Date, the Company
has afforded to the officers and authorized representatives of Buyer access to
(i) all of the sites, properties, books and records of the Company and its
Subsidiary and (ii) such additional financial and operating data and other
information as to the business and properties of the Company and its Subsidiary
as Buyer has from time to time reasonably requested, including, without
limitation, access upon reasonable request to the Company's and its Subsidiary's
employees, customers, vendors, suppliers and creditors for due diligence
inquiry. No information or knowledge obtained in any investigation pursuant to
this Section 5.7 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that
it had in the past, currently has, and in the future may possibly have, access
to certain confidential information of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company's business. Buyer agrees that, unless there is
a Closing, it will not disclose confidential information with respect to the
Company or its Subsidiary to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except to authorized
representatives of the Company and to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 5.7(b), unless (i) such information becomes known to the public
generally through no fault of Buyer, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, Buyer
shall give prior written notice thereof to the Company and provide the Company
with the opportunity to contest such disclosure and shall cooperate with efforts
to prevent such disclosure.
(c) Prior to the Closing Date, neither the
Company nor any Member shall make any disclosure (whether or not in response to
an inquiry) of the subject matter of this Agreement unless previously approved
by Buyer in writing. Buyer agrees to keep the Company and the Members appraised
in advance of any disclosure of the subject matter of this Agreement by Buyer
prior to the Closing Date. Buyer agrees to consult with RS prior to release of
any press-release related to the subject matter of this Agreement.
5.8. Lease Letter of Credit. The Members have advised Buyer that
pursuant to the Company's lease for premises at 1185 Avenue of the Americas, New
York, New York the Company is required to maintain a security deposit in the
amount of $195,375, and that such security has been arranged by a Letter of
Credit issued on behalf of TLG and/or the TLG Members. Promptly following the
Closing Date, Buyer shall take all steps necessary to replace the security
deposit so that the entity on whose behalf such Letter of Credit was issued
shall have no future liability with respect to the security deposit for such
lease.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1. Representations and Warranties; Performance of Obligations.
All of the representations and warranties of the Members, TLG Members and the
Company contained in this Agreement shall be true, correct and complete on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date; all of the terms, covenants,
agreements and conditions of this Agreement to be complied with, performed or
satisfied by the Company and the Members on or before the Closing Date shall
have been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed on behalf of the Company and
by each of the Members and TLG Members shall have been delivered to Buyer.
6.2. No Litigation. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company and its Subsidiary (or
Buyer's own business) following the transactions contemplated by this Agreement
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. There shall be no action,
suit, claim or proceeding of any nature pending or threatened against Buyer, the
Company or its Subsidiary, their respective properties or any of their officers
or managers, that could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company and its Subsidiary taken as a whole. A certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and the
Members and TLG Members shall have been delivered to Buyer.
<PAGE>
6.3. No Material Adverse Change. There shall have been no
material adverse changes in the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, profits or
condition (financial or otherwise) of the Company and its Subsidiary taken as a
whole, since the Balance Sheet Date; and Buyer shall have received a certificate
signed by each Member and TLG Member dated the Closing Date to such effect.
6.4. Consents and Approvals. All necessary consents of, and
filings with, any governmental authority or agency or third party, relating to
the consummation by the Company and the Members of the transactions contemplated
hereby, shall have been obtained and made. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated, and no action by the Department of
Justice or Federal Trade Commission challenging or seeking to enjoin the
consummation of the transactions contemplated hereby shall be pending.
6.5. Opinion of Counsel. Buyer shall have received an opinion
from counsel to the Company, the Members and TLG Members, dated the Closing
Date, in a form reasonably satisfactory to Buyer.
6.6. Charter Documents. Buyer shall have received (a) copies of
the Articles of Organization of the Company and its Subsidiary certified by an
appropriate authority in the state of their organization and (b) copies of the
Operating Agreements of the Company and its Subsidiary certified by the
Secretaries of the Company and its Subsidiary, and such documents shall be in
form and substance reasonably acceptable to Buyer.
6.7. Due Diligence Review. The Company shall have made such
deliveries as are called for by this Agreement. Buyer shall be fully satisfied
in its sole discretion with the results of its review of all of the Schedules,
whether delivered before or after the execution hereof, and such deliveries, and
its review of, and other due diligence investigations with respect to, the
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company and its Subsidiary.
6.8. Delivery of Closing Financial Certificate. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Members and TLG
Members, setting forth:
(a) the net worth of the Company as of the
last day of its most recent fiscal year;
(b) the sales of the Company for the most
recent fiscal year preceding the Closing Date;
(c) the sales of the Company for the
nine-month period ending on September 30, 1998;
(d) the Company's Adjusted EBITDA (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for the
most recent fiscal year preceding the Closing Date;
(e) the Company's Adjusted EBITDA (after the
addition of "add-backs" set forth on Schedule 3.9(c)) for the
nine-month period ending on September 30, 1998; and
(f) the Company's total obligations under
capital leases as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Actual
Closing Net Worth and Actual Closing Net Working Capital, the Company shall not
take account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after December 31,
1997. In addition, the Actual Closing Net Worth shall be calculated after giving
effect to any expenses incurred by the Company (or the Members and paid by the
Company) in connection with the transactions contemplated by this Agreement.
<PAGE>
6.9. FIRPTA Compliance. Each of the Members shall have delivered
to Buyer a properly executed statement in a form reasonably acceptable to Buyer
for purposes of satisfying Buyer's obligations under Treas. Reg. ss.
1.1445-2(b).
6.10.Employment Agreements. RS and BW (collectively,
"Employees") each shall have entered into an employment agreement with the Buyer
or the Company in a form reasonably satisfactory to Buyer.
6.11.DirectPro West, LLC. The Subsidiary shall have entered into
a binding agreement with Steven Sudberry ("Sudberry") (not subject to any
contingencies) to acquire all of the outstanding membership or other equitable
interests in the Subsidiary owned by Sudberry simultaneously with the Closing
("Sudberry Purchase Agreement"). The Company shall deliver to Buyer the Sudberry
Purchase Agreement and any other documentation entered into or to be entered
into in connection therewith.
6.12.Asset Purchase Obligation. The Company and/or the Members
shall have settled the Asset Purchase Obligation as further described in (and
subject to) Section 1.2(d).
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE
COMPANY.
The obligation of the Members and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date, of the following conditions and
deliveries:
7.1. Representations and Warranties; Performance of Obligations.
All of the representations and warranties of Buyer contained in this Agreement
shall be true, correct and complete on and as of the Closing Date with the same
effect as though such representations and warranties had been made as of such
date; all of the terms, covenants, agreements and conditions of this Agreement
to be complied with, performed or satisfied by Buyer on or before the Closing
Date shall have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Closing Date and signed by the
President or any Vice President of Buyer shall have been delivered to the
Company and the Members.
7.2. No Litigation. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company following the transactions
contemplated by this Agreement shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or, to the knowledge of the Buyer threatened, against the Buyer or its
properties or any of its officers, that could materially and adversely affect
the business, assets, liabilities, financial condition, results of operations or
prospects of the Buyer taken as a whole. A certificate to the foregoing effects
dated the Closing Date and signed by the President or any Vice President of
Buyer shall have been delivered to the Company and the Member.
<PAGE>
7.3. Consents and Approvals. All necessary consents of, and
filings with, any governmental authority or agency or third party relating to
the consummation by Buyer of the transactions contemplated herein, shall have
been obtained and made. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated, and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
7.4. Employment Agreements. The Employees each shall have
entered into an employment agreement with the Buyer or the Company in a form
reasonably satisfactory to the Employees.
8. INDEMNIFICATION.
8.1. General Indemnification by the Members. Each Member and TLG
Member, jointly and severally, covenants and agrees to indemnify, defend,
protect and hold harmless Buyer and the Company and their respective officers,
directors, employees, members, assigns, successors and affiliates (individually,
an "Indemnified Party" and collectively, "Indemnified Parties") from, against
and in respect of:
(a) all liabilities, losses, claims,
damages, punitive damages, causes of action, lawsuits, administrative
proceedings (including informal proceedings), investigations, audits, demands,
assessments, adjustments, judgments, settlement payments, deficiencies,
penalties, fines, interest (including interest from the date of such damages)
and costs and expenses (including without limitation reasonable attorneys' fees
and disbursements of every kind, nature and description) (collectively,
"Damages") suffered, sustained, incurred or paid by the Indemnified Parties in
connection with, resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or
warranty of the Members, TLG Members or the Company set forth in this Agreement
or any Schedule or certificate, delivered by or on behalf of any Member, TLG
Member or the Company in connection herewith; or
(ii) any nonfulfillment of any covenant
or agreement by the Members or TLG Members or, prior to the
Closing Date, the Company, under this Agreement; or
(iii) the business, operations or
assets of the Company or its Subsidiary prior to the Closing Date or the actions
or omissions of the Company's or its Subsidiary's managers, officers, members,
employees or agents prior to the Closing Date, other than Damages arising from
matters expressly disclosed in the Company Financial Statements, this Agreement
or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules
3.22 (environmental matters), 3.24 (employee benefit plans), and 3.25 (taxes),
and 3.26 (conformity with law; litigation); or
(v) (a) any failure by the Members to
pay or otherwise discharge that portion of the Asset Purchase Obligation to be
paid at or before the Closing pursuant to Section 1.B of the Settlement
Agreement or (b) any breach by Sudberry of the Sudberry Purchase Agreement; and
(b) any and all Damages incident to any of
the foregoing or to the enforcement of this Section 8.1.
8.2. Limitation and Expiration. Notwithstanding the above:
<PAGE>
(a) there shall be no liability for
indemnification under Section 8.1 until and unless the aggregate amount of
Damages exceeds $70,000 (the "Indemnification Threshold", such that if there are
idemnifiable Damages in excess of the Indemnification Threshold, the Members and
TLG Members shall have liability only for that portion of Damages which exceeds
$70,000); provided, however, that the Indemnification Threshold shall not apply
to (i) adjustments to the Cash Purchase Price as set forth in Section 1.3; (ii)
Damages arising out of any breaches of the covenants of the Members or TLG
Members set forth in this Agreement or the representations and warranties made
in Sections 3.4 (matters relating to membership interests), 3.5 (options and
similar rights with respect to membership interests), 3.19 (significant
customers; material contracts and commitments), 3.22 (environmental matters),
3.24 (employee benefit plans), 3.25 (taxes), or 3.26 (conformity with law;
litigation) (other than the Directline Productions claim identified on Schedule
3.26 to which the Indemnification Threshold shall apply), or (iii) Damages
described in Section 8.1(a)(iv) or (v);
(b) the aggregate amount of the Members' and
TLG Members' liability under this Article 8 shall not exceed the Purchase Price;
provided, however, that the Members' and TLG Members' liability for Damages
arising out of any breaches of the representations made in Sections 3.22
(environmental matters), 3.24 (employee benefit plans) or 3.25 (taxes) or
Damages described in Section 8.1(a)(ii), (iv) or (v) shall not be subject to
such limitation and shall not count toward the limitation described in the first
clause of this Section 8.2(b);
(c) the indemnification obligations under
this Article 8, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 8.2(c):
(i) (1) except as to representations,
warranties, and covenants specified in clause (i)(2) of this
Section 8.2(c), the third anniversary of the Closing Date, or
(2) with respect to representations
and warranties contained in Sections 3.22 (environmental matters), 3.24
(employee benefit plans), 3.25 (taxes), and the indemnification set forth in
Section 8.1(a)(ii), (iii), (iv) or (v), on (A) the date that is six (6) months
after the expiration of the longest applicable federal or state statute of
limitation (including extensions thereof), or (B) if there is no applicable
statute of limitation, (x) ten (10) years after the Closing Date if the Claim is
related to the cost of investigating, containing, removing, or remediating a
release of Hazardous Material into the environment, or (y) five (5) years after
the Closing Date for any other Claim covered by clause (i)(2)(B) of this Section
8.2(c); or
(ii) the final resolution of claims or demands pending
as of the relevant dates described in clause (i) of this Section 8.2(c) (such
claims referred to as "Pending Claims").
<PAGE>
(d) The Company, the Members, and the TLG Members shall not
be liable for Damages arising due to the failure to obtain the consent of
Citicorp Credit Services, Inc. ("Citicorp") that would otherwise be required as
a result of the transactions contemplated by this Agreement pursuant to Section
8.2(e) and (f) of the Vendor Services Agreement dated July 1, 1998 between
Citicorp and the Company.
8.3. Indemnification Procedures All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party has a Claim
against any party obligated to provide indemnification pursuant to Section 8.1
hereof (the "Indemnifying Party") which does not involve a Claim being asserted
against or sought to be collected by a third party, the Indemnified Party shall
with reasonable promptness notify the Members' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Members'
Representative does not notify the Indemnified Party within thirty (30) days
after the date of delivery of the Claim Notice that the Indemnifying Party
disputes such Claim, with a detailed statement of the basis of such position,
the amount of such Claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within thirty (30) days and, for sixty (60)
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the
Indemnifying Party would be liable to an Indemnified Party hereunder is asserted
against an Indemnified Party by a third party (a "Third Party Claim"), the
Indemnified Party shall deliver a Claim Notice to the Members' Representative.
The Members' Representative shall have thirty (30) days from the date of
delivery of the Claim Notice to notify the Indemnified Party (A) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute, and
(B) if such party does not dispute liability, whether or not the Indemnifying
Party desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated) to file any motion, answer or other pleading and
to take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party's interests.
(ii) In the event that Members' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
<PAGE>
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Members'
Representative, any Third Party Claim seeks material prospective relief which
could have an adverse effect on any Indemnified Party or the Company or any
Subsidiary, the Indemnified Party shall have the right to control or assume (as
the case may be) the defense of any such Third Party Claim and the amount of any
judgment or settlement and the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(c) Nothing herein shall be deemed to
prevent the Indemnified Party from making a Claim, and an Indemnified Party may
make a Claim hereunder, for potential or contingent Damages provided the Claim
Notice sets forth the specific basis for any such potential or contingent claim
or demand to the extent then feasible and the Indemnified Party has reasonable
grounds to believe that such Claim may be made.
(d) Subject to the provisions of Section
8.2, the Indemnified Party's failure to give reasonably prompt notice as
required by this Section 8.3 of any actual, threatened or possible claim or
demand which may give rise to a right of indemnification hereunder shall not
relieve the Indemnifying Party of any liability which the Indemnifying Party may
have to the Indemnified Party unless the failure to give such notice materially
and adversely prejudiced the Indemnifying Party.
(e) The parties will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Article 8,
provided that no Indemnified Party shall be obligated to continue pursuing any
payment pursuant to the terms of any insurance policy.
8.4. Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Members, the
TLG Members, and Buyer in or pursuant to this Agreement or in any document
delivered pursuant hereto shall be deemed to have been made on the date of this
Agreement (except as otherwise provided herein) and, if a Closing occurs, as of
the Closing Date. The representations of the Company, the TLG Members, and the
Members will survive the Closing and will remain in effect until, and will
expire upon, the termination of the indemnification obligations as provided in
Section 8.2. The representations of Buyer will survive the Closing and will
remain in effect until, and will expire upon the third anniversary of the
Closing Date.
8.5. Remedies Cumulative. The remedies set forth in this Article
8 are cumulative and shall not be construed to restrict or otherwise affect any
other remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6. Right to Set Off. Buyer shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets or any
Earn-out, amounts finally determined under Section 8.3 to be owed to Buyer by
the Members or the TLG Members under Section 8.1 hereof.
<PAGE>
9. NON-COMPETITION.
9.1. Prohibited Activities. Each Member and TLG Member
acknowledges that during the course of his or its direct or indirect ownership
of the Membership Interests, he or it developed relationships on behalf of and
acquired proprietary and confidential information about the Company and its
Subsidiary, including, but not limited to, its customers, vendors, prices, sales
strategies and other information, some of which may be regarded and treated by
the Company and its Subsidiary and Buyer as trade secrets. In order to protect
the Company's and/or Buyer's critical interest in these relationships and
information, the Members and TLG Members covenant that they will not, for a
period of four (4) years following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or itself or on behalf of or in conjunction
with any other person, persons, partnership, corporation, or business of
whatever nature:
(a) engage, as an officer, director,
manager, shareholder, owner, partner, member, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant or adviser,
or as a sales representative, in any business selling any products or services
in direct competition with the Company or its Subsidiary, within 50 miles of any
locations where the Company or its Subsidiary both have an office and conduct
business ("Territory"). As used in this subsection, "competition" shall mean
engaging, directly or indirectly, for himself or any other person or entity, in
(i) any facet of the business of the Company or its Subsidiary in which such
Member or TLG Member was engaged in prior to the Closing Date or (ii) any facet
of the business of the Company or its Subsidiary about which such Member or TLG
Member acquired proprietary or confidential information during the course of his
or its direct or indirect ownership of the Membership Interests;
(b) hire or join with in a competitive
business capacity, any employee of the Company or its Subsidiary
within the Territory;
(c) solicit or accept business which
competes with the business of the Company or its Subsidiary from any person who
is, on the Closing Date, or that has been, within one (1) year prior to the
Closing Date, a customer of the Company or its Subsidiary; or
(d) acquire or enter into any agreement to
acquire any prospective acquisition candidate that was, to the knowledge of such
Member or TLG Member, either called upon by the Company or its Subsidiary as a
prospective acquisition candidate or was the subject of an acquisition analysis
by the Company or its Subsidiary within 3 years prior to the Closing Date. Each
Member and TLG Member, to the extent lacking the knowledge described in the
preceding sentence, shall immediately cease all contact with such prospective
acquisition candidate upon being informed that the Company or its Subsidiary had
called upon such candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing
covenant shall not be deemed to prohibit the Members or TLG Members from
acquiring as an investment not more than one percent (1%) of the capital stock
of a competing business whose stock is traded on a national securities exchange
or over- the-counter.
<PAGE>
9.2. Confidentiality. Each Member recognizes that by reason of
his or its direct or indirect ownership of the Membership Interests and, if
applicable, his employment by the Company or its Subsidiary, he or it has
acquired confidential information and trade secrets concerning the operation of
the Company and its Subsidiary, the use or disclosure of which could cause the
Company or its affiliates or Subsidiary substantial loss and damages that could
not be readily calculated and for which no remedy at law would be adequate.
Accordingly, each Member and TLG Member covenants and agrees with the Company
and Buyer that he or it will not at any time, except in performance of
obligations to the Company or with the prior written consent of the Company
pursuant to authority granted by a resolution of the Board of Managers of the
Company, directly or indirectly, disclose any secret or confidential information
that he or it may learn or has learned by reason of his or its ownership of the
Membership Interest or his employment by the Company or its Subsidiary, or
affiliates, or use any such information in a manner detrimental to the interests
of the Company or Buyer, unless (i) such information becomes known to the public
generally through no fault of any Member, (ii) disclosure is required by law or
the order of any governmental authority under color of law, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, provided,
that prior to disclosing any information pursuant to clause (i), (ii) or (iii)
above, the Member or TLG Member (as applicable) shall give prior written notice
thereof to Buyer and provide Buyer with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure. The term
"confidential information" includes, without limitation, information not
previously disclosed to the public or to the trade by the Company's or Buyer's
management with respect to the Company's or Buyer's, or any of their affiliates'
or Subsidiary's, products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial information
(including the revenues, costs, or profits associated with any of the Company's
or its Subsidiary's products), business plans, prospects, or opportunities but
shall exclude any information already in the public domain.
9.3. Damages. Because of the difficulty of measuring economic
losses to Buyer as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Buyer for which
it would have no other adequate remedy, each Member and TLG Member agrees that
the foregoing covenant may be enforced by Buyer in the event of breach by such
Member or TLG Member, by injunctions and restraining orders.
9.4. Reasonable Restraint. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on each Member and TLG
Member in light of the activities and business of Buyer on the date of the
execution of this Agreement, assuming the completion of the transactions
contemplated hereby.
9.5. Severability; Reformation. The covenants in this Article 9
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6. Independent Covenant. All of the covenants in this Article
9 shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Member or
TLG Member against Buyer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Buyer of such covenants.
The parties expressly acknowledge that the terms and conditions of this Article
9 are independent of the terms and conditions of any other agreements including,
but not limited to, any employment agreements entered into in connection with
this Agreement. It is specifically agreed that the period of four (4) years
stated at the beginning of this Article 9 during which the agreements and
covenants of each Member and TLG Member made in this Article 9 shall be
effective, shall be computed by excluding from such computation any time during
which any Member or TLG Member is found by a court of competent jurisdiction to
have been in violation of any provision of this Article 9. The covenants
contained in Article 9 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
<PAGE>
9.7. Materiality. The Company and each Member and TLG Member
hereby agree that the covenants set forth in this Article 9 are a material and
substantial part of the transactions contemplated by this Agreement, supported
by adequate consideration.
10. GENERAL.
10.1. Intentionally Omitted.
10.2. Intentionally Omitted.
10.3. Successors and Assigns. This Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law) and shall
be binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the Members and
TLG Members. Notwithstanding anything in the foregoing to the contrary, Buyer
may assign any of its rights or obligations under this Agreement to any direct
or indirect subsidiary of Buyer in its sole and absolute discretion and without
the consent of the Company, the Members or TLG Members; provided, however that
in the event of such assignment Buyer shall continue to be liable to the Members
for the payment of the Purchase Price.
10.4. Entire Agreement; Amendment; Waiver. This Agreement sets
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. Each of the Schedules to this Agreement is
incorporated herein by this reference and expressly made a part hereof. Any and
all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement. This Agreement shall not be amended or modified except by a
written instrument duly executed by each of the parties hereto, or in accordance
with Section 9.5. Any extension or waiver by any party of any provision hereto
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
10.5. Counterparts. This Agreement may be executed in any number
of counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6. Brokers and Agents. Buyer and the Company and each Member
and TLG Member (as a group) each represents and warrants to the other that it
has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
<PAGE>
10.7. Expenses. Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The Members
(and not the Company) have and will pay the fees, expenses and disbursements of
the Members, the Company, and their agents, representatives, financial advisers,
accountants and counsel incurred in connection with the subject matter of this
Agreement ("Transaction Expenses"); provided, however, that the Company may pay
on behalf of the Members Transaction Expenses to the extent that such payment
does not cause the Company Net Working Capital to be less than the Company Net
Working Capital Target as of the Closing Date.
10.8. Specific Performance; Remedies. Each party hereto
acknowledges that the other parties will be irreparably harmed and that there
will be no adequate remedy at law for any violation by any of them of any of the
covenants or agreements contained in this Agreement, including without
limitation, the confidentiality obligations set forth in Section 5.7(b) and the
non-competition provisions set forth in Article 9. It is accordingly agreed
that, in addition to any other remedies which may be available upon the breach
of any such covenants or agreements, each party hereto shall have the right to
obtain injunctive relief to restrain a breach or threatened breach of, or
otherwise to obtain specific performance of, the other parties, covenants and
agreements contained in this Agreement.
10.9. Notices. Any notice, request, claim, demand, waiver,
consent, approval or other communication which is required or permitted
hereunder shall be in writing and shall be deemed given if delivered personally
or sent by telefax (with confirmation of receipt), by registered or certified
mail, postage prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
(Telefax: (561) 659-7793)
with a required copy to:
Kaufman & Canoles, P.C.
P.O. Box 3037
Norfolk, VA 23514
Attn: Gus J. James, II, Esq. and T. Richard Litton,
Jr., Esq.
(Telefax: (757) 624-3169)
If to any Member to the Members' Representative:
Marvin S. Robinson, Esq.
Tannenbaum Dubin & Robinson, LLP
1140 Avenue of the Americas
New York, NY 10036
(Telefax: (212) 302-2906)
with a required copy to:
Mr. Robert Fishbein
Mr. Richard M. Schlanger
United Envelope Co., Inc.
525 West 52nd Street
New York, NY 10019
(Telefax: (212) 974-8315)
<PAGE>
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10. Governing Law, Arbitration, Jurisdiction, and Attorneys'
Fees. This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Delaware. Except for final
determinations of the Actual Closing Net Worth and Actual Closing Net Working
Capital, any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration by one Arbitrator in New
York, New York, in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. Each of the parties hereby
consents to the jurisdiction of the Supreme Court of the State of New York for
the County of New York and the United States District Court for the Southern
District of New York for all purposes in connection with the arbitration
referred to in this Section 10.10 and this Agreement, and further consents that
any process or notice of motion in connection therewith may be served as a
notice in accordance with the provisions of Section 10.9, within or without the
State of New York, provided a reasonable time for appearance is allowed. Each of
the parties hereto hereby irrevocably submits to the jurisdiction of such courts
for the purposes of any suit, civil action or other proceeding arising out of,
in connection with or with respect to this Agreement, the subject matter hereof,
the performance or non-performance of any obligation hereunder, or any of the
transactions contemplated hereby (collectively, "Suit"). Each of the parties
hereto hereby waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it is not subject to the jurisdiction
of the above courts, that such Suit is brought in an inconvenient forum, or that
the venue of such Suit is improper. Whenever an attorney is used, to enforce
this Agreement or to enforce, declare, or adjudicate any other rights or
obligations under this Agreement, the costs and expenses thereof, including
reasonable attorneys' fees and expenses, shall be payable by the non-prevailing
party.
10.12. Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.13. Absence of Third Party Beneficiary Rights. No provision
of this Agreement is intended, nor will any provision be interpreted, to provide
or to create any third party beneficiary rights or any other rights of any kind
in any client, customer, affiliate, shareholder, employee or partner of any
party hereto or any other person or entity.
<PAGE>
10.14. Mutual Drafting. This Agreement is the mutual product of
the parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto. As used in this Agreement, the term
"person" shall mean an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
10.15. Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legalrights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
The remainder of this page has been left blank intentionally
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
WORKFLOW MANAGEMENT, INC.
By: /s/ Claudia Amlie
------------------------------
Name: Claudia Amlie
Title: Vice President
DIRECTPRO LLC
By: /s/ Robert Sands
-------------------------
Robert Sands, President
MEMBERS:
/s/ Robert Sands
----------------------------------
Robert Sands
TLG REALTY LLC
By: /s/ Robert Fishbein
-------------------------------
Robert Fishbein, Member
By: /s/ Richard Schlanger
-------------------------------
Richard Schlanger, Member
TLG MEMBERS
/s/ Robert Fishbein
----------------------------------
Robert Fishbein, individually
/s/ Richard Schlanger
----------------------------------
Richard Schlanger, individually
By signing below, Marvin S. Robinson agrees to serve as Members' Representative
for purposes of this Agreement.
/s/ Marvin S. Robinson
- ----------------------------------
Marvin S. Robinson
EXHIBIT 11.1
WORKFLOW MANAGEMENT, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ 2,712 $ 2,582 $ 2,920 $ 5,285
============ ============ ============ ============
Weighted average number of
common shares outstanding 14,396 14,715 15,330 14,443
============ ============ ============ ============
Basic earnings per share $ 0.19 $ 0.18 $ 0.19 $ 0.37
============ ============ ============ ============
Diluted earnings per share:
Net income $ 2,712 $ 2,582 $ 2,920 $ 5,285
============ ============ ============ ============
Weighted average number of:
Common shares outstanding 14,396 14,715 15,330 14,443
Common stock equivalents* 391 105 318
============ ============ ============ ============
Total 14,396 15,106 15,435 14,761
============ ============ ============ ============
Diluted earnings per share $ 0.19 $ 0.17 $ 0.19 $ 0.36
============ ============ ============ ============
</TABLE>
* The Company had additional employee stock options outstanding during the
periods presented that were not included in the computation of diluted
earnings per share because they were anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-24-1999 APR-24-1999
<PERIOD-END> JUL-25-1998 OCT-24-1998
<CASH> 4,203 1,084
<SECURITIES> 0 0
<RECEIVABLES> 54,113 63,480
<ALLOWANCES> (2,898) (3,368)
<INVENTORY> 30,770 31,913
<CURRENT-ASSETS> 92,713 96,239
<PP&E> 59,936 61,545
<DEPRECIATION> (24,400) (27,533)
<TOTAL-ASSETS> 147,645 160,829
<CURRENT-LIABILITIES> 36,024 40,650
<BONDS> 37,723 52,864
0 0
0 0
<COMMON> 15 13
<OTHER-SE> 69,709 63,317
<TOTAL-LIABILITY-AND-EQUITY> 147,645 160,829
<SALES> 90,485 90,100
<TOTAL-REVENUES> 90,485 90,100
<CGS> 65,948 64,973
<TOTAL-COSTS> 65,948 64,973
<OTHER-EXPENSES> 23,037 19,543
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,129 741
<INCOME-PRETAX> 371 4,843
<INCOME-TAX> 163 2,131
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 208 2,712
<EPS-PRIMARY> 0.01 0.19
<EPS-DILUTED> 0.01 0.19
</TABLE>
