UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 24, 1999
Commission file number 0-24383
WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1507104
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
240 ROYAL PALM WAY, PALM BEACH, FLORIDA 33480
(Address of principal executive offices) (Zip Code)
(561) 659-6551
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of July 9, 1999: $186,420,245.
The number of shares of common stock of the registrant outstanding as
of July 9, 1999: 12,612,843.
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PART I
THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" IN ITEM 1 AND THE CONSOLIDATED FINANCIAL
STATEMENTS OF WORKFLOW MANAGEMENT, INC. (THE "COMPANY" OR "WORKFLOW MANAGEMENT")
APPEARING ELSEWHERE IN THIS FORM 10-K. THIS FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "PLAN" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "ITEM 1. BUSINESS - RISK FACTORS," "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THOSE
DISCUSSED ELSEWHERE IN THIS FORM 10-K.
ITEM 1. BUSINESS
SPIN-OFF TRANSACTION
Workflow Management is a Delaware corporation formed by U.S. Office
Products Company, also a Delaware corporation ("U.S. Office Products"), in
connection with U.S. Office Products' strategic restructuring plan that closed
in June 1998 ("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 ("U.S. Office Products Common Stock") 14,642,981 shares (the
"Distribution" or "Workflow Distribution") of the Company's common stock, par
value $.001 per share (the "Common Stock" or "Company Common Stock"). Holders of
U.S. Office Products Common Stock were not required to pay any consideration for
the shares of Company Common Stock they received in the Workflow Distribution.
The Workflow Distribution occurred on June 9, 1998 (the "Distribution Date").
As part of its Strategic Restructuring Plan, U.S. Office Products also
distributed to the holders of U.S. Office Products Common Stock shares of common
stock (the "Related Distributions") (the Workflow Distribution and Related
Distributions collectively the "Distributions") of three additional companies,
Aztec Technology Partners, Inc., Navigant International, Inc. and School
Specialty, Inc. (collectively the "other Spin-Off Companies"). Effective upon
consummation of the Workflow Distribution and the Related Distributions, the
Company entered into the following principal agreements with U.S. Office
Products and the other Spin-Off Companies. See "Risk Factors - Potential
Conflicts of Interest in the Distributions" below.
o a Distribution Agreement (the "Distribution Agreement"),
pursuant to which (i) the equity interests of the U.S. Office Products
subsidiaries engaged in the print management business were transferred to the
Company, (ii) liabilities were allocated among the Company, U.S. Office Products
and the other Spin-Off Companies and (iii) the Company, U.S. Office Products and
the other Spin-Off Companies agreed to indemnify one another for liabilities
allocated to them under the Distribution Agreement and a share of certain other
liabilities. See "Risk Factors - Risks Related to Allocation for Certain
Liabilities" below.
o a Tax Allocation Agreement (the "Tax Allocation Agreement"),
pursuant to which (i) the Company is responsible for its share of U.S. Office
Products' consolidated income tax liability for the years it was included in
U.S. Office Products' consolidated federal income tax returns, (ii) the Company,
U.S. Office Products and the other Spin-Off Companies share certain state, local
and foreign taxes, and (iii) the Company has (a) indemnified U.S. Office
Products for certain taxes if they are assessed against U.S. Office Products as
a result of the Workflow Distribution or the Related Distributions and (b)
jointly and severally indemnified U.S. Office Products for certain taxes
resulting from certain acts taken by the Company or any of the other Spin-Off
Companies. The joint and several liabilities of the Company and the other
Spin-Off Companies have been allocated pursuant to a separate agreement (the
"Tax Indemnification Agreement"). As a consequence, the Company is primarily
liable for taxes resulting from acts taken by the Company and liable (subject to
rights of indemnification under the Tax Indemnification Agreement) for taxes
resulting from acts taken by the other Spin-Off Companies. See "Risk Factors -
Potential Liability for Taxes Related to the Distributions" below.
o an Employee Benefits Agreement (the "Employee Benefits
Agreement"), pursuant to which the assets, liabilities and responsibilities
with respect to employee benefit plans and programs and certain related matters
were allocated among the Company, U.S. Office Products and the other Spin-Off
Companies.
Workflow Management was incorporated in the state of Delaware on
February 13, 1998. The Company currently conducts its operations through 25
direct or indirect United States and Canadian subsidiaries. The principal
executive offices of the Company are located at 240 Royal Palm Way, Palm Beach,
Florida 33480. Workflow Management's telephone number is (561) 659-6551.
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COMPANY OVERVIEW
Workflow Management is a leading acquirer and integrator of graphic
arts companies, providing a variety of print and office consumables and related
management services to more than 30,000 businesses in the United States and
Canada. Since the Workflow Distribution on June 9, 1998, and during the fiscal
year ended April 24, 1999, the Company acquired twelve companies, increasing
Company revenues by 10.6% to $391.0 million and operating income by 27.6% to
$21.2 million in the fiscal year ended April 24, 1999 when compared to the
fiscal year ended April 25, 1998. The Company is comprised of two main operating
divisions - Integrated Business Services, which provides customers with print
management services, including an e-commerce solution, designed to minimize the
costs of procuring, storing and using office consumables, and Fulfillment, which
prints and produces envelopes, custom business documents, commercial print,
labels, packaging and direct mail literature. Currently, Workflow Management
employs over 2,800 persons and has 22 manufacturing facilities in 10 states and
5 Canadian Provinces, 27 distribution centers, 8 print-on-demand centers and 62
sales offices. The Company intends to continue to pursue its strategic
acquisition program to extend its geographic scope and market penetration in the
highly fragmented graphic arts industry, and to increase sales to existing
customers by cross-selling printed office consumables.
Workflow Management's Integrated Business Services Division is the
leading distributor of printed office products in North America. The division
has over 300 salespeople and customer service representatives committed to
reducing customers' overhead and direct costs associated with the management of
printed products. By outsourcing non-core operations such as the purchasing,
storage and use of office consumables to such trained specialists, customers
realize decreased costs and improved control over print management services. The
Company's Integrated Business Services Division solicits competitive bids from a
base of over 3,500 vendors (including the Company's own manufacturing centers),
establishes more efficient inventory levels, and consolidates requisitions,
production and deliveries. In addition, the division performs design and
procurement services for its customers. The graphic arts consumables primarily
distributed by the Integrated Business Services Division include commercial
printing, custom business forms, signs and labels, advertising specialty
products and office products. In order to meet growing demand, Workflow
Management plans to continue to expand its product lines and services and to
promote its print and facilities management services.
The Company believes that its proprietary technology and systems are
central to its ability to capitalize effectively on industry outsourcing trends
and provide it with a competitive advantage. Consequently, on April 29, 1999,
the Company established a new operating division within the Integrated Business
Services Division known as iGetSmart.com, which will further develop the
Company's GetSmart electronic outsourcing and facilities management system. The
GetSmart system is an intranet- and Internet-based business-to-business
electronic commerce solution which automates inventory management and
distribution of office consumables for customers. Customers either place product
orders directly through GetSmart or contact Company sales representatives to
place orders through the system. The orders are then electronically routed to a
distribution facility for delivery. Currently, there are approximately 200
customers who use GetSmart directly. The Company believes that the GetSmart
system has enabled the Company to position itself as a premier technology
deployer, thus increasing the Company's attractiveness to potential acquisition
targets. Workflow Management expects iGetSmart.com to expand the services
provided by the GetSmart system, broaden its customer base and increase
acquisition opportunities.
The Company's Fulfillment Division prints a full range of products for
wholesale and retail customers, including customers of the Integrated Business
Services Division, with production centers located throughout the United States
and Canada. The product line includes: (i) envelopes, including specialty
envelopes for uses such as credit card solicitations, annual reports, direct
mail and airline itinerary jackets; (ii) documents, such as custom invoices,
purchase orders and checks; (iii) commercial printing, such as product and
corporate brochures, catalogs and directories; (iv) direct mail literature; (v)
specialty packaging; (vi) labels and signs, including high quality silkscreen
and flexographic labels and signs; and (vii) print-on-demand, such as that
provided by the Company's Imagenet Document Manager that provides access via the
Internet. The Company believes that its Fulfillment Division is one of the
leading printers of envelopes in the Northeastern United States and its Canadian
operations constitute one of Canada's largest wholesale document manufacturers.
The division also has several digital pre-press systems for converting text and
graphics to film and plates prior to printing, enabling the division to offer
design services to its customers. Workflow Management's Fulfillment Division has
approximately 2,325 employees, of which 250 are in sales and approximately 1,550
are in manufacturing.
The Company's printing operations, combined with its extensive vendor
network and distribution capability, give the Company broad flexibility to meet
customers' demand for printed products. For the fiscal year ended April 24,
1999, approximately 32.2% of the Company's revenues were derived from products
purchased by the Company for distribution, and 67.8% were derived from products
manufactured by the Company.
The document, envelope and commercial printing industries that comprise
the graphic arts businesses are highly fragmented, and the Company believes
integration opportunities exist within these industries. Management believes
that there are approximately 200 envelope manufacturers in the U.S., and that
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the commercial printing industry is composed of approximately 25,000 printing
plants, 70% of which have fewer than 10 employees. According to statistics
released by Printing Industries of America, Inc., in 1998 (i) direct mail and
packaging printers grew at a rate of 7% or higher, (ii) document printing
increased by over 5%, and (ii) the commercial printing market grew by over 3%.
With respect to e-commerce, International Data Corporation reported that the
number of users who made purchases over the Internet was approximately 31
million in 1998.
BUSINESS STRATEGY
The Company's objective is to become the leading single source provider
of office consumables and related printing and distribution services to
businesses of all sizes. To attain its goal, Workflow Management's strategy
includes external growth, through the acquisition of established and profitable
printing businesses in markets with attractive growth opportunities, and
internal growth, through product development, cross-selling of the full suite of
the Company's products and services to its subsidiaries, and cross-utilization
of the Company's proprietary e-commerce systems. In addition, the Company
intends to further develop its electronic outsourcing systems to establish a
position as a technologically sophisticated provider of printed office products
and related management and fulfillment services. As the Company pursues its
acquisition strategy, it may also determine, from time to time, that its
business interests would be best served by selling certain subsidiaries, assets
or operations to third parties. The Company's management has considered and may
further consider the divestiture of low-growth product lines to improve the
Company's overall financial condition.
Workflow Management believes that it possesses several competitive
advantages in the implementation of its strategic acquisition plan for
maximizing external growth. The Company bases this belief on management's
acquisition and integration experience both before and after the Workflow
Distribution. Also, the Company believes that its status as a leading
distributor of printed products and its e-commerce capabilities make it the
"acquirer of choice" among the large population of independent distributors, as
well as among numerous print manufacturers seeking vendor relationships with the
Company's nationwide sales force. As the Company acquires new businesses, it
seeks to achieve operating efficiencies through the consolidation of insurance,
administration, financial management and other administrative functions. The
types of companies Workflow Management targets for acquisition in the North
American graphic arts industry are (i) distributors strategically positioned in
new geographic regions, particularly those that demonstrate the potential for
increasing sales with the GetSmart system, and (ii) value-added providers of
high demand printed products that are either currently provided by the Company
or that further diversify the Company's overall product line. Consideration for
acquisitions has typically been in the form of cash paid at closing and a three
to five year contingent "earn-out" payments based on the acquired company's
performance following the closing of the acquisition. The Company may utilize
its common stock as a form of purchase price in future acquisitions. See "Risk
Factors."
Workflow Management intends to grow internally through product
development, cross-marketing and cross-utilization of its proprietary
technology, particularly the GetSmart and Imagenet Document Manager systems. The
Integrated Business Services Division encourages its sales representatives to
utilize the Company's manufacturing subsidiaries for customer orders. The
division's management team also regularly trains its sales force on the various
capabilities of the GetSmart electronic outsourcing system from which a growing
amount of sales are realized by the Company. By establishing the iGetSmart.com
division and dedicating resources to such operations, the Company expects to
further develop the GetSmart system. The ability of the Company's sales force to
supplant the purchasing departments of its customers enables the Company to
better understand the requirements of all sizes of businesses, and fosters close
business relationships between the Company and its customers. Workflow
Management believes that its knowledge of customer requirements and these
relationships enable the Company to identify new product lines and services in
response to emerging customer opportunities and provide cross-marketing
opportunities for the Company's various product lines and services. The Company
also intends to increase internal growth by implementing the Imagenet desktop
printing solution on a Company-wide basis. See "Imagenet Document Manager"
below.
PRODUCT LINES
INTEGRATED BUSINESS SERVICES DIVISION - PRINT MANAGEMENT SERVICES
In addition to the products printed directly by Workflow Management's
Fulfillment Division, the Company offers its customers advertising specialty
products and office products which are provided by its nationwide network of
over 3,500 vendors. The Company supports its product offering with a selection
of value-added services. For many businesses, the costs of managing, storing and
using printed products exceed their purchase price. The Company seeks to control
these costs and improve efficiency throughout the workflow by providing systems
analysis, design, and facilities and inventory management services. Workflow
Management's Integrated Business Services Division delivers its print management
services through GetSmart and Informa, its proprietary computerized transaction
and information systems. The Company does not charge a separate fee for its
management services, but instead tailors its product pricing to reflect the
services provided.
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GETSMART SYSTEM. The Company offers the GetSmart system in the United
States. GetSmart provides transaction, reporting and control capabilities to the
Company and its customers. SFI Corp., a predecessor of the Company, introduced
GetSmart in 1986, and it re-engineered the system in 1993 to incorporate
advances in hardware and software technologies. The system's transaction
database now includes more than 850,000 SKUs, 13,481 active customers and 3,500
vendors. Customers can access GetSmart either off-line, through the Company's
sales and customer support personnel, or on-line, through wide area network,
dial-up, leased-line, and Internet connections. This array of delivery options
makes GetSmart available to customers of every size and complexity, and to
customers at every level of computer sophistication. The discussion below
summarizes these support functions. The Company is continually refining and
enhancing the GetSmart system.
A customer can initiate a distribution from inventory by issuing a
requisition through GetSmart. GetSmart then allocates the merchandise to the
cost center and routes the release to the appropriate distribution facility.
Customers can specify their minimum inventory requirements or can rely on
GetSmart's ongoing analysis of usage patterns and lead times. GetSmart notifies
the Company's sales representative when a re-order point is reached, and the
representative negotiates a new purchase order with the customer. The purchase
order is entered into the system and GetSmart tracks the order to the product's
receipt at the Company's distribution center. At this point, the storage,
shipment, usage and re-order cycle begins again. Throughout the cycle, the
system supports inventory transfers and write-offs, returns of items
requisitioned in error, and purchases that are shipped directly to customers by
the Company's vendors. GetSmart produces invoices when merchandise is received
at the Company's distribution centers, or when it is shipped to customers, and
tracks invoices through to remittance. All transactions can be consummated in a
number of electronic formats required by customers' data processing operations.
GetSmart also offers electronic catalogs of 400,000 promotional products and
35,000 office products. The catalogs provide product images and descriptions, as
well as powerful search engines enabling customers to locate the products best
suited to their requirements.
GetSmart can generate more than 100 real-time and periodic reports to
customers. These reports detail, summarize, and analyze purchases, inventory
levels, utilization rates, and billing by cost center, product, and product line
to meet each customer's specific needs. Reports can be viewed on-screen in real
time, printed at the customer's premises, printed remotely and delivered to a
customer, or transmitted electronically for further processing by a customer's
internal management information system. The Company maintains five years of
historical data on-line for comparative reports and analyses. In addition,
GetSmart's Base Line Pricing Report routinely analyzes changes in prices charged
to managed accounts, an analysis the Company believes is unique in the industry.
GetSmart also provides customers with a system of management controls
for certain services. Customers may control cost center access with passwords,
allocate inventories to cost centers, limit the transacting and reporting
authority of each cost center by product or product line, constrain purchases
and requisitions to amounts budgeted for each cost center, and suspend
transactions until they are reviewed and approved. The Company can customize
GetSmart to create optimal programs for its customers.
INFORMA SYSTEM. Workflow Management offers the Informa system in
Canada. Informa supports requisition, distribution, and digital imaging services
with a central transaction database and a variety of customer interfaces. In
addition to sophisticated print-on-demand capabilities, Informa provides much of
the functionality of the GetSmart system: inventory inquiries and releases;
order tracking; usage analysis and forecasting; detailed reporting for cost
centers and products; and procurement-card and X.12 EDI billing. Customer
interfaces include terminal access, a graphical user interface client, e-mail,
world wide web browser, touch-tone, and automated voice recognition. Informa is
accessed through leased lines, dial-up service, Internet and wide area networks.
Informa's Electronic Job Ticket ("EJT") interface is a specialized
e-mail enabling customers to requisition documents and other products from the
Company's distribution centers, and to route attached documents to the Company's
network of Imagenet print-on-demand facilities. EJT's print-on-demand feature
supports a broad range of custom specifications, including quantities; fixed and
variable imaging; page orientation; paper size, weight, grade, and color;
drilling and binding; and cover page. EJT also provides fields for the
customer's budget code, billing information, and distribution instructions. EJT
originates jobs ranging from single impressions, to thousands of copies
delivered to a single location, to thousands of documents mailed to tens of
thousands of recipients.
IMAGENET DOCUMENT MANAGER. The Company intends to deploy Imagenet for
use in the United States. Workflow Management has granted a non-exclusive
license to U.S. Office Products for Imagenet effective on the Distribution Date.
Workflow Management provides customers with world wide web-access to
Informa through Imagenet. This application provides a browser interface to
Informa's transaction and reporting features for managing and distributing
inventories held for customers. The application also offers a full-featured
document librarian, with image storage, retrieval, viewing, downloading,
archiving, and version control. In addition, Imagenet provides estimation and
requisition for digital print-on-demand orders. Production images for these
orders can be uploaded to the world wide web or retrieved from the application's
document library.
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The following table sets forth the amount of the Company's revenue (in
thousands) derived from its Integrated Business Services Division operations:
FISCAL YEAR ENDED
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APRIL 26, 1997 APRIL 25, 1998 APRIL 24, 1999
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REVENUES $ 91,506 $ 104,479 $ 125,950
FULFILLMENT DIVISION - PRINTED PRODUCTS
ENVELOPES. The Fulfillment Division is comprised of several envelope
companies that offer a complete line of conventional and specialty envelopes for
applications such as billing, credit card solicitations, annual reports, proxy
solicitations, direct mail and airline tickets. These envelopes may be of
varying sizes and specialized materials, with constructions including wallet
flap, flat mailer, safety fold, peel and seal, clasp, button and string, window,
expansion and continuous. The Company's envelope subsidiaries can customize
dimensions, materials, construction and graphics to customers' specific
requirements.
DOCUMENTS. Workflow Management's Fulfillment Division offers a complete
line of custom and stock documents, such as invoices, purchase orders, money
orders and bank drafts. These documents may be fan-folded, roll-fed, snap-apart
or cut-sheet, and manufactured to specification with respect to content, size,
plies, paper and inks. More than 85% of the Company's revenues from sales of
documents are from sales of custom products.
COMMERCIAL PRINTING. The commercial printing line of the Fulfillment
Division includes products such as corporate brochures, catalogs, directories,
calendars, posters, point of purchase displays and promotional products. These
products are designed and manufactured to customers' requirements. The division
provides a variety of custom services, including art direction, digital and
conventional design, layout, illustration, photography and production.
DIRECT MAIL. The direct mail operations of the Fulfillment Division are
equipped to handle the design, management and lettershop needs of individual
direct mail projects and ongoing campaigns. Specifically, their capabilities
include conventional and electronic pre-press, full web and sheetfed printing,
data processing and laser printing, and extensive bindery and lettershop
services.
SPECIALTY PACKAGING. The packaging operations of the Fulfillment
Division include the design, print and manufacture of folding boxes, plastic
packaging, corrugated boxes, "window" box packaging and patented collapsible,
re-useable cartons. Statistical process control and waterless lithography
printing are utilized for these products.
LABELS. Workflow Management's Fulfillment Division offers a wide range
of label and signage products from product and packaging labels to bumper
stickers, outdoor signage and backlit vending machine facings. The processes
utilized include die cut and digital cut vinyl, flexographic and screen
printing. The label group's specialty is photographic quality, 4 color process
work.
PRINT-ON-DEMAND. The Fulfillment Division's Print-On-Demand unit allows
customers to have their materials printed immediately direct-from-file
(bypassing the usual pre-production steps of film and plates). Files can be
accepted in a wide variety of formats and program platforms either on disk or
via the Internet. This technology is designed for customers who need fast
turnaround times and shorter print runs.
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The following table sets forth the amount of the Company's revenue (in
thousands) derived from its Fulfillment Division operations:
FISCAL YEAR ENDED
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APRIL 26, 1997 APRIL 25, 1998 APRIL 24, 1999
----------------------------------------------------------
REVENUES $ 243,166 $ 255,456 $ 274,968
OPERATIONS
DISTRIBUTION. Products manufactured by Workflow Management are either
shipped directly to customers or held in inventory and shipped as requisitioned
by customers. Finished goods purchased by the Company from manufacturers and
wholesalers are either shipped directly to customers by vendors, or shipped to,
stored in, and shipped from one of the Company's distribution centers. Workflow
Management owns or leases 15 distribution centers in the United States and 12 in
Canada, and rents additional warehouse space as necessary. Approximately 500
distribution personnel are employed by Workflow Management. Products are
transported from the Company's suppliers and to its customers by short-haul,
regional, contract and custom carriers, as well as by air and ground courier
services.
SALES. Workflow Management sells its products directly to end-users, as
well as to distributors and brokers who re-sell to end-users. The Company
employs more than 425 sales representatives and 230 customer service personnel
in 62 sales offices throughout the United States and Canada. Sales
representatives are compensated primarily through commissions. Commissioned
sales representatives are compensated based on either product sales or gross
margins. In addition to the Company's line of documents, commercial printing,
envelopes and related products, the Integrated Business Services Division sales
force offers value-added services including workflow analysis, design, document
management and print-on-demand. The Company's sales force is supported by its
GetSmart and Informa transaction and information systems.
INTEGRATED BUSINESS SERVICES DIVISION - PURCHASING AND MANUFACTURING
PURCHASING. Workflow Management's Integrated Business Services
Division purchases finished goods for resale to customers. These finished goods
include the Company's full line of documents, envelopes, commercial printing,
direct mail, packaging, labels and print-on-demand. In addition to the Company's
manufacturing subsidiaries, Workflow Management has more than 3,500 suppliers of
finished goods, including, among the largest, Ward Kraft Forms, United Computer
Supplies, Gilman Sky, Transkrit and United Stationers, Inc.
MANUFACTURING. Although the Intregrated Business Services Division
primarily purchases finished goods from outside vendors for resale to customers,
the division's principle subsidiary, ("SFI"), has some
document manufacturing operations in its Norfolk, Virginia facility.
Approximately 2.2% of SFI's revenues are derived from sales of documents
manufactured by SFI.
FULFILLMENT DIVISION - PURCHASING AND MANUFACTURING
PURCHASING. Workflow Management's Fulfillment Division purchases raw
materials such as paper stock, ink, stock envelopes, adhesives, plates, film,
chemicals and cartons from a variety of manufacturers and resellers. These
materials are purchased job-by-job or under contracts with terms of up to two
years. Longer-term supply contracts generally specify services to be provided
and may guarantee product availability, but typically reserve to vendors the
right to adjust prices as required by market conditions. The largest suppliers
of paper stock to the Company's Fulfillment Division are Rollsource, Appleton,
Mead, Avenor and Domtar.
MANUFACTURING. The Company's Fulfillment Division produces documents,
envelopes, commercial print, direct mail, packaging, labels, and
print-on-demand. Workflow Management operates 10 document plants in Canada, and
12 in the U.S. These plants employ approximately 1,550 manufacturing personnel
and utilize over 275 presses and other machines. The Company's broad line of
conventional and specialty envelopes are manufactured in four plants located in
New York, New Jersey and Pennsylvania. The envelope plants currently operate
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more than 85 printing and related machines. The Company has a label production
facility in Columbia, South Carolina, a direct mail printer in Santa Ana,
California, a packaging plant in Hoboken, New Jersey, a commercial printing
facility in Calgary, Alberta and a business card printer in Lorton, Virginia.
Workflow Management operates a network of 8 Imagenet print-on-demand facilities
in Canada, providing digital imaging and litho quick printing. The Company also
operates several conventional and digital pre-press systems for converting text
and graphics to film and plates prior to printing. Among these pre-press
capabilities are several state-of-the-art digital systems which enhance overall
production efficiency and provide high-process capabilities to customers.
CUSTOMERS
Workflow Management has more than 30,000 customers ranging in size from
small office/home office businesses to Fortune 500 companies in industries such
as healthcare, insurance, energy, advertising, travel and financial services.
Significant customers of the Company include: Bank of Montreal; Aetna, Inc.;
Citibank N.A.; Chase Manhattan Corp.; Group Health Incorporated; Health
Insurance Plan of Greater New York, Inc.; Heilig-Meyers Company; Merrill Lynch &
Co., Inc.; Banco Popular, Inc.; Shell Canada; and Salomon Smith Barney Holdings,
Inc.
The Company's five largest customers accounted for 11.4% and 14.3% of
the Company's net sales for the fiscal years ended April 25, 1998 and April 24,
1999, respectively. The Company's single largest customer accounted for 4.4% and
4.5% of net sales for the fiscal years ended April 25, 1998 and April 24, 1999,
respectively.
COMPETITION
Workflow Management competes for retail sales of printed products
against other independent distributors and against manufacturers' direct sales
organizations. In commercial printing, labels, direct mail and print-on-demand,
the Company also competes with manufacturers' direct sales organizations,
independent brokers, advertising agencies and design firms. The principal
competitive factors in the graphic arts industry are price, quality, selection,
services, production capacity, delivery and customer support.
Although Workflow Management's divisions often compete with large and
small businesses, its Fulfillment Division competes against the largest
competitors in the North American documents, envelopes and commercial printing
industry, most of which have substantially greater financial resources than the
Company. The largest competitors in the office consumables distribution market
for the Company's Integrated Business Services Division are Global Docugraphix
and Precept Business Services, Inc., although the most common competitors for
customers are small, regional distributors.
The Company also faces competition from alternative sources of
communication and information transfer such as facsimile machines, electronic
mail, the Internet and interactive videodisks. Although these sources of
communication and advertising may eliminate some envelope sales in the future,
the Company believes that it will experience continued demand for envelope
products due to the relatively low-cost information delivery vehicle that may be
customized by customers with text, color, and graphics, and the ability of the
Company's customers to penetrate desired markets as a result of the widespread
delivery of mail to residences and businesses through the postal service.
As the Company further expands its e-commerce GetSmart system, the
Company will compete with companies focused solely on business to business
electronic systems.
EMPLOYEES
Workflow Management currently has more than 2,800 full- and part-time
employees, including approximately 675 in sales and sales support and
approximately 1,600 in print production. Approximately 31.5% of the Company's
employees in the United States and approximately 9.4% of the Company's employees
in Canada are represented by labor unions. There can be no assurance that work
stoppages or strikes will not occur. The Company considers its employee
relations to be good.
INTELLECTUAL PROPERTY
Workflow Management has more than 40 registered trademarks in the U.S.
and Canada, including Get Smart, Informa and Imagenet. The Company believes that
its trademarks and other proprietary rights are material to the operations of
its business. Workflow Management regards its GetSmart, Informa and Imagenet
software as proprietary, and relies on a combination of copyright and trademark
laws, trade secrets, confidentiality agreements and contractual provisions to
protect its rights. Workflow Management is not aware that any of its software,
trademarks or other proprietary rights are being infringed by third parties, or
that they infringe proprietary rights of third parties.
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ENVIRONMENTAL REGULATIONS
The Company's operations and real property are subject to United States
and Canadian federal, state, provincial and local environmental laws and
regulations, including those governing the use, storage, treatment,
transportation and disposal of solid and hazardous materials, the emission or
discharge of such materials into the environment, and the remediation of
contamination associated with such disposal or emissions (the "Environmental
Laws"). Certain of these laws and regulations may impose joint and several
liability on lessees and owners or operators of facilities for the costs of
investigation or remediation of contaminated properties, regardless of fault or
the legality of the original disposal.
The past and present business operations of the Company that are
subject to the Environmental Laws include the use, storage, handling and
contracting for recycling or disposal of hazardous and nonhazardous materials
such as washes, inks, alcohol-based products, fountain solution, photographic
fixer and developer solutions, machine and hydraulic oils, and solvents.
Workflow Management generates both hazardous and non-hazardous waste.
Limited environmental investigations have been conducted at certain of
the Company's properties. Based on these investigations and all other available
information, management believes that the Company's current operations are in
substantial compliance with the Environmental Laws. The Company is not aware of
any liability under the Environmental Laws that the Company believes would have
a material adverse effect on the Company's business, financial condition or
results of operations. No assurance can be given, however, that all potential
environmental liabilities have been identified or that future uses, conditions
or legal requirements (including, without limitation, those that may result from
future acts or omissions or changes in applicable Environmental Laws) will not
require material expenditures to maintain compliance or resolve potential
liabilities.
EXECUTIVE OFFICERS
THOMAS B. D'AGOSTINO, SR., 56, has served as Chairman of the Board,
President and Chief Executive Officer of the Company since February 1998. Mr.
D'Agostino was President of SFI Corp. ("SFI Corp."), an office consumables
distribution company and predecessor of SFI, and of SFI Corp.'s predecessor
company, Forms & Peripherals, Inc., from 1972 until 1998. He was appointed
President of U.S. Office Products' Print Management Division in January 1997
when U.S. Office Products acquired SFI Corp.
STEVEN R. GIBSON, 39, is Executive Vice President and Chief Financial
Officer of the Company, the position to which he was appointed in April 1998.
From February 1997 until April 1998, Mr. Gibson was President of Cortez
Financial Services, Inc., an investment banking company. From May 1985 to
February 1997, he was employed in various positions at NationsBank Corporation,
ultimately serving as Senior Vice President.
THOMAS B. D'AGOSTINO, JR., 32, was appointed President and Chief
Operating Officer of the Company's Integrated Business Services Division in
December 1998, and has served as President of SFI, the Company's principal
distribution subsidiary, since 1998. He previously served as Vice President of
Sales of SFI from 1997 until 1998. From 1995 to 1997, he served as President of
Hano Document Printers, Inc. ("Hano"), a business forms manufacturing company
and current subsidiary of the Company. From 1993 to 1995, Mr. D'Agostino held
several other positions with Hano, including Vice President of Sales and
Marketing and General Manager.
RICHARD M. SCHLANGER, 54, was appointed President and Chief Operating
Officer of the Company's Fulfillment Division in December 1998. He also serves
as Vice President of United Envelope, LLC ("United"), the Company's principal
envelope subsidiary. He served as Co-President of United from 1994 to 1998. From
1982 to 1994, Mr. Schlanger held the position of Executive Vice President of
United.
CLAUDIA S. AMLIE, 30, is Executive Vice President, General Counsel and
Chief Administrative Officer of the Company. From July 1997 until April 1998,
she served as an associate attorney in the corporate and venture capital law
departments at the law firm of Edwards & Angell in Palm Beach, Florida. Ms.
Amlie worked as an associate corporate law attorney at Foley & Lardner in West
Palm Beach, Florida from June 1996 to July 1997, and Stearns, Weaver, Miller,
Weissler, Alhadeff & Sitterson in Miami, Florida from August 1994 to May 1996.
MICHAEL B. FELDMAN, 37, was appointed Vice President and Chief
Financial Officer of the Company's Integrated Business Services Division in June
1999. Mr. Feldman has also served as Vice President of Finance and Chief
Financial Officer of SFI and SFI Corp., SFI's predecessor, since 1995, and was
appointed Controller of SFI Corp. in 1987. From 1992 to 1998, he served as
Hano's Vice President of Finance and Chief Financial Officer.
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FREDERICK S. SHAW, 54, was appointed Vice President and Chief Financial
Officer of the Company's Fulfillment Division in June 1999. From October 1998 to
June 1999, he served as the Company's Internal Auditor and as a financial
consultant for the Company's acquisitions. From 1993 to 1998, he was the
Corporate Chief Financial Officer of the equipment manufacturing group for DASI
Corporation, a dairy manufacturing company.
Thomas B. D'Agostino, Sr. is the father of Thomas B. D'Agostino, Jr. There are
no other family relationships between the directors and executive officers of
the Company.
RISK FACTORS
DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH; POTENTIAL DIVESTITURES. 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. Moreover, the consolidation of the North American
graphic arts industry has reduced the number of larger companies available for
sale, which could lead to higher prices being paid for the acquisition of the
remaining domestic, independent companies. In addition, the Company may
determine that its business interests would be best served by selling certain
subsidiaries, assets or operations to third parties. Accordingly, the Company
has in the past considered, and will continue to consider in the future,
divestitures of certain operations or assets to the extent management believes
that such transactions could improve the Company's overall financial condition
and/or future prospects. Any such divestitures would reduce the Company's
revenues. Divestitures could also (i) eliminate certain products or product
lines that the Company has historically offered to its customers and (ii) reduce
or eliminate the Company's presence in certain geographic markets.
RISKS RELATED TO INTEGRATION OF ACQUISITIONS. 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.
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RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION. Workflow Management
currently intends to finance its future acquisitions by using cash, borrowed
funds, shares of Company Common Stock or a combination thereof. 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 not be
able to consummate acquisitions using Company Common Stock as consideration.
Since the Workflow Distribution, the Company has completed all of its
acquisitions using cash consideration. 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. However, the use of
equity offerings will also be subject to certain limitations on the number of
shares that Workflow Management can issue without jeopardizing the tax-free
treatment of the Workflow Distribution. See "Possible Limitation on Issuances of
Common Stock" and "Tax Matters" below.
The Company has 150,000,000 authorized shares of Company Common Stock,
a portion of which could be available (subject to the rules and regulations of
federal and state securities laws, limitations under U.S. federal income tax
laws and the rules of the Nasdaq Stock Market) to finance acquisitions without
obtaining stockholder approval for such issuances. Existing stockholders may
suffer dilution if Workflow Management uses Company Common Stock as
consideration for future acquisitions. Moreover, the issuance of additional
shares of Company Common Stock may have a negative impact on earnings per share
and may negatively impact the market price of the Company Common Stock.
MATERIAL AMOUNT OF GOODWILL. Approximately $64.5 million, or 27.0% of the
Company's total assets as of April 24, 1999, 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.
INABILITY TO USE POOLING-OF-INTERESTS ACCOUNTING. Generally accepted accounting
principles require that an entity be autonomous for a period of two years before
it is eligible to complete business combinations under the pooling-of-interests
method. As a result of the Company being a wholly-owned subsidiary of U.S.
Office Products prior to the Workflow Distribution, the Company will be unable
to satisfy this criteria for a period of two years following the Workflow
Distribution. Therefore, the Company will be precluded from completing business
combinations under the pooling-of-interests method for a period of two years
from the Distribution Date and any business combinations completed by the
Company during such period will be accounted for under the purchase method
resulting in the recording of goodwill. The amortization of the goodwill will
reduce net income reported by the Company below that which would have been
reported if the pooling-of-interests method had been used by the Company. See
"Material Amount of Goodwill" above.
POTENTIAL CONFLICTS OF INTEREST IN THE DISTRIBUTIONS. The Company, U.S. Office
Products and the other Spin-Off Companies entered into the Distribution
Agreement, the Tax Allocation Agreement and the Employee Benefits Agreement, and
the Company and the other Spin-Off Companies entered into the Tax
Indemnification Agreement. These agreements provide, among other things, for
U.S. Office Products and the Company to indemnify each other from tax and other
liabilities relating to their respective businesses prior to and following the
Workflow Distribution.
Certain indemnification obligations of the Company and the other
Spin-Off Companies to U.S. Office Products are joint and several. Therefore, if
one of the other Spin-Off Companies fails to satisfy its indemnification
obligations to U.S. Office Products when such a loss occurs, the Company may be
required to reimburse U.S. Office Products for all or a portion of the losses
that otherwise would have been allocated to such other Spin-Off Company. In
addition, the agreements allocate certain liabilities (including general
corporate and securities liabilities of U.S. Office Products not specifically
related to the specific business to be conducted by the Company, the other
Spin-Off Companies or U.S. Office Products) among the Company, U.S. Office
Products and the other Spin-Off Companies. Adverse developments involving U.S.
Office Products or one of the other Spin-Off Companies, or material disputes
with U.S. Office Products following the Distributions, could have a material
adverse effect on the Company.
The terms of the agreements that govern the relationship among the
Company, U.S. Office Products and the other Spin-Off Companies were established
by U.S. Office Products in consultation with the Company and the other Spin-Off
Companies prior to the Distributions and while the Company and the other
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Spin-Off Companies were wholly-owned subsidiaries of U.S. Office Products. The
terms of these agreements, including the allocation of general corporate and
securities liabilities among U.S. Office Products, the Company and the other
Spin-Off Companies, may not be the same as they would have been if the
agreements were the result of arm's-length negotiations. Accordingly, there can
be no assurance that the terms and conditions of these agreements are not more
or less favorable to the Company than those that might have been obtained from
unaffiliated third parties.
TAX MATTERS. In connection with the Workflow Distribution, Wilmer, Cutler &
Pickering, legal counsel to U.S. Office Products, delivered an opinion to the
Company (the "Tax Opinion") stating that for U.S. federal income tax purposes
the Workflow Distribution qualified as a tax-free spin-off under Section 355 of
the Internal Revenue Code of 1986, as amended (the "Code"), and was not taxable
under Section 355(e) of the Code. The Tax Opinion is based on certain
assumptions and the accuracy as of the time of the Distributions of factual
representations made by U.S. Office Products, the Company, and the other
Spin-Off Companies and certain other information, data, documentation and other
materials as Wilmer, Cutler & Pickering deemed necessary.
The Tax Opinion represents Wilmer, Cutler & Pickering's best judgment
of how a court would rule. However, the opinion is not binding upon either the
Internal Revenue Service (the "IRS") or any court. A ruling was not sought from
the IRS with respect to the U.S. federal income tax consequences of the Workflow
Distribution. Accordingly, the IRS and/or a court could reach a conclusion that
differs from the conclusions in the Tax Opinion.
If the Workflow Distribution fails to qualify under Section 355 as a
tax-free spin-off, each holder of U.S. Office Products Common Stock on the
record date of the Distribution will be treated as having received a taxable
corporate distribution in an amount equal to the fair market value (on the
Distribution Date) of the Company Common Stock distributed to such holder of
U.S. Office Products Common Stock including fractional shares. In addition, U.S.
Office Products will recognize gain equal to the difference between the fair
market value of the Company Common Stock (on the Distribution Date) and U.S.
Office Products' adjusted tax basis in the Company Common Stock (on the
Distribution Date). If U.S. Office Products were to recognize gain on the
Workflow Distribution, such gain would likely be substantial.
If the Workflow Distribution is taxable under Section 355(e), but
otherwise satisfies the requirements for a tax-free spin-off, U.S. Office
Products will recognize gain equal to the difference between the fair market
value of the Company Common Stock (on the Distribution Date) and U.S. Office
Products' adjusted tax basis in the Company Common Stock (on the Distribution
Date). However, no gain or loss will be recognized by holders of U.S. Office
Products Common Stock (except with respect to cash received in lieu of
fractional shares). If U.S. Office Products were to recognize gain on the
Workflow Distribution, such gain would likely be substantial.
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS. In connection with
the Distributions, the Company entered into the Tax Allocation Agreement, which
provides that the Company and the other Spin-Off Companies will jointly and
severally indemnify U.S. Office Products for any losses associated with taxes
related to the Distributions ("Distribution Taxes") if an action or omission (an
"Adverse Tax Act") of the Company or the other Spin-Off Companies materially
contributes to a final determination that any or all of the Distributions are
taxable. Workflow Management has also entered into the Tax Indemnification
Agreement with the other Spin-Off Companies under which the company that is
responsible for the Adverse Tax Act will indemnify the other companies for any
liability to indemnify U.S. Office Products under the Tax Allocation Agreement.
As a consequence, Workflow Management will be liable for any Distribution Taxes
resulting from any Adverse Tax Act by Workflow Management and liable (subject to
indemnification by the other Spin-Off Companies) for any Distribution Taxes
resulting from an Adverse Tax Act by the other Spin-Off Companies. If there is a
final determination that any or all of the Distributions are taxable and it is
determined that there has not been an Adverse Tax Act by either U.S. Office
Products, the Company or the other Spin-Off Companies, U.S. Office Products, the
Company and the other Spin-Off Companies will be liable for their pro rata
portion of the Distribution Taxes based on the value of each company's common
stock after the Distributions. As a result, the Company could become liable for
a pro rata portion of any Distribution Taxes with respect not only to the
Workflow Distribution, but also any of the other Distributions.
POSSIBLE LIMITATIONS ON ISSUANCES OF COMMON STOCK. Section 355(e) of the Code,
which was added in 1997, generally provides that a company that distributes
shares of a subsidiary in a spin-off that is otherwise tax-free will incur U.S.
federal income tax liability if 50% or more, by vote or value, of the capital
stock of either the company making the distribution or the spun-off subsidiary
is acquired by one or more persons acting pursuant to a plan or series of
related transactions that include the spin-off. Stock acquired by certain
related persons is aggregated in determining whether the 50% test is met. There
is a presumption that any acquisition occurring two years before or after the
spin-off is pursuant to a plan that includes the spin-off. However, the
presumption may be rebutted by establishing that the spin-off and such
acquisition are not part of a plan or series of related transactions. This
limitation could adversely affect the pace of Workflow Management's acquisitions
and its ability to issue Company Common Stock for other purposes, including
equity offerings.
RISKS RELATED TO ALLOCATION FOR CERTAIN LIABILITIES. Under the Distribution
Agreement, Workflow Management is and became liable for (i) any liabilities
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arising out of or in connection with the business conducted by it or its
subsidiaries, (ii) its liabilities under the Employee Benefits Agreement, Tax
Allocation Agreement and related agreements, (iii) $45.6 million of U.S. Office
Products' debt that was allocated to the Company, (iv) liabilities under the
securities laws relating to sections of the Information Statement/Prospectus
distributed to U.S. Office Products' shareholders in connection with the
spin-off, as well as other securities law liabilities related to Workflow
Management's business, that arise from information supplied to U.S. Office
Products (or that should have been supplied, but was not) by Workflow
Management, (v) U.S. Office Products' liabilities for earn-outs from
acquisitions in respect of Workflow Management and its subsidiaries, (vi)
Workflow Management's costs and expenses related to a planned public offering
that did not occur and its bank credit facility, and (vii) $1.0 million of the
transaction costs (including legal, accounting, investment banking and financial
advisory) and other fees incurred by U.S. Office Products in connection with its
Strategic Restructuring Plan. Each of the other Spin-Off Companies is similarly
obligated to U.S. Office Products. Workflow Management and the other Spin-Off
Companies have also agreed to bear a pro rata portion of (i) U.S. Office
Products' liabilities under the securities laws (other than claims relating
solely to a specific spin-off company or relating specifically to the continuing
businesses of U.S. Office Products) and (ii) U.S. Office Products' general
corporate liabilities (other than debt, except for that specifically allocated
to the Company and the other Spin-Off Companies) incurred prior to the
Distributions (I.E., liabilities not related to the conduct of a particular
distributed or retained subsidiary's business) (the "Shared Liabilities"). If
the Company or one of the other Spin-Off Companies defaults on an obligation
owed to U.S. Office Products, the non-defaulting spin-off companies will be
obligated on a pro rata basis to pay such obligation ("Default Liability"). As a
result of the Shared Liabilities and Default Liability, Workflow Management
could be obligated to U.S. Office Products in respect of obligations and
liabilities not related to its business or operations and over which neither it
nor its management has or has had any control or responsibility. The aggregate
of the Shared Liabilities and Default Liability for which any spin-off company
may be liable, however, is limited to $1.75 million.
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 deemed Shared
Liabilities and subject to indemnification by the Company, 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 for Shared Liabilities under the Distribution
Agreement.
EMERGING ALTERNATIVE TECHNOLOGIES. Electronic forms and electronic data
interchange technologies have recently been introduced. There can be no
assurance that such emerging technologies will not have a material adverse
effect on the Company or on the document industry. Over the last several years,
the document industry has undergone a transition as a result of the increased
usage of desk top publishing and laser printer technology, which has led to a
decreased demand for certain document products. The continuation of such
technological changes, or the development of other trends that decrease demand
for documents, could have a material adverse effect on the Company's business,
financial condition or results of operations.
ATTRACTION AND RETENTION OF PERSONNEL. The Company's operations depend on the
continued efforts of Thomas B. D'Agostino, Sr., its Chief Executive Officer, its
other executive officers and the senior management of certain of its
subsidiaries. Furthermore, the Company's operations will likely depend on the
senior management of certain of the companies that may be acquired in the
future. If any of these people becomes unable to continue in his or her present
role, or if the Company is unable to attract and retain other skilled employees,
its business could be adversely affected. The Company does not have key man life
insurance covering any of its executive officers or other members of senior
management of its subsidiaries.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISKS OF INFRINGEMENT. The Company's
success and ability to compete depends in part upon its proprietary technology,
trademarks and copyrights. Workflow Management regards the software underlying
its GetSmart, Imagenet and Informa systems as proprietary, and relies primarily
on trade secrets, copyright and trademark law to protect these proprietary
rights. The Company has registered some of its trademarks, and has no patents
issued nor applications pending. Existing trade secrets and copyright laws
afford the Company only limited protection. Unauthorized parties may attempt to
copy aspects of the Company's software or to obtain and use information that
Workflow Management regards as proprietary. Policing unauthorized use of the
Company's software is difficult. Workflow Management generally enters into
confidentiality and assignment agreements with its employees and generally
controls access to and distribution of its software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's services or
technology without authorization, or to develop similar services or technology
independently. Workflow Management is not aware that any of its software,
trademarks or other proprietary rights infringe the proprietary rights of third
parties. However, there can be no assurance that third parties will not assert
infringement claims against Workflow Management in the future. Any such claims,
with or without merit, can be time consuming and expensive to defend and may
require the Company to enter into royalty or licensing agreements or cease the
alleged infringing activities.
EFFECTS OF CHANGES IN DEMAND FOR DOCUMENTS; CYCLICALITY. Historically, the
Company's operating results have depended heavily on sales of documents. For the
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fiscal years ended April 25, 1998 and April 24, 1999, sales of documents
accounted for approximately 50% and 39%, respectively, of the Company's net
sales. Workflow Management anticipates that document sales will continue to
account for a significant percentage of the Company's sales for the foreseeable
future. An important element of the Company's business strategy is to continue
its growth in document sales by continuing to acquire other document companies,
hiring experienced sales representatives, attracting new customers and
increasing sales to existing customers. The overall document industry has not
grown in the last few years, although demand for certain products, such as laser
forms, pressure-sensitive labels, form/label combinations and single-part
cut-sheet mailers has increased. Accordingly, for Workflow Management to
continue its growth in document sales, it must increase its market share and
respond to changes in demand in the overall document industry. No assurance can
be given that Workflow Management will be successful in increasing its market
share or responding to shifts in demand. The failure by the Company to do so
could have a material adverse effect on its business, financial condition or
results of operations.
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In addition, the document industry historically has been affected by
general economic and industry cycles that have materially and adversely affected
distributors and manufacturers of documents. No assurance can be given as to the
effect of a continuation of, or change in, such business cycles on the Company's
business, financial condition or results of operations. The delay or inability
of Workflow Management to respond to changing economic cycles could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CANADIAN OPERATIONS. Workflow Management has significant
operations in Canada. Net sales from the Company's Canadian operations accounted
for approximately 36% and 32% of the Company's total net sales in the fiscal
years ended April 25, 1998 and April 24, 1999, 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.
UNITED STATES POSTAL RATES; ALTERNATIVE DELIVERY MEDIA. The Company's operating
results depend, to a significant extent, on sales of envelopes. Sales of
envelopes accounted for approximately 29% and 35% of the Company's net sales for
the fiscal years ended April 25, 1998 and April 24, 1999, respectively. Because
the great majority of envelopes used in the United States are sent through the
mail, postal rates are a significant factor affecting the growth of envelope
usage. Historically, increases in postal rates, relative to changes in the cost
of alternative delivery means and/or advertising media, have resulted in
temporary reductions in the growth rate of mail sent. For example, third class
postal rates increased approximately 50% and 14% in 1991 and 1995, respectively,
contributing to a substantial leveling off in the growth rate of third class
mail sent during the periods following such increases. If postal rates increase,
mail volume could decline, which could reduce revenue from the Company's sale of
envelopes and reduce the Company's earnings and cash flow.
In addition, alternative delivery media may affect the demand for
envelopes. As the current trend towards usage of the Internet and other
electronic media by consumers for such purposes as paying utility and credit
card bills grows, Workflow Management expects the demand for envelopes for such
purposes to decline. Although management believes that overall demand for
envelopes, particularly the custom and specialty envelopes Workflow Management
focuses on, will continue to grow at rates comparable to recent historical
levels, competition from alternative media may reduce demand for envelopes, and
the Company's revenues from the sale of envelopes may decrease, which could
reduce the Company's earnings and cash flow.
IMPACT OF FLUCTUATIONS IN PAPER PRICES. Paper prices represent a substantial
portion of the cost of producing documents, envelopes and commercial printing
distributed and manufactured by the Company. Accordingly, prevailing paper
prices can have a significant impact on the Company's sales. The timing of
increases or decreases in paper prices and any subsequent change in prices
charged to the Company's customers could have a material adverse effect on the
Company's revenues and gross margins. Although Workflow Management has generally
been able to pass increases in paper costs on to its customers, for competitive
or other reasons, the Company cannot offer any assurance that it will be able to
pass all or a portion of any future paper price or other cost increases on to
its customers. If Workflow Management were unable to pass on these costs, profit
margins would decrease, which could reduce earnings and cash flow. Moreover, an
increase in the Company's prices for the products it distributes, resulting from
a pass-through of increased paper costs, could reduce the volume of units sold
by the Company and decrease the Company's revenues.
Due to the significance of paper to most of the Company's products,
Workflow Management is dependent upon the availability of paper. During periods
of tight paper supply, many paper producers allocate shipments of paper based on
the historical purchase levels of customers. There can be no assurance that the
Company's document and envelope businesses would not be materially adversely
affected if either Workflow Management or its vendors experienced difficulty in
obtaining adequate quantities of paper in the future. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
UNIONIZED WORKFORCE. Approximately 31.5% of the Company's employees in the
United States and approximately 9.4% of the Company's employees in Canada are
covered by collective bargaining agreements. There can be no assurance that
strikes or work stoppages will not occur in the future. Strikes or work
stoppages and the resultant adverse impact on the Company's relationship with
its customers could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, the Company's
acquisition strategy could be adversely affected because of its union status for
a variety of reasons, including without limitation, incompatibility with a
target's existing unions and reluctance of non-union targets to become
affiliated with a union based company.
16
<PAGE>
COST AND RISKS OF LOSS RELATING TO ENVIRONMENTAL REGULATION. The Company's
operations and real property are subject to the Environmental Laws. Workflow
Management utilizes certain hazardous materials, such as washes, inks,
alcohol-based products, fountain solution, photographic fixer and developer
solutions, machine and hydraulic oils and solvents. While management believes
that the Company's current operations are in substantial compliance with
Environmental Laws, there can be no assurance that all potential environmental
liabilities have been identified, or that future uses, conditions or legal
requirements (including without limitation those that may result from future
acts or omissions or changes in applicable Environmental Laws) will not
materially adversely affect the Company's business or operations in the future.
See "Environmental Regulations" above.
COMPETITION. Workflow Management competes for retail sales of printed products
against other independent distributors and against manufacturers' direct sales
organizations. In commercial printing, the Company also competes with
manufacturers' direct sales organizations, independent brokers, advertising
agencies and design firms. The principal competitive factors in the graphic arts
industry are price, quality, selection, services, production capacity, delivery
and customer support.
Although Workflow Management's divisions often compete with large and
small businesses, its Fulfillment Division competes against the largest
competitors in the North American documents, envelopes and commercial printing
industry, most of which have substantially greater financial resources than the
Company. The largest competitors in the office consumables distribution market
for the Company's Integrated Business Services Division are Global Docugraphix
and Precept Business Services, Inc., although the most common competitors for
specific customers are small, regional distributors.
The Company also faces competition from alternative sources of
communication and information transfer such as facsimile machines, electronic
mail, the Internet and interactive video disks. These sources of communication
and advertising may adversely impact printed product sales in the future.
Furthermore, as the Company continues to expand its e-commerce GetSmart system,
it will compete with companies focused solely on business to business electronic
systems.
NO DIVIDENDS. Workflow Management does not expect to pay cash dividends on
Company Common Stock in the foreseeable future. See "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters."
ABSENCE OF PUBLIC MARKET. Prior to the Workflow Distribution, there was no
public market for the Company Common Stock. The trading price of the Company
Common Stock could be subject to wide fluctuations in response to variations in
the Company's quarterly operating results, changes in earnings estimates by
analysts, conditions in the Company's businesses, general market or economic
conditions or other factors. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices for many companies, often unrelated to
the operating performance of the specific companies. Such market fluctuations
could have a material adverse effect on the market price of the Company Common
Stock.
CONSIDERATION FOR OPERATING COMPANIES EXCEEDS ASSET VALUE. To date, the purchase
prices of the Company's acquisitions have not been established by independent
appraisals, but generally have been determined through arm's-length negotiations
between the Company's management and representatives of such companies. The
consideration paid for each such company has been based primarily on the value
of such company as a going concern and not on the value of the acquired assets.
Valuations of these companies determined solely by appraisals of the acquired
assets would have been less than the consideration paid for the companies. No
assurance can be given that the future performance of such companies will be
commensurate with the consideration paid. Workflow Management does not expect to
value future acquisitions on the basis of asset appraisals. Therefore, this risk
will apply to future acquisitions as well.
RISK OF LOSS FROM POSSIBLE FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE. The Company
has completed Year 2000 conversion and testing of its principal proprietary
software systems and related services, and is in the final stages of completion
regarding the remediation and testing phase for its other systems. Although the
Company believes that substantially all of its systems are Year 2000 compliant,
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. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation."
17
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information about the Company's
executive offices and its principal manufacturing, printing and distribution
facilities.
<TABLE>
<CAPTION>
APPROXIMATE LEASE
FUNCTION AND LOCATION SQUARE FOOTAGE TITLE EXPIRATION
- ----------------------------------------------- -------------- ----- ----------
<S> <C> <C> <C>
EXECUTIVE OFFICE:
Palm Beach, Florida....................... 5,300 Leased 2003
PRINCIPAL MANUFACTURING, PRINTING
AND DISTRIBUTION FACILITIES:
Brampton, Ontario......................... 174,500 Leased 2002
Mt. Pocono, Pennsylvania.................. 132,000 Owned
Hoboken, New Jersey....................... 127,000 Leased 2009
Granby, Quebec............................ 99,800 Owned
Mt. Olive, Illinois....................... 82,000 Leased 2004
Edmonton, Alberta......................... 81,300 Leased 2006
New York, New York........................ 76,500 Leased 2002
Conyers, Georgia.......................... 71,300 Owned
Calgary, Alberta.......................... 65,100 Leased 2014
Springfield, Massachusetts................ 65,000 Leased 2004
New York, New York........................ 64,500 Leased 2007
Santa Ana, California..................... 63,000 Leased 2009
Long Island City, New York................ 60,000 Leased 2014
Mississauga, Ontario...................... 60,000 Leased 2004
New York, New York........................ 50,000 Leased 1999
Calgary, Alberta.......................... 48,000 Leased 2004
Brampton, Ontario......................... 44,200 Leased 2000
Dorval, Quebec............................ 42,500 Owned
New York, New York........................ 40,000 Leased 1999
New York, New York........................ 40,000 Leased 2002
South River, New Jersey................... 38,400 Leased 2001
Norfolk, Virginia......................... 31,700 Leased 2008
Calgary, Alberta.......................... 30,400 Leased 1999
Norfolk, Virginia......................... 30,000 Owned
Regina, Saskatchewan...................... 28,300 Leased 2006
Long Island City, New York................ 27,000 Leased 1999
Columbia, South Carolina.................. 26,000 Leased 2000
</TABLE>
In addition to those facilities identified above, Workflow Management
leases other offices, warehouses, manufacturing facilities and distribution
centers across the United States and Canada.
Workflow Management believes that its properties are adequate to
support its operations for the foreseeable future. It is anticipated that the
majority of the space coming up for lease maturity in 1999 will be renewed.
However, in some instances, consolidation of properties will occur.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Under the terms of the Distribution Agreement entered into between the
Company and U.S. Office Products in connection with the Strategic Restructuring
Plan, 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 which 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On June 10, 1998, the shares of the Company's Common Stock began
trading on the Nasdaq National Market ("Nasdaq") under the symbol "WORK." Prior
to June 10, 1998, there was no public market for the Common Stock. The following
table sets forth the high and low sales prices of the Common Stock as reported
by Nasdaq for the periods listed.
Fiscal Year ended April 24, 1999:
HIGH LOW
------ -----
First Quarter (June 10, 1998 - July 25, 1998) $ 11.00 $ 6.13
Second Quarter 7.13 4.63
Third Quarter 7.88 5.00
Fourth Quarter 11.69 6.25
On July 9, 1999, the Company had approximately 3,515 shareholders of
record. The Company has never declared or paid any cash dividends. The Company
does not anticipate declaring and paying cash dividends on the Common Stock in
the foreseeable future. The decision whether to apply any legally available
funds to the payment of dividends on the Common Stock will be made by the
Company's Board of Directors from time to time in the exercise of its business
judgment, taking into account the Company's financial condition, results of
operations, existing and proposed commitments for use of the Company's funds and
other relevant factors. In addition, the Company's credit agreement with its
principal lender expressly prohibits the payment of any cash dividends on the
Common Stock without the lender's prior consent.
The Company gives non-employee directors the option of receiving
unregistered shares of Common Stock instead of cash director fees. During the
Company's fiscal year ended April 24, 1999, the Company issued a total of 6,000
shares of its Common Stock to its non-employee directors. The aggregate market
value of Common Stock issued to non-employee directors during the fiscal year,
based on trading prices at the time of issuance, was $42,128. The issuance of
these shares of Common Stock was exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D,
Rule 504.
ITEM 6. SELECTED FINANCIAL DATA
The historical Statement of Income Data for the fiscal years ended
April 26, 1997, April 25, 1998 and April 24, 1999 ("Fiscal 1997", "Fiscal 1998"
and "Fiscal 1999", respectively) and the Balance Sheet Data at April 25, 1998
and April 24, 1999 have been derived from Workflow Management's consolidated
financial statements that have been audited and are included elsewhere in this
Form 10-K. The historical Statement of Income Data for the year ended December
31, 1995 and the four months ended April 30, 1996 and the Balance Sheet Data at
April 26, 1997 have been derived from audited consolidated financial statements
not included elsewhere in this Form 10-K. The historical Statement of Income
Data for the year ended December 31, 1994 and the Balance Sheet Data at December
31, 1994 and 1995 and April 30, 1996 have been derived from unaudited
consolidated financial statements which are not included elsewhere in this Form
10-K.
The Selected Financial Data provided herein should be read in
conjunction with the Company's historical financial statements, including the
notes thereto, and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
20
<PAGE>
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Four Months
Fiscal Year Ended Ended(2) Year Ended (2)
----------------------------------------- ----------- ---------------------------
April 24, April 25, April 26, April 30, December 31, December 31,
1999 1998 1997 1996 1995 (3) 1994
------------ ------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.............................. $ 390,952 $ 353,351 $ 327,381 $ 114,099 $ 309,426 $ 154,193
Cost of revenues...................... 278,836 260,299 236,340 82,998 234,959 114,885
------------- -------------- ------------- ------------- -------------- -------------
Gross profit................... 112,116 93,052 91,041 31,101 74,467 39,308
Selling, general and administrative
expenses............................ 86,298 73,492 70,745 22,441 61,938 32,003
Amortization expense.................. 779 309 204 44 74 17
Restructuring costs................... 872
Strategic restructuring plan costs.... 3,818 1,750
Non-recurring acquisition costs....... 5,006
------------- -------------- ------------- ------------- -------------- -------------
Operating income............... 21,221 16,629 15,086 8,616 12,455 7,288
Other (income) expense:
Interest expense................... 5,106 2,210 4,561 1,676 5,370 2,048
Interest income.................... (171) (274) (25) (18)
Other.............................. (167) (258) 632 (151) 62 186
------------- -------------- ------------- ------------- -------------- -------------
Income before provision for (benefit
from) income taxes and
extraordinary items................. 16,453 14,951 9,918 7,109 7,023 5,054
Provision for (benefit from) income
taxes (4)........................... 7,364 6,743 3,690 1,351 (33) 379
------------- -------------- ------------- ------------- -------------- -------------
Income before extraordinary items..... 9,089 8,208 6,228 5,758 7,056 4,675
Extraordinary items--losses on
early terminations of credit
facilities, net of income taxes (5). 798 700
------------- -------------- ------------- ------------- -------------- -------------
Net income............................ $ 9,089 $ 8,208 $ 5,430 $ 5,758 $ 6,356 $ 4,675
============= ============== ============= ============= ============== =============
Net income per share:
Basic:
Income before extraordinary
items......................... $ 0.65 $ 0.51 $ 0.52 $ 0.56 $ 0.90 $ 0.77
Extraordinary items.............. 0.07 0.09
------------- -------------- ------------- ------------- -------------- -------------
Net income....................... $ 0.65 $ 0.51 $ 0.45 $ 0.56 $ 0.81 $ 0.77
============= ============== ============= ============= ============== =============
Diluted:
Income before extraordinary
items......................... $ 0.64 $ 0.50 $ 0.51 $ 0.55 $ 0.88 $ 0.77
Extraordinary items.............. 0.07 0.09
------------- -------------- ------------- ------------- -------------- -------------
Net income....................... $ 0.64 $ 0.50 $ 0.44 $ 0.55 $ 0.79 $ 0.77
============= ============== ============= ============= ============== =============
Weighted average shares outstanding:
Basic.............................. 14,077 15,941 12,003 10,333 7,875 6,075
Diluted............................ 14,139 16,257 12,235 10,547 8,003 6,094
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
APRIL 24, APRIL 25, APRIL 26, APRIL 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995 (2) 1994 (2)
------------- -------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $ 67,174 $ 34,993 $ 16,910 $ 23,378 $ 20,127 $8,583
Total assets.......................... 238,572 148,046 125,108 117,949 120,630 51,357
Short-term debt payable to U.S.
Office Products..................... 13,536 23,622
Long-term debt, less current portion.. 112,101 7,065 6,034 28,108 28,812 7,355
Long-term debt payable to U.S.
Office Products..................... 19,221 561
Stockholders' equity.................. 64,433 59,491 47,780 29,120 24,719 12,889
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
FOUR MONTHS
FISCAL YEAR ENDED ENDED (2) YEAR ENDED (2)
---------------------------------------- ----------- ----------------------------
APRIL 24, APRIL 25, APRIL 26, APRIL 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995 (3) 1994
---------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
EBITDA (6) ........................... $ 28,421 $ 23,609 $ 20,436 $ 11,985 $ 17,187 $9,023
Adjusted EBITDA (7)................... 32,239 26,231 25,442 11,985 17,187 9,023
Net cash provided by operating activities 25,283 4,506 19,679 11,118 11,112 6,073
Net cash used in investing activities. (75,660) (17,963) (14,090) (4,423) (42,387) (123)
Net cash provided by (used in) financing
activities......................... 50,832 11,514 (4,716) (7,083) 31,436 (5,325)
Net increase (decrease) in cash and cash
equivalents........................ 373 (1,934) 844 (388) 549 625
</TABLE>
(1) The historical financial information of the Pooled Companies (as
defined in Item 7. below) has been combined on a historical cost basis
in accordance with generally accepted accounting principles ("GAAP") to
present this financial data as if the Pooled Companies had always been
members of the same operating group. The financial information of the
Purchased Companies (as defined in Item 7. below) is included from the
dates of their respective acquisitions. See Note 4 of the Company's
Notes to Consolidated Financial Statements for a description of the
number and accounting treatment of the acquisitions by the Company.
(2) Prior to their respective dates of acquisition by U.S. Office Products,
the Pooled Companies reported results on years ending on December 31.
Upon acquisition by U.S. Office Products and effective for Fiscal 1997,
the Pooled Companies changed their year-ends from December 31 to
conform to U.S. Office Products' fiscal year, which ended on the last
Saturday in April. A four month fiscal transition period from January
1, 1996 through April 30, 1996 has been presented for the Company to
conform its fiscal year-end.
(3) The results for the year ended December 31, 1995 include the results of
Data Business Forms Limited, one of the Pooled Companies, from its date
of incorporation on February 8, 1995.
(4) Certain Pooled Companies were organized as subchapter S corporations
prior to the closing of their acquisitions by the Company and, as a
result, the federal tax on their income was the responsibility of their
individual stockholders. Accordingly, the specific Pooled Companies
provided no federal income tax expense prior to their acquisitions by
the Company.
(5) Extraordinary items represent the losses associated with the early
terminations of credit facilities at one Pooled Company, net of the
related income tax benefits.
(6) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is defined as income before extraordinary items plus the
following: a) provision for income taxes, b) net interest expense, c)
depreciation and d) amortization. EBITDA is not intended to represent
cash flow from operations in accordance with GAAP and should not be
used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. EBITDA is
included in this Form 10-K because it is a basis upon which the Company
assesses its financial performance. While EBITDA is frequently used as
a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in
the method of calculation.
(7) "Adjusted EBITDA" reflects EBITDA adjusted to exclude the effect of the
restructuring costs, strategic restructuring plan costs and
non-recurring acquisition costs the Company expensed of $3,818, $2,622
and $5,006 in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
Adjusted EBITDA is included in this Form 10-K because it is a basis
upon which the Company assesses its financial performance.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW. Workflow Management's consolidated financial statements give
retroactive effect to the seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 through April
1997 (the "Pooled Companies") and include the results of the fifteen companies
acquired in business combinations accounted for under the purchase method, each
from its acquisition date (the "Purchased Companies"). Prior to their respective
dates of acquisition by U.S. Office Products, the Pooled Companies reported
results for years ended on December 31. Upon acquisition by U.S. Office Products
and effective for Fiscal 1997, the Pooled Companies changed their year-ends from
December 31 to conform with U.S. Office Products' fiscal year, which ended on
the last Saturday of April. The following discussion should be read in
conjunction with Workflow Management's consolidated financial statements and
related notes thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of
revenues for the Fiscal 1999, Fiscal 1998 and Fiscal 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues......................................................... 100.0% 100.0% 100.0%
Cost of revenues................................................. 71.3 73.7 72.2
--------- --------- ---------
Gross profit.............................................. 28.7 26.3 27.8
Selling, general and administrative expenses..................... 22.1 20.8 21.6
Amortization expenses............................................ 0.2 0.1 0.1
Restructuring costs.............................................. 0.2
Strategic restructuring plan costs............................... 1.0 0.5
Non-recurring acquisition costs.................................. 1.5
--------- --------- ---------
Operating income.......................................... 5.4 4.7 4.6
Interest expense, net............................................ 1.3 0.6 1.4
Other (income) expense........................................... (0.1) (0.1) 0.2
--------- --------- ---------
Income before provision for income taxes and extraordinary item.. 4.2 4.2 3.0
Provision for income taxes....................................... 1.9 1.9 1.1
--------- --------- ---------
Income before extraordinary item................................. 2.3 2.3 1.9
Extraordinary item--loss on early termination of credit
facility, net of income taxes.................................. 0.2
--------- --------- ---------
Net income....................................................... 2.3% 2.3% 1.7%
========= ========= =========
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 24, 1999 COMPARED TO FISCAL YEAR ENDED APRIL 25, 1998
Consolidated revenues increased 10.6%, from $353.4 million for Fiscal
1998, to $391.0 million for Fiscal 1999. This increase was primarily due to
acquisitions and internal growth in the Company's Integrated Business Services
Division through increased sales to existing customers. Revenues for Fiscal 1999
include revenues from twelve companies acquired in business combinations
accounted for under the purchase method after the beginning of Fiscal 1999 (the
"Fiscal 1999 Purchased Companies") for the period subsequent to their respective
dates of acquisition.
International revenues decreased 1.6%, from $127.9 million, or 36.2% of
consolidated revenues, for Fiscal 1998, to $125.8 million, or 32.2% of
consolidated revenues, for Fiscal 1999. International revenues consisted
exclusively of revenues generated in Canada. This decrease was entirely due to a
decline in the Canadian exchange rate during Fiscal 1999. International
revenues, when stated in the local currency, increased $10.0 million (Canadian)
or 5.6% for Fiscal 1999 when compared to Fiscal 1998.
24
<PAGE>
Gross profit increased 20.5%, from $93.1million, or 26.3% of revenues,
for Fiscal 1998, to $112.1 million, or 28.7% of revenues, for Fiscal 1999. The
increase in gross profit was primarily due to the inclusion of the Fiscal 1999
Purchased Companies in the consolidated results of the Company and the
additional gross profit generated from new customer accounts for envelopes and
documents. The increase in gross profit as a percentage of revenues was due to
the Fiscal 1999 Purchased Companies generating gross profit at a higher
percentage of revenues than was historically recognized by the Company and
increased gross profit percentages on commercial printing, envelope revenues and
forms distribution.
Selling, general and administrative expenses increased 17.4%, from
$73.5 million, or 20.8% of revenues, for Fiscal 1998, to $86.3 million, or 22.1%
of revenues, for Fiscal 1999. The increase in selling, general and
administrative expenses was primarily due to the Fiscal 1999 Purchased Companies
and the additional corporate overhead that was incurred during Fiscal 1999 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 revenues during
Fiscal 1999 was primarily due to the additional corporate overhead incurred
during the period.
Amortization expense increased $470,000 from $309,000 for Fiscal 1998,
to $779,000 for Fiscal 1999. This increase was exclusively due to the increased
number of acquisitions accounted for under the purchase method that were
included in the Company's results for Fiscal 1999 versus Fiscal 1998.
The Company incurred expenses of approximately $3.8 million during
Fiscal 1999 associated with U.S. Office Products' Strategic Restructuring Plan.
Under GAAP, 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 Fiscal 1999 relating to the Strategic Restructuring Plan for legal,
accounting and financial advisory services and various other fees.
Interest expense, net of interest income, increased 154.9%, from $1.9
million for Fiscal 1998, to $4.9 million for Fiscal 1999. This increase in net
interest expense was due to the increased level of debt outstanding during
Fiscal 1999 as a result of the Company securing a 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 for subsequent borrowings for acquisition purposes.
Other income decreased from $258,000 for Fiscal 1998, to $167,000 for
Fiscal 1999. 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 $6.7 million for Fiscal 1998
to $7.4 million for Fiscal 1999, reflecting effective income tax rates of 45.1%
and 44.8%, respectively. During both periods, the effective income tax rates
reflect the recording of tax provisions at the federal statutory rate, plus
appropriate state and local taxes. In addition, the effective tax rates for both
Fiscal 1998 and Fiscal 1999 were increased to reflect the incurrence of
non-deductible goodwill amortization expense resulting from the acquisitions of
certain of the Purchased Companies.
FISCAL YEAR ENDED APRIL 25, 1998 COMPARED TO FISCAL YEAR ENDED APRIL 26, 1997
Consolidated revenues increased 7.9%, from $327.4 million for Fiscal
1997 to $353.4 million for Fiscal 1998. This increase was primarily due to sales
to a large new account, passing on increased product costs to customers,
increasing sales to existing customers and the purchase acquisitions during
Fiscal 1998. International revenues increased 5.3%, from $121.5 million, or
37.1% of consolidated revenues, for Fiscal 1997, to $127.9 million, or 36.2% of
consolidated revenues, for Fiscal 1998. International revenues consisted
exclusively of revenues generated in Canada.
Gross profit increased 2.2%, from $91.0 million, or 27.8% of revenues,
for Fiscal 1997 to $93.1 million, or 26.3% of revenues, for Fiscal 1998. This
decrease in gross profit as a percentage of revenues was primarily due to
inefficiencies related to the start-up period of a large new account.
Selling, general and administrative expenses increased 3.9%, from $70.7
million, or 21.6% of revenues, for Fiscal 1997 to $73.5 million, or 20.8% of
revenues, for Fiscal 1998. This decrease in selling, general and administrative
expenses as a percentage of revenues was primarily due to an increase in
revenues combined with a decrease in executive compensation at the subsidiary
level.
25
<PAGE>
Amortization expense increased $105,000 from $204,000 for Fiscal 1997,
to $309,000 for Fiscal 1998. This increase was exclusively due to the increased
number of acquisitions accounted for under the purchase method that are included
in the Company's results for Fiscal 1998 versus Fiscal 1997.
The Company incurred restructuring costs of $872,000 during Fiscal
1998. These costs represent the external costs and liabilities to close
redundant Company facilities, severance costs related to the Company's employees
and other costs associated with the Company's restructuring plans.
The Company also incurred expenses of approximately $1.8 million during
Fiscal 1998 associated with the U.S. Office Products Strategic Restructuring
Plan. As a result of the Workflow Distribution, U.S. Office Products allocated
$1.0 million to the Company for its share of the transaction costs (including
legal, accounting, investment banking and financial advisory) and other fees
incurred by U.S. Office Products in connection with the Strategic Restructuring
Plan. In addition to the allocation by U.S. Office Products, the Company itself
incurred an additional $750,000 in transaction costs during Fiscal 1998 relating
to the Strategic Restructuring Plan for legal, accounting and financial advisory
services and various other fees.
The Company incurred non-recurring acquisition costs of $5.0 million
for Fiscal 1997 in conjunction with business combinations accounted for under
the pooling-of-interests method. These non-recurring acquisition costs included
accounting, legal and investment banking fees, real estate and environmental
assessments and appraisals and various regulatory fees. GAAP requires the
Company to expense all acquisition costs (both those paid by the Company and
those paid by the sellers of the acquired companies) related to business
combinations accounted for under the pooling-of-interests method of accounting.
Interest expense, net of interest income, decreased 57.3%, from $4.5
million for Fiscal 1997 to $1.9 million for Fiscal 1998. The decrease was due
primarily to the fact that a portion of the debt outstanding during Fiscal 1997
was repaid by U.S. Office Products upon acquisition of the Pooled Companies and
was replaced with intercompany debt bearing interest at U.S. Office Products'
lower cost of borrowing rate.
Other expense decreased $890,000 from other expense of $632,000 for
Fiscal 1997, to other income of $258,000 for Fiscal 1998. The decrease is
primarily the result of costs incurred at one of the Pooled Companies, during
Fiscal 1997, relating to a contemplated initial public offering that was aborted
as a result of that company's acquisition by U.S. Office Products.
Provision for income taxes increased from $3.7 million for Fiscal 1997
to $6.7 million for Fiscal 1998, reflecting effective income tax rates of 37.2%
and 45.1%, respectively. The lower effective tax rate for Fiscal 1997, compared
to the federal statutory rate of 35.0% plus state taxes, is the result of
certain of the companies included in the results not being subject to federal
income taxes on a corporate level as they had elected to be treated as
subchapter S corporations. The higher effective tax rate for Fiscal 1998,
compared to the federal statutory rate of 35.0% plus state taxes, is a result of
nondeductible goodwill amortization and nondeductible costs associated with the
Strategic Restructuring Plan.
LIQUIDITY AND CAPITAL RESOURCES
At April 24, 1999, the Company had cash of $607,000 and working capital
of $67.2 million. The Company's capitalization, defined as the sum of long-term
debt and stockholders' equity, at April 24, 1999 was approximately $176.5
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 April 24, 1999 primarily
represented customer collections and in-transit cash sweeps from the Company's
subsidiaries at the end of the fiscal year and cash balances at a company
acquired on April 22, 1999.
Workflow Management's anticipated capital expenditures budget for the
next twelve months is approximately $10.0 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" below.
During Fiscal 1999, net cash provided by operating activities was
$25.3 million. Net cash used in investing activities was $75.7 million,
including $70.1 million used for acquisitions, $7.7 million used for capital
expenditures and $2.0 million used for the issuance of notes receivable to
officers which were all partially offset by the collection of $3.7 million in
notes receivable from employees. Net cash provided by financing activities was
$50.8 million, which included $96.8 million in net borrowings by the Company and
a $6.3 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, $12.6 million paid to retire the Company's common stock and
$3.5 million paid in deferred financing costs.
26
<PAGE>
27
<PAGE>
During Fiscal 1998, net cash provided by operating activities was $4.5
million. Net cash used in investing activities was $18.0 million, including
$12.8 million of net cash paid in acquisitions, $4.4 million of capital
expenditures and the payment of non-recurring acquisition costs of $906,000. Net
cash provided by financing activities totaled $11.5 million, consisting
primarily of $8.6 million in advances from U.S. Office Products and a $2.5
million capital contribution by U.S. Office Products.
During Fiscal 1997, net cash provided by operating activities was $19.7
million. Net cash used in investing activities was $14.1 million, including $4.1
million of cash paid for non-recurring acquisition costs and $9.5 million of
capital expenditures. Net cash used in financing activities totaled $4.7
million, consisting primarily of the repayment of debt of $17.2 million and the
payment of dividends at Pooled Companies of $6.1 million, partially offset by
the $20.1 million capital contribution by U.S. Office Products.
Workflow Management has significant operations in Canada. Net sales
from the Company's Canadian operations accounted for approximately 32.2% of the
Company's total net sales in Fiscal 1999. As a result, Workflow Management is
subject to certain risks inherent in conducting business internationally,
including fluctuations in currency exchange rates.
During the Fiscal 1999, the Canadian dollar weakened against the U.S.
dollar ("USD"). The Canadian exchange rate averaged approximately $0.66 USD
during Fiscal 1999 as it reached a low point of $0.63 USD during the fiscal year
and declined from approximately $0.70 USD at April 25, 1998 to $0.68 USD at
April 24, 1999. This resulted in a reduction in accumulated other comprehensive
income, a component of stockholders' equity, of approximately $824,000,
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 Code, the Company
may be subject to constraints on its ability to issue additional shares of
Company Common Stock in certain transactions for two years following the date of
the Workflow Distribution. 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 Workflow
Distribution, Workflow Management will suffer significant tax liability.
Workflow Management will evaluate any significant future issuance of capital
stock to avoid the imposition of such tax liability. See "Item 1. Business -
Risk Factors."
The Distribution Agreement with U.S. Office Products called for an
allocation of $45.6 million of debt by U.S. Office Products resulting in the
forgiveness of $6.3 million, $2.5 million and $20.1 million of debt during
Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively, which is 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 Deutsche Bank (formerly
Bankers Trust Company) and co-agented by the First National Bank of Chicago,
Comerica Bank and Wachovia Bank, N.A. on June 9, 1998. A total of eleven banking
institutions participate in the Credit Facility. The terms of the Credit
Facility were amended and restated as of December 4, 1998 to increase the
maximum amount available under the Credit Facility to $200.0 million. In
addition, the Credit Facility includes a sublimit of $50.0 million available in
Canadian borrowings. 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 financial covenants which include a total debt to pro forma EBITDA
maximum of 3.5 to 1.0. 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 and total
availability under the facility.
The Company repaid the $45.6 million of debt owed to U.S. Office
Products and other third party creditors at the Distribution Date with funds
available under the Credit Facility during Fiscal 1999. At July 9, 1999, the
Company had approximately $115.8 million outstanding under the Credit Facility,
at an annual interest rate of approximately 6.61%, and $84.2 million available
under the Credit Facility for acquisitions and working capital purposes.
28
<PAGE>
On January 19, 1999, the Company issued approximately $4.9 million in
subordinated unsecured notes with attached warrants (the "Subordinated Notes").
After the debt was structured by Wachovia Bank, N.A. with the intent to issue it
to third parties, it was purchased by certain members of the Company's
Management. The Company used the proceeds from the Subordinated Notes to
repurchase and retire Company Common Stock. The Subordinated Notes mature on
January 18, 2009, and have a stated coupon of 12% payable semi-annually in
arrears. The attached warrants are exercisable into shares of Company Common
Stock at a nominal cost and will be issued on each anniversary of the purchase
of the Subordinated Notes at an amount sufficient to provide a 15% total annual
return to each holder. Upon the payment in full of the Subordinated Notes, or
upon a change of control of the Company (as defined in the Subordinated Notes),
the warrants previously issued to the note holders will be returned to the
Company and reissued in an amount which would provide for at least a 15%, but
not more than an 18%, total annual return to each note holder. The indebtedness
evidenced by the Subordinated Notes is subordinate to all amounts outstanding
under the Credit Facility. In addition to payment and other customary default
provisions, the Company would be in default under the terms of the Subordinated
Notes if more than $5.0 million of the Company's debt under the Credit Facility
was accelerated. Any such acceleration could occur if the Company defaulted
under the terms of the Credit Facility. Based upon the structure provided and
the analysis performed by Wachovia Bank, N.A., an independent lending
institution which acted as the financial advisor to the Company, Workflow
Management believes that the terms and conditions of the Subordinated Notes were
no less favorable than the terms and conditions that would have been available
in an arm's-length transaction with unaffiliated third parties.
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 holiday mailings. As Workflow Management 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 Workflow Management may achieve for
any subsequent fiscal quarter or for a full fiscal year.
The following tables set forth certain unaudited quarterly financial
data for Fiscal 1999 and Fiscal 1998 (in thousands, except for per share
amounts). The information has been derived from unaudited consolidated financial
statements that in the opinion of management reflect adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of such
quarterly information. Net income per share is computed independently for each
of the quarters presented and therefore may not sum to the total for the fiscal
year.
<TABLE>
<CAPTION>
FISCAL 1999 QUARTERS
---------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 90,485 $ 90,100 $ 95,542 $ 114,825 $ 390,952
Gross profit................................ 24,537 25,127 28,003 34,449 112,116
Operating income............................ 1,517 5,519 6,427 7,758 21,221
Net income.................................. 208 2,712 2,941 3,228 9,089
Net income per share:
Basic................................... $ 0.01 $ 0.19 $ 0.23 $ 0.26 $ 0.65
Diluted................................. 0.01 0.19 0.23 0.26 0.64
Weighted average shares outstanding:
Basic................................... 16,265 14,396 13,065 12,581 14,077
Diluted................................. 16,475 14,396 13,069 12,616 14,139
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
FISCAL 1998 QUARTERS
----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 82,163 $ 88,884 $ 86,730 $ 95,574 $ 353,351
Gross profit................................ 21,895 23,314 22,086 25,757 93,052
Operating income............................ 4,975 4,842 4,395 2,417 16,629
Net income.................................. 2,703 2,582 2,265 658 8,208
Net income per share:
Basic................................... $ 0.19 $ 0.18 $ 0.13 $ 0.04 $ 0.51
Diluted................................. 0.19 0.17 0.13 0.04 0.50
Weighted average shares outstanding:
Basic................................... 14,171 14,715 17,017 17,846 15,941
Diluted................................. 14,416 15,106 17,352 18,141 16,257
</TABLE>
INFLATION
The Company does not believe that inflation had a material impact on
its results of operations during Fiscal 1997, Fiscal 1998 or Fiscal 1999.
NEW ACCOUNTING PRONOUNCEMENT
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are to be recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The Company believes that, due to its limited use
of derivative instruments, the adoption of SFAS 133 will not have a significant
effect on the Company's results of operations or its financial position.
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 assessed 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 has commenced a process 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 created a committee chaired by the Company's Chief Financial Officer and
made up of its internal audit staff, 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 Year 2000
committee reports results of the assessment and remediation phases directly to
the Company's audit committee which is comprised of two outside members from the
Company's board of directors.
The Company 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 also assessed compliance and prepared plans for
completing remediation. In addition, the Company 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 its
internal systems and has received a majority of the third-party compliance
surveys distributed in the identification phase.
30
<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 are Year 2000 compliant. 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 have been developed and are
expected to be fully implemented by the end of July 1999.
In the remediation and testing phase, the Company deployed 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 completed the Year 2000 conversion and testing of its other proprietary
software system and related services (known as Informa) in December 1998. The
Company is in the final stages of completion regarding the remediation and
testing phase for its other systems and believes that substantially all of its
systems are Year 2000 compliant.
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 currently 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 in connection with the Year 2000 Issue, of which
approximately $5.6 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.
RECENT DEVELOPMENTS
ACQUISITIONS
On June 3, 1999, the Company acquired Graphic Management Corporation, a
commercial print broker located in Green Bay, Wisconsin, with approximate annual
revenues of $29.6 million. The results of this acquisition will be included in
the Company's consolidated results of operations from its date of acquisition.
INTEREST RATE SWAP
On May 17, 1999, the Company entered into a three year interest rate
swap agreement with Wachovia Bank, N.A. whereby the Company exchanged its
variable interest rate on $10.0 million in Credit Facility debt for a fixed
LIBOR of 5.605%. The Company may enter into additional interest rate swap
agreements and explore other interest rate protection scenarios in the future as
changes in the economy and interest rates warrant.
31
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash, accounts receivable,
accounts payable and long-term debt. Market risks relating to the Company's
operations result primarily from changes in interest rates. The Company's
borrowings are primarily dependent upon LIBOR rates. The estimated fair value of
long-term debt approximates its carrying value at April 24, 1999.
The Company does not hold or issue derivative financial instruments for
trading purposes. To manage interest rate risk on the variable rate borrowings
under the Company's revolving credit portion of their debt, the Company entered
into an interest rate swap on May 17, 1999. This interest rate swap has the
effect of locking in, for a specified period, the base interest rate the Company
will pay on the $10.0 million notional principal amount established in the swap.
As a result, while this hedging arrangement is structured to reduce the
Company's exposure to interest rate increases, it also limits the benefit the
Company might otherwise have received from any interest rate decreases. This
swap will be cash settled quarterly, with interest expense adjusted for amounts
paid or received.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-1
Consolidated Balance Sheet at April 24, 1999 and April 25, 1998.......................................... F-2
Consolidated Statement of Income for the fiscal years ended April 24, 1999, April 25, 1998
and April 26, 1997..................................................................................... F-3
Consolidated Statement of Stockholders' Equity for the fiscal years ended April 24, 1999,
April 25, 1998 and April 26, 1997...................................................................... F-4
Consolidated Statement of Cash Flows for the fiscal years ended April 24, 1999,
April 25, 1998 and April 26, 1997...................................................................... F-5
Notes to Consolidated Financial Statements............................................................... F-7
FINANCIAL STATEMENT SCHEDULE
Schedule for the fiscal years ended April 24, 1999, April 25, 1998 and April 26,1997:
Schedule II - Valuation and Qualifying Accounts and Reserves......................................... F-28
</TABLE>
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Workflow Management, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Workflow Management, Inc. and its subsidiaries at April 24, 1999 and
April 25, 1998, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended April 24, 1999, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 15, 1999
F-1
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 24, April 25,
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 607 $ 234
Accounts receivable, less allowance for doubtful accounts of $4,481 and
$2,859, respectively......................................................... 78,807 56,328
Inventories.................................................................... 36,152 32,655
Notes receivable from officers................................................. 1,958
Prepaid expenses and other current assets...................................... 6,921 3,346
------------- -------------
Total current assets....................................................... 124,445 92,563
Property and equipment, net....................................................... 43,138 33,210
Notes receivable from employees................................................... 3,703
Intangible assets, net............................................................ 64,488 14,014
Other assets...................................................................... 6,501 4,556
------------- -------------
Total assets............................................................... $ 238,572 $ 148,046
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................................ $ 1,079 $ 5,855
Short-term payable to U.S. Office Products..................................... 13,536
Accounts payable............................................................... 34,712 25,370
Accrued compensation........................................................... 9,391 4,916
Other accrued liabilities...................................................... 12,089 7,893
------------- -------------
Total current liabilities.................................................. 57,271 57,570
Long-term debt.................................................................... 107,223 7,065
Subordinated related party debt................................................... 4,878
Long-term payable to U.S. Office Products......................................... 19,221
Deferred income taxes............................................................. 4,749 4,682
Other long-term liabilities....................................................... 18 17
------------- -------------
Total liabilities.......................................................... 174,139 88,555
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none
outstanding................................................................
Common stock, $.001 par value, 150,000,000 shares authorized,
12,585,598 and no shares, respectively, issued and outstanding............. 13
Additional paid in capital..................................................... 46,934
Divisional equity.............................................................. 50,270
Accumulated other comprehensive loss........................................... (1,880) (1,056)
Retained earnings.............................................................. 19,366 10,277
------------- -------------
Total stockholders' equity................................................. 64,433 59,491
------------- -------------
Total liabilities and stockholders' equity................................. $ 238,572 $ 148,046
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues.................................................... $ 390,952 $ 353,351 $ 327,381
Cost of revenues............................................ 278,836 260,299 236,340
--------------- --------------- ---------------
Gross profit......................................... 112,116 93,052 91,041
Selling, general and administrative expenses................ 86,298 73,492 70,745
Amortization expense........................................ 779 309 204
Restructuring costs......................................... 872
Strategic restructuring plan costs.......................... 3,818 1,750
Non-recurring acquisition costs............................. 5,006
--------------- --------------- ---------------
Operating income..................................... 21,221 16,629 15,086
Other (income) expense:
Interest expense......................................... 5,106 2,210 4,561
Interest income.......................................... (171) (274) (25)
Other.................................................... (167) (258) 632
--------------- ---------------- ---------------
Income before provision for income
taxes and extraordinary item.............................. 16,453 14,951 9,918
Provision for income taxes.................................. 7,364 6,743 3,690
--------------- --------------- ---------------
Income before extraordinary item............................ 9,089 8,208 6,228
Extraordinary item--loss on early termination
of credit facility, net of income taxes................... 798
--------------- --------------- ---------------
Net income.................................................. $ 9,089 $ 8,208 $ 5,430
=============== =============== ===============
Net income per share:
Basic:
Income from before extraordinary item................ $ 0.65 $ 0.51 $ 0.52
Extraordinary item................................... 0.07
--------------- --------------- ---------------
Net income........................................... $ 0.65 $ 0.51 $ 0.45
=============== =============== ===============
Diluted:
Income from before extraordinary item................ $ 0.64 $ 0.50 $ 0.51
Extraordinary item................................... 0.07
--------------- --------------- ---------------
Net income........................................... $ 0.64 $ 0.50 $ 0.44
=============== =============== ===============
Weighted average shares outstanding:
Basic.................................................... 14,077 15,941 12,003
Diluted.................................................. 14,139 16,257 12,235
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------- Additional Other
Number Paid In Divisional Comprehensive Retained
of Shares Amount Capital Equity Income (Loss) Earnings
------------ ------ ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996.......... $ $ $ 11,790 $ 352 $ 16,978
Transactions of Pooled Companies:
Retirement of common
stock..................... (477)
Cash dividends................ (6,102)
Undistributed earnings of
subchapter
S corporations............. 14,237 (14,237)
Capital contribution by U.S.
Office Products.............. 20,064
Comprehensive income:
Net income................... 5,430
Foreign currency
translation adjustment..... (255)
Total comprehensive income
------------ ------- ---------- ----------- ------------ -------------
Balance at April 26, 1997 45,614 97 2,069
Issuance of U.S. Office
Products common stock
in conjunction with
acquisition.................. 2,112
Capital contribution by U.S.
Office Products.............. 2,544
Comprehensive income:
Net income................... 8,208
Foreign currency
translation adjustment..... (1,153)
Total comprehensive income
------------ ------- ---------- ----------- ------------ -------------
Balance at April 25, 1998.......... 50,270 (2,056) 10,277
Total Total
Stocholders' Comprehensive
Equity Income
------------ -------------
Balance at April 30, 1996........... $ 29,120
Transactions of Pooled Companies:
Retirement of common
stock...................... (477)
Cash dividends................. (6,102)
Undistributed earnings of
subchapter
S corporations
Capital contribution by U.S.
Office Products............... 20,064
Comprehensive income:
Net income.................... 5,430 $ 5,430
Foreign currency
translation adjustment...... (255) (255)
------
Total comprehensive income....... $ 5,175
======
------------ ----------
Balance at April 26, 1997 47,780
Issuance of U.S. Office
Products common stock
in conjunction with
acquisition.................... 2,112
Capital contribution by U.S.
Office Products. 2,544
Comprehensive income:
Net income..................... 8,208 $ 8,208
Foreign currency
translation adjustment....... (1,153) (1,153)
--------
Total comprehensive income........ $ 7,055
---------- ========
Balance at April 25, 1998............ 59,491
Common Stock Accumulated
--------------------- Additional Other
Number Paid In Divisional Comprehensive Retained
of Shares Amount Capital Equity Income (Loss) Earnings
------------ ------ ---------- ---------- ------------- --------------
Balance at April 25, 1998..... 50,270 (1,056) 10,277
Compensation charge for
options tendered in
strategic restructuring.... 2,956
Capital contribution by U.S.
Office Products............ 6,295
Distribution of common stock
in strategic restructuring. 14,642,981 15 9,506 (59,521)
Retirement of common
stock...................... (2,066,259) (2) (12,636)
Issuance of common stock
to outside members of the
board of directors......... 6,000 42
Exercise of stock options, net
of tax benefits............. 2,876 22
Comprehensive income:
Net income................. 9,089
Foreign currency
translation adjustment...
Total comprehensive income.... (824)
----------- --------- ---------- ---------- ---------- -----------
Balance at April 24, 1999........ 12,585,598 $ 13 $ 46,934 $ $ (1,880) $ 19,366
========== ========= ========== ========== ========== ===========
</TABLE>
Total Total
Stockholders' Comprehensive
Equity Income
------------- -------------
Compensation charge for
options tendered in
strategic restructuring..... 2,956
Capital contribution by U.S.
Office Products............. 6,295
Distribution of common stock
in strategic restructuring
Retirement of common
stock....................... (12,638)
Issuance of common stock
to outside members of the
board of directors.......... 42
Exercise of stock options, net
of tax benefits.............. 22
Comprehensive income:
Net income.................. 9,089 $ 9,089
Foreign currency
translation adjustment.... (824) (824)
Total comprehensive income..... $ 8,265
--------- ========
Balance at April 24, 1999 $ 64,433
=========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................................. $ 9,089 $ 8,208 $ 5,430
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense................................. 7,033 6,722 5,982
Compensation charge for options tendered in the strategic restructuring 2,956
Other strategic restructuring plan costs, net of cash paid............ (1,750) 1,750
Restructuring costs, net of cash paid................................. (208) 467
Non-recurring acquisition costs....................................... 5,006
Amortization of deferred financing costs.............................. 545 487
Deferred income taxes................................................. (1,914) (17) (660)
Gains on the disposal of assets....................................... (224)
Extraordinary losses ................................................. 798
Changes in current assets and liabilities (net of assets acquired and
liabilities assumed in business combinations accounted for under the
purchase method):
Accounts receivable................................................. (2,217) (3,701) 25
Inventories......................................................... 3,221 (5,561) (3,175)
Prepaid expenses and other current assets........................... 964 725 249
Accounts payable.................................................... (1,743) (2,738) 4,643
Accrued liabilities................................................. 9,531 (1,349) 894
------------- ------------- -------------
Net cash provided by operating activities....................... 25,283 4,506 19,679
------------- ------------- -------------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received......................... (70,125) (12,756)
Additions to property and equipment..................................... (7,696) (4,442) (9,450)
Issuance of notes receivable from officers.............................. (1,958)
Cash collection of notes receivable from employees...................... 3,703
Proceeds from the sale of investments, net.............................. 230
Cash received on the sale of property and equipment..................... 151 141 2,199
Payments of non-recurring acquisition costs............................. (906) (4,100)
Other................................................................... 35 (2,739)
------------- ------------- -------------
Net cash used in investing activities........................... (75,660) (17,963) (14,090)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from credit facility borrowings................................ 157,834
Payments of credit facility borrowings.................................. (53,234)
Proceeds from issuance of subordinated related party debt............... 4,878
Payments of other long-term debt........................................ (7,475) (3,638) (23,135)
Proceeds from issuance of other long-term debt.......................... 29 1,771 1,178
Proceeds from (payments of) short-term debt, net........................ (5,279) 2,263 (19,414)
Retirement of common stock.............................................. (12,638) (477)
Payments of deferred financing costs.................................... (3,544)
Advances from (payments to) U.S. Office Products........................ (36,096) 8,574 24,183
Capital contributed by U.S. Office Products............................. 6,295 2,544 20,064
Payments of dividends at Pooled Companies............................... (6,141)
Payments to terminate credit facilities................................. (974)
Proceeds from issuance of common stock.................................. 62
------------- ------------- -------------
Net cash provided by (used in) financing activities............. 50,832 11,514 (4,716)
------------- ------------- -------------
Effect of exchange rates on cash and cash equivalents...................... (82) 9 (29)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents....................... 373 (1,934) 844
Cash and cash equivalents at beginning of period........................... 234 2,168 1,324
------------- ------------- -------------
Cash and cash equivalents at end of period................................. $ 607 $ 234 $ 2,168
============= ============= =============
</TABLE>
F-5
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid........................................................... $ 3,096 $ 1,359 $ 2,063
Income taxes paid....................................................... $ 6,163 $ 8,633 $ 3,390
</TABLE>
The Company issued cash and common stock in connection with certain
business combinations accounted for under the purchase method during Fiscal 1999
and Fiscal 1998. There were no business combinations accounted for under the
purchase method in Fiscal 1997. The fair values of the assets and liabilities of
the acquired companies at the dates of the acquisitions are presented as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------
APRIL 24, APRIL 25,
1999 1998
------------ --------------
<S> <C> <C>
Accounts receivable............................................................... $ 20,547 $ 2,257
Inventories....................................................................... 7,056 465
Prepaid expenses and other current assets......................................... 1,499 105
Property and equipment............................................................ 9,075 2,748
Intangible assets................................................................. 50,074 13,269
Other assets...................................................................... 128 (9)
Short-term debt................................................................... (505)
Accounts payable.................................................................. (9,575) (464)
Accrued liabilities............................................................... (4,594) (572)
Long-term debt.................................................................... (2,972) (2,817)
Other long-term liabilities....................................................... (608) (114)
------------- -------------
Net assets acquired........................................................ $ 70,125 $ 14,868
============= =============
The acquisitions were funded as follows:
U.S. Office Products' common stock................................................ $ $ 2,112
Cash paid, net of cash received................................................... 70,125 12,756
------------- -------------
Total...................................................................... $ 70,125 $ 14,868
============= =============
</TABLE>
Noncash transactions:
o During Fiscal 1999, the Company issued 14,642,981 shares of Company Common
Stock to the shareholders of U.S. Office Products Company under the
Workflow Distribution.
o During Fiscal 1999, the Company accrued $1,188 as additional purchase
consideration for earn-outs.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--BACKGROUND
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"), 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 14,642,981 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"). U.S. Office Products and the
Company entered into a number of agreements to facilitate the Distribution and
the transition of the Company to an independent business enterprise.
The Print Management Division was created by U.S. Office Products in
January 1997 and completed seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.
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.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "Fiscal 1999", "Fiscal 1998" and "Fiscal
1997" refer to the Company's fiscal years ended April 24, 1999, April 25, 1998
and April 26, 1997, respectively. The Company's fiscal year-end is defined as
the last Saturday in April.
RECLASSIFICATIONS
Certain reclassifications have been made in the Fiscal 1997 and Fiscal
1998 financial statements to conform to the Fiscal 1999 presentation.
F-7
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original
maturities of three months or less from the date of purchase to be cash
equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss. The Company's five largest customers accounted for
14.3% and 11.4% of the Company's revenues for Fiscal 1999 and Fiscal 1998,
respectively. The Company's single largest customer accounted for 4.5% and 4.4%
of revenues for Fiscal 1999 and Fiscal 1998, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined on a first-in, first-out (FIFO) basis and consist primarily of
products held for sale. Inventory manufactured by the Company includes the cost
of materials, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements
are capitalized. Maintenance and repairs are expensed as incurred. Depreciation
of property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and their components and 3 to 15 years
for furniture, fixtures and equipment. Property and equipment leased under
capital leases is being amortized over the lesser of its useful life or its
lease terms. Gains and losses on the disposition of property and equipment are
computed based upon the difference between the sales proceeds received and the
net book value of the fixed asset at the date of the disposal.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the
excess of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method, and non-compete agreements. Management
periodically evaluates the recoverability of goodwill, which would be adjusted
for a permanent decline in value, if any, using a methodology prescribed in
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The Company also assesses long-lived assets and the related intangible
assets for impairment whenever events or changes in circumstances indicate the
carrying amounts of such assets may not be recoverable. Recoverability of these
assets is evaluated by comparing the forecasted undiscounted future cash flows
of the operation to which the assets relate to their net book value, including
associated intangible assets, of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets. Based upon
its most recent assessment, the Company does not believe an impairment of
long-lived assets exists at April 24, 1999.
Substantially all goodwill is amortized on a straight-line basis over
an estimated useful life of 40 years. Intangible assets associated with
non-compete agreements are amortized using the straight-line method over the
estimated useful lives of the agreements which are generally one to five years.
Other intangibles primarily consist of customer lists which are amortized over
the estimated useful lives of the agreements which are generally one to five
years.
Purchase price allocations for certain acquisitions have not been
finalized. Therefore, the amount of goodwill could be adjusted within one year
of the purchase.
F-8
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
EARN-OUT AGREEMENTS
Several of the acquisition agreements for the Company's Fiscal 1999
business combinations accounted for under the purchase method of accounting
include earn-out provisions that could result in additional purchase
consideration payable in the form of cash payments in subsequent periods
dependent upon specific future operating performance criteria. The Company
records additional purchase consideration under these earn-out provisions in
accordance with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations" ("APB 16"). As such, when the outcome of the contingency under the
earn-out is determinable beyond a reasonable doubt, the Company records the
expected earn-out payment as goodwill and accrues the earn-out as an accrued
liability on the Company's balance sheet. The goodwill generated under earn-out
agreements is prospectively amortized on a straight-line basis over the
remaining estimated useful life of the goodwill associated with the respective
business combination.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements include the results of the Company's Canadian
operations which are translated from Canadian dollars, their functional
currency, into U.S. dollars. Balance sheet accounts of foreign subsidiaries are
translated using the year-end exchange rate, and statement of income accounts
are translated using the average prevailing exchange rate during the year.
Translation adjustments are recorded in stockholders' equity as a component of
accumulated other comprehensive income (loss). Foreign currency transaction
gains and losses are recorded in income when realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including
cash and cash equivalents, accounts receivable and accounts payable approximate
fair value. The face amounts of the Company's credit facility, subordinated debt
and other long-term debt, approximate their fair values.
INCOME TAXES
Subsequent to the Distribution, the Company began recognizing and
paying taxes as a separate legal entity. The Company provides for deferred taxes
on temporary differences arising from assets and liabilities whose bases are
different for financial reporting and state, federal and foreign income tax
purposes.
Prior to the Distribution and as a division of U.S. Office Products,
the Company did not file separate federal income tax returns but rather was
included in the federal income tax returns filed by U.S. Office Products and its
subsidiaries from the respective dates that the entities within the Company were
acquired by U.S. Office Products. Prior to the Distribution, for purposes of the
consolidated financial statements, the Company's allocated share of U.S. Office
Products' income tax provision was based on the "separate return" method.
Certain companies acquired in pooling-of-interests transactions elected to be
taxed as subchapter S corporations and, accordingly, no federal income taxes
were recorded by those companies for periods prior to their acquisition by U.S.
Office Products.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of the Company's
Canadian subsidiary company which the Company controls but does not include in
the consolidated federal income tax return since it is management's practice and
intent to permanently reinvest the earnings of this subsidiary. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable to the foreign country.
COMPREHENSIVE INCOME
Effective the beginning of Fiscal 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. SFAS 130 requires the Company's foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in accumulated other comprehensive income.
Prior year amounts have been reclassified to conform to the requirements of SFAS
130. The adoption of SFAS 130 had no impact on the Company's net income or
stockholders' equity.
F-9
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE RECOGNITION
Revenue is recognized when title of goods passes to the buyer or upon
completion of services provided to the customer. Returns of the Company's
product are not considered material.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned
and are recorded as a reduction to cost of revenues. Delivery and occupancy
costs are included in cost of revenues.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement occurs.
Advertising costs are included in the consolidated statement of income as a
component of selling, general and administrative expenses. Advertising expense
for Fiscal 1999, Fiscal 1998 and Fiscal 1997 was $854, $899 and $1,410,
respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations in the year
incurred. Research and development costs are included in the consolidated
statement of income as a component of selling, general and administrative
expenses.
INTERNALLY DEVELOPED SOFTWARE
Internal costs related to internally developed software such as
internal salaries and supplies are expensed as incurred as a component of
selling, general and administrative expenses. External costs related to
internally developed software, such as outside programmers and consultants, are
capitalized and expensed over the expected useful life of the software, normally
three to five years.
RESTRUCTURING COSTS
The Company records the costs of consolidating existing Company
facilities into acquired operations, including the external costs and
liabilities to close redundant Company facilities and severance and relocation
costs related to the Company's employees in accordance with Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs incurred
in Restructuring)."
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by
the Company in business combinations accounted for under the
pooling-of-interests method. These costs include accounting, legal, and
investment banking fees, real estate and environmental assessments and
appraisals and various regulatory fees. Generally accepted accounting principles
("GAAP") require the Company to expense all acquisition costs (both those paid
by the Company and those paid by the sellers of the acquired companies) related
to business combinations accounted for under the pooling-of-interests method.
DISTRIBUTION RATIO
At the date of Distribution, U.S. Office Products distributed to its
shareholders one share of common stock of the Company for every 7 1/2 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 1/2
distribution ratio.
F-10
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are to be recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The Company
believes that, due to its limited use of derivative instruments, the adoption of
SFAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In Fiscal 1997, the Company issued 1,449,135 shares of U.S. Office
Products common stock to acquire the Pooled Companies. The Pooled Companies and
the number of shares issued are as follows:
NUMBER OF
SHARES ISSUED
-------------
SFI Corp............................................. 386,275
Hano Document Printers, Inc. ........................ 97,525
United Envelope Co., Inc.*........................... 381,818
Data Business Forms Limited.......................... 583,517
----------
Total shares issued........................... 1,449,135
==========
- --------
* Includes shares issued for the acquisitions of United Envelope
Co., Inc., Rex Envelope Co., Inc., Huxley Envelope Corp. and Pocono
Envelope Corp. which were simultaneously acquired in the aggregate.
The Company's consolidated financial statements give retroactive effect
to the acquisitions of the Pooled Companies for all periods presented.
The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:
WORKFLOW
MANAGEMENT, POOLED
INC. COMPANIES COMBINED
---------- --------- --------
For the fiscal year ended April 26, 1997
Revenues............................... $ 29,373 $ 298,008 $ 327,381
Net income (loss)...................... $ (61) $ 5,491 $ 5,430
F-11
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PURCHASE METHOD
During Fiscal 1999, the Company made twelve acquisitions accounted for
under the purchase method for an aggregate purchase price of $70,125, consisting
entirely of cash. The total assets related to these acquisitions were $88,379,
including intangible assets of $50,074. The results of these acquisitions have
been included in the Company's results from their respective dates of
acquisition. Several of these acquisitions have earn-out provisions that could
result in additional purchase consideration payable in subsequent periods,
ranging from three to five years, dependent upon the future earnings of these
acquisitions. During Fiscal 1999, $351 of additional purchase consideration was
paid by the Company in connection with these earn-out provisions, and another
$1,188 has been accrued for these earn-out provisions at April 24, 1999. This
additional consideration, whether paid or accrued, has been reflected in the
accompanying balance sheet as goodwill at April 24, 1999.
The presentation below summarizes the Company's Fiscal 1999 acquisitions:
<TABLE>
<CAPTION>
PRINCIPAL MONTH OPERATING
NAME OF ACQUISITION LOCATION ACQUIRED DIVISION
- ------------------------------ --------- -------- --------------------------
<S> <C> <C> <C>
Penn-Grover Envelope Corp. Long Island, NY October '98 Fulfillment
Danziger Graphics, Inc. and
H. Roy Danziger, Inc. Freeport, NY October '98 Integrated Business Services
Caltar, Inc. Santa Fe Springs, CA November '98 Integrated Business Services
Direct Pro LLC New York, NY November '98 Integrated Business Services
Premier Graphics, Inc. Columbia, SC February '99 Fulfillment
Pacific Admail, Inc. Santa Ana, CA February '99 Fulfillment
Superior Graphics, Inc. New York, NY March '99 Integrated Business Services
Freedom Graphics Services, Inc. Englewood, NJ March '99 Integrated Business Services
Sundog Printing Limited Calgary, Alberta March '99 Fulfillment
TLB, Inc. Lorton, VA April '99 Fulfillment
Eagle Envelope Co., Incorporated New York, NY April '99 Fulfillment
Universal Folding Box, Co., Inc. Hoboken, NJ April '99 Fulfillment
</TABLE>
During Fiscal 1998, the Company made two acquisitions accounted for
under the purchase method for an aggregate purchase price of $14,868, consisting
of 16,009 shares of U.S. Office Products' 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 Fiscal 1999 and Fiscal 1998 and includes the Company's
consolidated financial statements and the results of the purchase acquisitions
completed in Fiscal 1999 and Fiscal 1998 as if they had been made at the
beginning of Fiscal 1998. The pro forma results of operations presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, elimination of all strategic restructuring plan costs, reductions in
executive compensation of $5,175 and $4,872 for Fiscal 1999 and Fiscal 1998,
respectively, at the acquired companies and the inclusion of a federal income
tax provision on all earnings:
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR ENDED
-----------------------------------------
APRIL 24, 1999 APRIL 25, 1998
-------------- --------------
<S> <C> <C>
Revenues.......................... $ 494,335 $ 479,198
Net income........................ 14,720 15,491
Net income per share:
Basic.......................... $ 1.05 $ 0.97
Diluted........................ 1.04 0.95
</TABLE>
The unaudited 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 occurred at the beginning of Fiscal 1998 or
the results which may occur in the future.
F-12
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--RESTRUCTURING COSTS
During Fiscal 1998, the Company's Canadian subsidiary recorded the
costs of consolidating existing Company facilities located in Canada into other
Canadian Company facilities, including the external costs and liabilities to
close redundant Company facilities and severance costs related to the Company's
employees. The following table sets forth the Company's accrued restructuring
costs for the periods ended April 26, 1997, April 25, 1998 and April 24, 1999:
<TABLE>
<CAPTION>
FACILITY OTHER ASSET
CLOSURE AND SEVERANCE AND WRITE-DOWNS
CONSOLIDATION TERMINATIONS AND COSTS TOTAL
------------- ------------- ------------ -----
<S> <C> <C> <C> <C>
Balance at April 26, 1997.................. $ - $ - $ - $ -
Additions........................... 101 638 133 872
Utilizations........................ (101) (241) (133) (475)
------------- ------------- ------------- ------------
Balance at April 25, 1998.................. 397 - 397
Utilizations........................ (208) - (208)
-------------- ------------- ------------- --------------
Balance at April 24, 1999.................. $ - $ 189 $ - $ 189
============== ============= ============= ==============
</TABLE>
NOTE 6--STRATEGIC RESTRUCTURING PLAN COSTS
The Company incurred expenses of $3,818 during Fiscal 1999 associated
with U.S. Office Products' Strategic Restructuring Plan. In connection with the
Strategic Restructuring Plan, the Company was required to record a one-time,
non-cash expense of $2,956 in Fiscal 1999 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 $862 in
transaction costs during Fiscal 1999 relating to the Strategic Restructuring
Plan for legal, accounting and financial advisory services and various other
fees.
The Company incurred expenses of $1,750 during Fiscal 1998 associated
with the Strategic Restructuring Plan. As a result of the Workflow Distribution,
U.S. Office Products allocated $1,000 to the Company for its share of the
transaction costs (including legal, accounting, investment banking and financial
advisory) and other fees incurred by U.S. Office Products in connection with the
Strategic Restructuring Plan. In addition to the allocation by U.S. Office
Products, the Company itself incurred an additional $750 in transaction costs
during Fiscal 1998 relating to the Strategic Restructuring Plan for legal,
accounting and financial advisory services and various other fees.
NOTE 7--INVENTORIES
Inventories consist of the following:
APRIL 24, APRIL 25,
1999 1998
----------- ------------
Raw materials.......................$ 10,309 $ 6,638
Work-in-process..................... 2,123 1,379
Finished Goods...................... 23,720 24,638
----------- -----------
Total inventories $ 36,152 $ 32,655
=========== ===========
F-13
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
APRIL 24, APRIL 25,
1999 1998
---------- ------------
Land............................................$ 1,004 1,013
Buildings....................................... 4,749 4,755
Furniture and fixtures.......................... 33,911 30,524
Computer equipment.............................. 12,621 8,893
Warehouse equipment............................. 12,359 9,053
Equipment under capital leases.................. 3,037 1,021
Leasehold improvements.......................... 4,400 3,365
----------- ------------
72,081 58,624
Less: Accumulated depreciation.................. (28,943) (25,414)
----------- ------------
Net property and equipment......................$ 43,138 $ 33,210
=========== ============
Depreciation expense for Fiscal 1999, Fiscal 1998 and Fiscal 1997 was $6,254,
$6,413 and $5,778, respectively.
NOTE 9--INTANGIBLE ASSETS
Intangible assets consist of the following:
APRIL 24, APRIL 25,
1999 1998
---------- ---------
Goodwill................................... $ 65,043 $ 14,056
Non-compete agreements..................... 333 333
Other...................................... 732 485
---------- ---------
66,108 14,874
Less: Accumulated amortization............. (1,620) (860)
---------- ---------
Net intangible assets............... $ 64,488 $ 14,014
========== =========
Amortization expense for Fiscal 1999, Fiscal 1998 and Fiscal 1997 was $779,
$309 and $204, respectively.
NOTE 10--DEBT
SHORT-TERM DEBT
Short-term debt consists of the following:
APRIL 24, APRIL 25,
1999 1998
---------- -----------
Current maturities of long-term debt........$ 1,079 $ 5,251
Other....................................... 604
---------- -----------
Total short-term debt............... $ 1,079 $ 5,855
========== ===========
F-14
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 24, APRIL 25,
1999 1998
---------- -----------
<S> <C> <C>
Revolving credit facility................................................... $ 104,600 $
Subordinated related party debt............................................. 4,878
Notes payable, secured by certain assets of the Company, weighted average
interest rates of 6.30% and 8.74%, respectively........................... 1,319 12,011
Capital lease obligations, weighted average interest rates of 9.53%
and 8.86%, respectively................................................... 2,383 305
----------- -----------
113,180 12,316
Less: Current maturities of long-term debt.................................. (1,079) (5,251)
----------- -----------
Total long-term debt................................................. $ 112,101 $ 7,065
=========== ===========
</TABLE>
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are
as follows:
Fiscal year:
2000......................................... $ 1,079
2001......................................... 568
2002......................................... 436
2003......................................... 376
2004......................................... 105,008
Thereafter................................... 5,713
-----------
Total maturities of long-term debt....... $ 113,180
===========
REVOLVING CREDIT FACILITY
The Company entered into a secured $150,000 revolving credit facility
(the "Credit Facility") underwritten and agented by Deutsche Bank (formerly
Bankers Trust Company) on June 9, 1998. The terms of the Credit Facility were
amended and restated as of December 4, 1998 to increase the maximum amount
available under the Credit Facility to $200,000. 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. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants and total
availability under the facility. At April 24, 1999, the average rate of interest
for funds borrowed against the Credit Facility was 6.84%. Interest expense for
Fiscal 1999 relating to the Credit Facility was $3,551.
F-15
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUBORDINATED RELATED PARTY DEBT
On January 19, 1999, the Company issued $4,878 in subordinated
unsecured notes with attached warrants (the "Subordinated Notes") to certain
members of the Company's management. The Company used the proceeds from the
Subordinated Notes to repurchase and retire Company Common Stock. The
Subordinated Notes mature on January 18, 2009, and have a stated coupon of 12%
payable semi-annually in arrears. The attached warrants are exercisable into
shares of Company Common Stock at a nominal cost and will be issued on each
anniversary of the purchase of the Subordinated Notes at an amount sufficient to
provide a 15% total annual return to each holder. Upon the payment in full of
the Subordinated Notes, or upon a change of control of the Company (as defined
in the Subordinated Notes), the warrants previously issued to the note holders
will be returned to the Company and reissued in an amount which would provide
for at least a 15%, but not more than an 18%, total annual return to each note
holder. The indebtedness evidenced by the Subordinated Notes is subordinate to
all amounts outstanding under the Credit Facility. In addition to payment and
other customary default provisions, the Company would be in default under the
terms of the Subordinated Notes if more than $5,000 of the Company's debt under
the Credit Facility was accelerated. Any such acceleration could occur if the
Company defaulted under the terms of the Credit Facility. Based upon an analysis
performed by Wachovia Bank, N.A., an independent lending institution acting as a
financial advisor to the Company, Workflow Management believes that the terms
and conditions of the Subordinated Notes were no less favorable than the terms
and conditions that would have been available in an arm's-length transaction
with unaffiliated third parties. Interest expense for Fiscal 1999 relating to
the Subordinated Notes was $193. At April 24, 1999, no warrants had been issued
on the Subordinated Notes.
PAYABLE TO U.S. OFFICE PRODUCTS
The short-term payable to U.S. Office Products was incurred by the
Company primarily as a result of U.S. Office Products repaying short-term debt
outstanding at the businesses acquired by U.S. Office Products at or soon after
the respective dates of acquisition and through the centralized cash management
system, which involves daily advances or sweeps of cash to keep the cash balance
at or near zero on a daily basis.
The long-term payable to U.S. Office Products primarily represents
payments made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses.
Interest was allocated to the Company based upon the Company's average
outstanding payable balance with U.S. Office Products at U.S. Office Products
average interest rate during such period. U.S. Office Products allocated $1,319
of interest expense to the Company during Fiscal 1998. There was no significant
amount of intercompany debt outstanding during prior periods and, therefore, no
interest expense was allocated to the Company by U.S. Office Products during
such periods.
At the Distribution Date, U.S. Office Products allocated $30,000 of
debt plus the amount of any additional debt incurred after January 12, 1998 in
connection with the acquisition of entities that became subsidiaries of the
Company. The allocation included debt outstanding with third parties and the
balance represented intercompany debt payable to U.S. Office Products. The debt
payable to U.S. Office Products was repaid upon the completion of the
Distribution with funds available under the Credit Facility.
NOTE 11--INCOME TAXES
Domestic and foreign income before provision for income taxes and
extraordinary items consist of the following:
FOR THE FISCAL YEAR ENDED
-----------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
-------- --------- ---------
Domestic............................... $ 8,744 $ 9,754 $ 4,006
Foreign................................ 7,709 5,197 5,912
--------- --------- ---------
Total........................... $ 16,453 $ 14,951 $ 9,918
======== ========= =========
F-16
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The provision for income taxes consists of:
FOR THE FISCAL YEAR ENDED
-----------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
---------- --------- --------
Income taxes currently payable:
Federal............................... $ 3,476 $ 3,066 $ 196
State................................. 1,908 1,419 628
Foreign............................... 3,894 2,275 3,526
---------- --------- --------
9,278 6,760 4,350
Deferred income tax expense (benefit).... (1,914) (17) (660)
---------- --------- --------
Total provision for income taxes... $ 7,364 $ 6,743 $ 3,690
=========== ========= ========
Deferred taxes are comprised of the following:
APRIL 24, APRIL 25,
1999 1998
------------ -----------
Current deferred tax assets:
Inventory..................................... $ 1,067 $ 112
Allowance for doubtful accounts............... 1,589 546
Accrued liabilities........................... 393 710
----------- -----------
Total current deferred tax assets......... 3,049 1,368
----------- -----------
Long-term deferred tax liabilities:
Property and equipment........................ (3,986) (3,701)
Intangible assets............................. (53) 144
Other......................................... (710) (1,125)
----------- -----------
Total long-term deferred tax liabilities.. (4,749) (4,682)
----------- -----------
Net deferred tax liability................ $ (1,700) $ (3,314)
=========== ===========
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory rate............................. 34.7% 35.0% 35.0%
State income taxes, net of federal income tax benefit... 7.5 6.4 6.8
Subchapter S corporation income not subject to
corporate level taxation.............................. (24.6)
Foreign earnings not subject to U.S. taxes.............. (16.3) (13.2) (21.4)
Nondeductible goodwill amortization..................... 0.6 0.7
Nondeductible acquisition costs/restructuring costs..... 2.3 11.8
Foreign taxes........................................... 18.7 15.2 25.6
Other................................................... (0.4) (1.3) 4.0
----------- ----------- -----------
Effective income tax rate............................... 44.8% 45.1% 37.2%
=========== =========== ===========
</TABLE>
Certain Pooled Companies were organized as subchapter S corporations
prior to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
F-17
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12--LEASE COMMITMENTS
The Company leases various types of warehouse and office facilities and
equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
Fiscal year:
2000.................................. $ 739 $ 5,749
2001.................................. 641 5,406
2002.................................. 481 4,512
2003.................................. 391 3,853
2004.................................. 391 3,057
Thereafter............................... 358 10,226
-------- ---------
Total minimum lease payments............. 3,001 $ 32,803
=========
Less: Amounts representing interest...... (618)
--------
Present value of net minimum lease
payments............................... $ 2,383
========
Rent expense for all operating leases for Fiscal 1999, Fiscal 1998 and
Fiscal 1997 was $6,188, $8,406 and $4,928, respectively.
NOTE 13--COMMITMENTS AND CONTINGENCIES
DISTRIBUTION
On June 9, 1998, the Company, U.S. Office Products and the three other
companies spun-off from U.S. Office Products as part of the Strategic
Restructuring Plan (collectively the "other Spin-Off Companies") entered into a
Distribution Agreement, a Tax Allocation Agreement, and an Employee Benefits
Agreement, and the Company and the other Spin-Off Companies entered into a Tax
Indemnification Agreement. These agreements provide, among other things, for
U.S. Office Products and the Company to indemnify each other from tax and other
liabilities relating to their respective businesses prior to and following the
Distribution. Certain of the obligations of the Company and the other Spin-Off
Companies to indemnify U.S. Office Products are joint and several. Therefore, if
one of the other Spin-Off Companies fails to satisfy its indemnification
obligations to U.S. Office Products when such a loss occurs, the Company may be
required to reimburse U.S. Office Products for all or a portion of the losses
that otherwise would have been allocated to other Spin-Off Companies. In
addition, the agreements allocate liabilities, including general corporate and
securities liabilities of U.S. Office Products not specifically related to the
Company's business, between U.S. Office Products, the Company, and the other
Spin-Off Companies.
LITIGATION
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 which were spun-off from U.S. Office Products in connection with the
Strategic Restructuring Plan.
F-18
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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. Thus, due to the
preliminary nature of this action, it is not possible at this time to assess the
outcome of the claims. In accordance with SFAS No. 5, "Accounting for
Contingencies," no provision has been recorded in the accompanying financial
statements.
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several
employees that would result in payments to these employees upon a change of
control or certain other events. No amounts have been accrued at April 24, 1999
related to these agreements, as no change of control has occurred.
NOTE 14--EMPLOYEE BENEFIT PLANS
401(K) RETIREMENT PLAN
Effective January 24, 1997, the Company implemented the U.S. Office
Products 401(k) Retirement Plan. Effective upon the Distribution, the Company
adopted its own 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company may match a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after six months of
service. For Fiscal 1999, expense associated with the 401(k) Plan was $389.
Certain subsidiaries of the Company have, or had prior to
implementation of the 401(k) Plan, qualified defined contribution benefit plans,
which allow for voluntary pre-tax contributions by the employees. The
subsidiaries paid all general and administrative expenses of the plans and in
some cases made matching contributions on behalf of the employees. For Fiscal
1999, Fiscal 1998 and Fiscal 1997, the subsidiaries incurred expenses totaling
$181, $136 and $481, respectively, related to these plans.
F-19
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 15--STOCKHOLDER'S EQUITY
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 establishes standards for computing and presenting
earnings per share ("EPS"). SFAS 128 requires dual presentation of basic and
diluted EPS on the face of the consolidated 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 following information presents the Company's computations
of basic and diluted EPS for the periods presented in the consolidated statement
of income.
FOR THE FISCAL YEAR ENDED
-----------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------- --------- --------
BASIC EARNINGS PER SHARE:
Net income............................ $ 9,089 $ 8,208 $ 5,430
=========== =========== ========
Weighted average number of
common shares outstanding......... 14,076,680 15,940,804 12,003,450
=========== =========== ===========
Basic earnings per share.............. $ 0.65 $ 0.51 $ 0.45
=========== =========== ===========
DILUTED EARNINGS PER SHARE:
Net income............................ $ 9,089 $ 8,208 $ 5,430
=========== =========== ==========
Weighted average number of:
Common shares outstanding......... 14,076,680 15,940,804 12,003,450
Potentially dilutive shares*...... 62,069 316,153 231,320
----------- ----------- -----------
Total......................... 14,138,749 16,256,957 12,234,770
=========== =========== ===========
Diluted earnings per share............... $ 0.64 $ 0.50 $ 0.44
=========== =========== ===========
* 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.
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 Fiscal 1999, a
total of 2,066,259 shares of Company Common Stock had been purchased and retired
at a cost of $12,638.
F-20
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CAPITAL CONTRIBUTION BY U.S. OFFICE PRODUCTS
During the Fiscal 1999, Fiscal 1998 and Fiscal 1997, U.S. Office
Products contributed $6,295, $2,544 and $20,064 of capital to the Company,
respectively. The contribution reflects the forgiveness of intercompany debt by
U.S. Office Products, as it was agreed that the Company would be allocated only
$30,000 of debt plus the amount of any additional debt incurred after January
12, 1998 in connection with the acquisition of entities that will become
subsidiaries of the Company.
EMPLOYEE STOCK PLANS
Prior to the Distribution, certain employees of the Company
participated in the U.S. Office Products 1994 Long-Term Incentive Plan ("USOP
Plan") covering employees of U.S. Office Products. Upon the Distribution, the
Company replaced the options to purchase shares of U.S. Office Products common
stock held by its employees with options to purchase shares of common stock of
the Company. In order to keep the Company employees that were option holders in
the USOP Plan in the same economic position immediately before and after the
Distribution, the number of U.S. Office Products' options held by Company
personnel was multiplied by 1.556 and the exercise price of those options was
divided by 1.556 for purposes of the replacement options. The vesting provisions
and option period of the original grants were not changed. All option data
reflected below has been retroactively restated to reflect the effects of the
Distribution.
U.S. Office Products, as the sole stockholder of the Company prior to
the Distribution, approved the provisions of the Company's 1998 Stock Incentive
Plan (the "Plan") that permit issuance of up to 30.0% of the outstanding shares
of the Company's common stock immediately following the Distribution, which
equals 4,387,580 shares, including the issuance of 600,000 shares of "incentive
stock options" as that term is defined in the Internal Revenue Code, the options
granted to Jonathan J. Ledecky, Thomas B. D'Agostino, Sr., executive officers
and non-employee directors described below. All employees of the Company and its
subsidiaries, as well as non-employee directors of the Company, are eligible for
awards under the Plan. Non-qualified stock options and incentive stock options
granted to employees generally are exercisable beginning one year from the date
of grant in cumulative yearly amounts for periods ranging from one to four years
and generally expire ten years from the date of the grant. The Company's Board
of Directors adopted the Plan prior to the Distribution. As of April 24, 1999,
489,606 shares have been issued under the Plan.
F-21
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company accounts for options in accordance with APB Opinion No. 25.
Accordingly, because the exercise prices of the options have equaled the market
price on the date of grant, no compensation expense was recognized for the
options granted. Had compensation expense been recognized based upon the fair
value of the stock options on the grant date under the methodology prescribed by
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and net income per share would have been impacted as indicated in the
following table.
The pro forma results shown below reflect the impact of options granted
in Fiscal 1999, Fiscal 1998 and Fiscal 1997.
FOR THE FISCAL YEAR ENDED
-------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------- --------- ---------
Net income:
As reported...................... $ 9,089 $ 8,208 $ 5,430
Pro forma........................ $ 1,554 $ 6,903 $ 5,184
Net income per share:
As reported:
Basic......................... $ 0.65 $ 0.51 $ 0.45
Diluted....................... $ 0.64 $ 0.50 $ 0.44
Pro forma:
Basic......................... $ 0.11 $ 0.43 $ 0.43
Diluted....................... $ 0.11 $ 0.42 $ 0.42
The fair value of options granted (which is amortized to expense over
the option vesting period in determining the pro forma impact) is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for Fiscal 1999, Fiscal 1998 and Fiscal
1997, respectively.
FOR THE FISCAL YEAR ENDED
---------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------- --------- ---------
Expected life of option.............. 3.7 years 7.0 years 7.0 years
Risk free interest rate.............. 5.59% 6.36% 6.66%
Expected volatility of the Workflow
Management Stock.................. 53.3%
Expected volatility of the U.S.
Office Products Stock............. 44.1% 44.0%
The weighted-average fair value of options granted was $3.91, $6.37and
$3.99 for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
F-22
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary of option transactions follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- --------- ------- ---------
Balance at April 30, 1996........
Granted....................... 649,093 $ 7.15
--------
Balance at April 26, 1997........ 649,093 7.15 291,153 $ 6.86
Granted....................... 1,225,375 11.78
Exercised..................... (114,106) 7.04
Canceled...................... (66,539) 10.42
---------
Balance at April 25, 1998........ 1,693,823 10.38 172,768 7.01
Granted....................... 3,276,777 8.88
Exercised..................... (375,500) 9.41
Canceled...................... (73,599) 10.97
---------
Balance at April 24, 1999........ 4,521,501 $ 9.36 294,806 $ 8.73
========= ======= ========= =======
The following table summarizes information about stock options
outstanding at April 24, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Prices Options Life Price Options Price
- ---------- -------- ----------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
$ 5.53 - $ 7.38 502,749 8.52 years $ 6.90 198,377 $ 6.87
$ 9.00 3,083,790 9.13 years 9.00
$ 9.75 - $11.68 415,400 8.05 years 10.05 28,105 9.88
$ 13.07 - $ 16.28 519,562 8.27 years 13.36 68,324 13.69
--------- ---------
4,521,501 8.86 years $ 9.36 294,806 $ 8.73
============= ============== ============= ============= ==========
</TABLE>
Under a service agreement entered into with Jonathan J. Ledecky, the
Board of Directors of U.S. Office Products (the "USOP Board") agreed that Mr.
Ledecky would receive from the Company a stock option for the Company's common
stock as of the date of the Distribution. The USOP Board intended the option to
be compensation for Mr. Ledecky's services as an employee of the Company. The
option was to cover 7.5% of the outstanding Company Common Stock determined as
of the date of the Distribution, with no anti-dilution provisions in the event
of issuance of additional shares of common stock (other than with respect to
stock splits or reverse stock splits). The total number of options issued to Mr.
Ledecky in connection with this grant was 1,096,895 options with an exercise
price equal to the closing sale price of the Company Common Stock on Nasdaq on
the first day of post-Distribution trading, June 10, 1998 (the date of grant),
which was $9.00 per share. These options vested immediately but could not be
exercised by Mr. Ledecky for one year.
F-23
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
As of June 10, 1998, the Company granted an option for 1,096,895 shares
representing 7.5% of the outstanding Company Common Stock determined as of the
Distribution Date to Thomas B. D'Agostino, Sr., approximately 6% to certain
executive officers and 15,000 shares to each non-employee director. The options
were granted under the Plan and have a per share exercise price equal to the
closing sale price of the Company Common Stock on Nasdaq on the first day of
post-Distribution trading, June 10, 1998 (the date of grant), which was $9.00
per share. The options granted to Mr. D'Agostino vested immediately but could
not be exercised for one year.
NOTE 16-SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision makers in
deciding how to allocate resources and in assessing performance. Generally, SFAS
131 uses a "management approach" to disclose financial and descriptive segment
information and, thus, financial information is required by SFAS 131 to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 131 also
requires related disclosures about products, geographic areas and major
customers.
The Company's operating segments prepare separate financial information
that is evaluated regularly by the Company's Chief Financial Officer and the
Company's Chief Operating Officers. Operating segments of the Company are
defined primarily by the segment operation's core business function whether it
is: a) the procurement and subsequent distribution of product to the customer or
b) the sale of an internally manufactured product to the customer. The Company
has determined that its operating activities consist of two reportable operating
segments: the Company's Integrated Business Services Division and the Company's
Fulfillment Division.
The Company's Integrated Business Services Division represents those
subsidiaries of the Company that procure product and distribute it to customers
through one of the Company's distribution centers or directly from the product's
manufacturer. The results of the Integrated Business Services Division also
include transactions with customers utilizing the Company's proprietary GetSmart
inventory and distribution system. The Company's Fulfillment Division represents
those subsidiaries primarily engaged in the sale of products internally
manufactured at the Company. The Fulfillment Division provides envelopes,
commercial print products, custom forms and documents, annual reports, direct
mail pieces, specialty packaging, labels and advertising specialty products to
its customers. The Fulfillment Division also provides product to the Company's
Integrated Business Services Division for distribution to customers. Corporate
expenses include the costs of maintaining a corporate office. The Company does
not allocate corporate overhead, strategic restructuring plan costs or
non-recurring acquisition costs by segment in assessing performance.
OPERATING SEGMENTS
The following table sets forth information as to the Company's
reportable operating segments:
FOR THE FISCAL YEAR ENDED
--------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
------------- ---------- ---------
REVENUES:
Integrated Business Services
Division........................... $ 125,950 $ 104,479 $ 91,506
Fulfillment Division.................. 274,968 255,456 243,166
Intersegment.......................... (9,966) (6,584) (7,291)
------------- ----------- ---------
Total............................... $ 390,952 $ 353,351 $ 327,381
============= =========== =========
OPERATING INCOME:
Integrated Business Services
Division.......................... $ 8,969 $ 5,098 $ 4,511
Fulfillment Division.................. 23,287 14,560 16,015
Corporate............................. (11,035) (3,029) (5,440)
------------- ----------- ---------
Total............................... $ 21,221 $ 16,629 $ 15,086
============= =========== =========
F-24
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEAR ENDED
--------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
--------- ---------- ----------
IDENTIFIABLE ASSETS (AT YEAR-END):
Integrated Business Services Division...... $ 64,190 $ 28,813 $ 22,149
Fulfillment Division....................... 165,007 117,843 102,959
Corporate.................................. 9,375 1,390
--------- --------- ----------
Total.................................... $ 238,572 $ 148,046 $ 125,108
========= ========= ==========
DEPRECIATION AND AMORTIZATION:
Integrated Business Services Division...... $ 1,412 $ 1,413 $ 934
Fulfillment Division....................... 5,543 5,309 5,048
Corporate.................................. 78
--------- --------- ---------
Total.................................... $ 7,033 $ 6,722 $ 5,982
========== ========= =========
CAPITAL EXPENDITURES:
Integrated Business Services Division...... $ 1,067 $ 1,272 $ 1,437
Fulfillment Division....................... 5,882 3,170 8,013
Corporate.................................. 747
---------- --------- ---------
Total.................................... $ 7,696 $ 4,442 $ 9,450
========== ========= =========
GEOGRAPHIC SEGMENTS
The following table sets forth information as to the Company's
operations in its different geographic segments:
FOR THE FISCAL YEAR ENDED
-----------------------------------------
APRIL 24, APRIL 25, APRIL 26,
1999 1998 1997
------------- ------------- ----------
REVENUES:
United States.................. $ 265,139 $ 225,435 $ 205,910
Canada......................... 125,813 127,916 121,471
------------- ------------- -----------
Total........................ $ 390,952 $ 353,351 $ 327,381
============= ============= ===========
OPERATING INCOME:
United States................. $ 10,724 $ 10,609 $ 7,010
Canada........................ 10,497 6,020 8,076
------------- ------------- ------------
Total....................... $ 21,221 $ 16,629 $ 15,086
============= ============= ============
IDENTIFIABLE ASSETS (AT YEAR-END):
United States................. $ 180,579 $ 99,367 $ 72,854
Canada........................ 57,993 48,679 52,254
------------- ------------- ------------
Total....................... $ 238,572 $ 148,046 $ 125,108
============= ============= ============
NOTE 17--OTHER RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM OFFICERS
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 are payable at maturity, September 1, 1999.
The outstanding balance on the secured and unsecured notes at April 24, 1999,
totaled $1,108 and $850, respectively.
LEASE FOR COMPANY CORPORATE HEADQUARTERS
On January 8, 1999, the Company entered into a lease, with a purchase
option, for corporate office space in a building partially owned by an executive
officer of the Company. The terms and conditions of the ten-year lease are based
on the market value of the office space and, in management's opinion, are
comparable to rents that would be charged to parties not affiliated with the
Company. In connection with such lease, the Company entered into an agreement
with the landlord's lender, Nationsbank, N.A., and the landlord, pursuant to
which the Company agreed to purchase the building at a discount in the event the
landlord defaults on its financing arrangement with the lender.
F-25
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LEASE FOR INTEGRATED BUSINESS SERVICES DIVISION ADMINISTRATIVE OFFICES
On December 21, 1998, the Company's Integrated Business Services
Division entered into a lease with an entity owned and controlled by an
executive officer of the Company for office space in Norfolk, Virginia. The
terms and conditions of the ten-year lease are based on the market value of the
office space and, in management's opinion, are comparable to rents that would be
charged to parties not affiliated with the Company.
ACQUISITION OF DIRECT PRO LLC
On November 30, 1998, the Company acquired all of the outstanding
membership interests of Direct Pro LLC, a New York limited liability company for
an aggregate purchase price of $7,039 consisting entirely of cash. Prior to its
acquisition by the Company, Direct Pro LLC was 66 2/3% owned by an entity owned
and controlled by certain members of the Company's management, including one
executive officer of the Company. The acquisition agreement with Direct Pro LLC
contained an earn-out provision that could result in additional purchase
consideration payable over the three-year period subsequent to the acquisition,
dependent upon the future earnings of Direct Pro LLC. During Fiscal 1999,
$151was paid by the Company in connection with this earn-out agreement and
another $350 has been accrued for this earn-out provision at April 24, 1999.
TRANSACTIONS WITH KAUFMAN & CANOLES
The Company has retained the law firm of Kaufman & Canoles in
connection with certain legal representations. Gus J. James II, a Director of
the Company, is the President, a director and a shareholder of Kaufman &
Canoles. During Fiscal 1999, the Company paid $1,341 in fees to Kaufman &
Canoles for legal services.
NOTES RECEIVABLE FROM EMPLOYEES
The Company had outstanding promissory notes receivable due from two
employees at April 25, 1998 which earned interest at a rate of approximately
7.0% per annum. The employees repaid the outstanding principal amount of the
promissory notes, with accrued interest, during Fiscal 1999.
NOTE 18--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data for
Fiscal 1999 and Fiscal 1998. Net income per share is computed independently for
each of the quarters presented and therefore may not sum to the total for the
fiscal year.
<TABLE>
<CAPTION>
FISCAL 1999 QUARTERS
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 90,485 $ 90,100 $ 95,542 $ 114,825 $ 390,952
Gross profit................................ 24,537 25,127 28,003 34,449 112,116
Operating income............................ 1,517 5,519 6,427 7,758 21,221
Net income.................................. 208 2,712 2,941 3,228 9,089
Net income per share:
Basic................................... $ 0.01 $ 0.19 $ 0.23 $ 0.26 $ 0.65
Diluted................................. 0.01 0.19 0.23 0.26 0.64
Weighted average shares outstanding:
Basic................................... 16,265 14,396 13,065 12,581 14,077
Diluted................................. 16,475 14,396 13,069 12,616 14,139
</TABLE>
F-26
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1998 QUARTERS
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 82,163 $ 88,884 $ 86,730 $ 95,574 $ 353,351
Gross profit................................ 21,895 23,314 22,086 25,757 93,052
Operating income............................ 4,975 4,842 4,395 2,417 16,629
Net income.................................. 2,703 2,582 2,265 658 8,208
Net income per share:
Basic................................... $ 0.19 $ 0.18 $ 0.13 $ 0.04 $ 0.51
Diluted................................. 0.19 0.17 0.13 0.04 0.50
Weighted average shares outstanding:
Basic................................... 14,171 14,715 17,017 17,846 15,941
Diluted................................. 14,416 15,106 17,352 18,141 16,257
</TABLE>
NOTE 19--SUBSEQUENT EVENTS
BUSINESS COMBINATIONS
On June 3, 1999, the Company completed one business combination which
was accounted for under the purchase method of accounting for an aggregate
purchase price of approximately $9,783 consisting entirely of cash. The
acquisition agreement contained an earn-out provision that could result in
additional purchase consideration payable over the five-year period subsequent
to the acquisition, dependent upon the future earnings of the acquisition. The
total assets related to this acquisition were approximately $12,671, including
goodwill and other intangible assets of approximately $9,490. The results of
this acquisition will be included in the Company's results from its date of
acquisition.
INTEREST RATE SWAP
On May 17, 1999, the Company entered into a three year interest rate
swap agreement with Wachovia Bank, N.A. whereby the Company exchanged its
variable interest rate on $10.0 million in Credit Facility debt for a fixed
LIBOR of 5.605%.
F-27
<PAGE>
WORKFLOW MANAGEMENT, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED APRIL 26, 1997, APRIL 25, 1998 AND APRIL 24, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION DATE OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS DATE PERIOD
- ----------- ----- ---------- ---------- ----------- ---------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts.................. April 30, 1996 $ 1,993 $ 1,394 $ $(1,556)(a) April 26, 1997 $ 1,831
April 26, 1997 1,831 1,200 5(b) (177)(a) April 25, 1998 2,859
April 25, 1998 2,859 1,831 630(b) (839)(a) April 24, 1999 4,481
Accumulated amortization
of intangibles............ April 30, 1996 $ 397 $ 204 $ $ April 26, 1997 $ 601
April 26, 1997 601 309 (50)(c) April 25, 1998 860
April 25, 1998 860 779 (19)(c) April 24, 1999 1,620
</TABLE>
(a) Represents write-offs of uncollectible accounts receivable
(b) Allowance for doubtful accounts acquired in purchase acquisitions
(c) Represents write-offs of intangible assets
F-28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
25
<PAGE>
PART III
The information required by Part III, Items 10, 11, 12 and 13 has been
incorporated herein by reference to the Company's 1999 Proxy Statement as set
forth below, in accordance with General Instruction G(3) of Form 10-K.
The 1999 Proxy Statement will be filed within 120 days after the end of
the Company's 1999 fiscal year, as required by General Instruction G(3).
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the Company and compliance with
Section 16(a) of the Exchange Act will be set forth in the sections entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's 1999 Proxy Statement and is incorporated herein by
reference. Pursuant to General Instruction G(3) of Form 10-K, certain
information concerning the executive officers of the Company will be set forth
under the caption entitled "Executive Officers of the Company" in Part I, Item
1, of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of officers and directors of the
Company will be set forth in the section entitled "Executive Compensation" in
the Company's 1999 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of certain of the Company's securities
will be set forth in the section entitled "Security Ownership of Management and
Certain Beneficial Owners" in the Company's 1999 Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
with the Company will be set forth in the section entitled "Certain
Relationships and Related Transactions" in the Company's 1999 Proxy Statement
and is incorporated herein by reference.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Financial Statements and Schedules:
1. Financial Statements (See Item 8. hereof.)
2. Financial Statement Schedules (See Item 8. hereof.)
b. Reports on Form 8-K during the quarter ended April 24, 1999:
None
c. Exhibits
The exhibits listed on the accompanying Exhibit Index are
filed or incorporated by reference as part of this Form 10-K and such Exhibit
Index is incorporated herein by reference.
27
<PAGE>
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
in the City of Palm Beach, State of Florida, on July 20, 1999.
WORKFLOW MANAGEMENT, INC.
By: /s/ Thomas B. D'Agostino
-------------------------
President, Chairman and Chief
Executive Officer
In accordance with the Exchange Act, this Report has been signed by
the following persons in the capacities and on the dates stated. Each person, in
so signing, also makes, constitutes and appoints Thomas B. D'Agostino and Steven
R. Gibson and each of them individually, his true and lawful attorney-in fact in
his place and stead, with full power of substitution, to execute and cause to be
filed with the Securities and Exchange Commission, any and all amendments to
this Report, including any exhibits or other documents filed in connection
therewith.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board, Chief Executive July 20, 1999
/s/ Thomas B. D'Agostino Officer, President, Director (Principal
- ------------------------------ Executive Officer)
Thomas B. D'Agostino
/s/ Steven R. Gibson Executive Vice President, Chief Financial July 20, 1999
- ------------------------------ Officer, Treasurer, Secretary (Principal
Steven R. Gibson Financial Officer and Principal
Accounting Officer)
/s/ Thomas A. Brown, Sr. Director July 20, 1999
- ------------------------------
Thomas A. Brown, Sr.
/s/ Gus J. James, II Director July 20, 1999
- ------------------------------
Gus J. James, II
/s/ Roger J. Pearson Director July 20, 1999
- ------------------------------
Roger J. Pearson
/s/ F. Craig Wilson Director July 20, 1999
- ------------------------------
F. Craig Wilson
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
3.1 Certificate of Incorporation of the Company. (Incorporated by reference to the *
Registrant's Form S-1, Commission File No. 333-46535, as amended, previously filed
with the Commission).
3.2 Certificate of Amendment of the Company's Certificate of Incorporation. *
(Incorporated by reference to the Registrant's Form S-1, Commission File No.
333-46535, as amended, previously filed with the Commission).
3.3 Amended and Restated Bylaws of the Company. (Incorporated by reference to the *
Registrant's Form 10-Q/A, Commission File No. 0-24383, previously filed with the
Commission on April 9, 1999).
4.1 Form of certificate representing shares of Common Stock (Incorporated by reference *
to the Registrant's Form S-1, Commission File No. 333-46535, as amended,
previously filed with the Commission).
10.1 Form of Distribution Agreement among U.S. Office Products Company, Workflow *
Management, Inc., Aztec Technology Partners, Inc., Navigant International, Inc.
and School Specialty, Inc. (Incorporated by reference to the Registrant's Form
S-1, Commission File No. 333-46535, as amended, previously filed with the
Commission).
10.2 Form of Tax Allocation Agreement among U.S. Office Products Company, Workflow *
Management, Inc., Aztec Technology Partners, Inc., Navigant International, Inc.
and School Specialty, Inc. (Incorporated by reference to the Registrant's Form
S-1, Commission File No. 333-46535, as amended, previously filed with the
Commission).
10.3 Form of Tax Indemnification Agreement among Workflow Management, Inc., Aztec *
Technology Partners, Inc., Navigant International, Inc. and School Specialty,
Inc. (Incorporated by reference to the Registrant's Form S-1, Commission File No.
333-46535, as amended, previously filed with the Commission).
10.4 Form of Employee Benefits Agreement among Workflow Management, Inc., Aztec *
Technology Partners, Inc., Navigant International, Inc. and School Specialty,
Inc. (Incorporated by reference to the Registrant's Form S-1, Commission File No.
333-46535, as amended, previously filed with the Commission).
10.5 Agreement dated as of January 24, 1997 between SFI Corp. and Thomas B. *
D'Agostino. (Incorporated by reference to the Registrant's Form S-1, Commission
File No. 333-46535, as amended, previously filed with the Commission).
10.6 Agreement dated as of January 24, 1997 between Hano Document Printers, Inc. and *
Timothy L. Tabor. (Incorporated by reference to the Registrant's Form S-1,
Commission File No. 333-46535, as amended, previously filed with the Commission).
10.7 Services Agreement dated as of January 13, 1998 between U.S. Office Products *
Company and Jonathan J. Ledecky. (Incorporated by reference to the Registrant's
Form S-1, Commission File No. 333-46535, as amended, previously filed with the
Commission).
10.8 Form of Credit Agreement between Workflow Management, Inc., certain other *
borrowers and Bankers Trust Company, as Agent (Incorporated by reference to the
Registrant's Form S-1, Commission File No. 333-46535, as amended, previously filed
with the Commission).
10.9 Form of 1998 Stock Incentive Plan. (Incorporated by reference to the Registrant's
Form S-1, Commission File No. 333-46535, as amended, previously filed with the
Commission).
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
10.10 Form of Executive Employment Agreement. (Incorporated by reference to the *
Registrant's Form S-1, Commission File No. 333-46535, as amended, previously filed
with the Commission).
10.11 Form of Employment Agreement between Workflow Management, Inc. and Jonathan J. *
Ledecky. (Incorporated by reference to the Registrant's Form S-1, Commission File
No. 333-46535, as amended, previously filed with the Commission).
10.12 Employment Agreement between Workflow Management, Inc. and Steven R. Gibson. *
(Incorporated by reference to the Registrant's Form S-1, Commission File No.
333-46535, as amended, previously filed with the Commission).
10.13 Employment Agreement between Workflow Management, Inc. and Claudia S. Amlie. *
(Incorporated by reference to the Registrant's Form S-1, Commission File No.
333-46535, as amended, previously filed with the Commission).
10.14 Amendment to Services Agreement dated as of June 8, 1998 between U.S. Office *
Products Company and Jonathan J. Ledecky. (Incorporated by reference to the
Registrant's Form S-1, Commission File No. 333-46535, as amended, previously filed
with the Commission).
10.15 Form of Software Source Code License Agreement between Workflow Management, Inc. *
and U.S. Office Products Company for Imagenet technology. (Incorporated by
reference to the Registrant's Form S-1, Commission File No. 333-46535, as amended,
previously filed with the Commission).
10.16 Employment Agreement dated June 11, 1998, between Workflow Management, Inc. and *
Thomas B. D'Agostino. (Incorporated by reference to the Registrant's Form 10-K,
Commission File No. 0-24383, previously filed with the Commission on July 24,
1998.)
10.17 Stock Option Award Agreement dated June 10, 1998, between Workflow Management, *
Inc. and Jonathan J. Ledecky. (Incorporated by reference to the Registrant's Form
10-K, Commission File No. 0-24383, previously filed with the Commission on July
24, 1998.)
10.18 Stock Option Award Agreement dated June 10, 1998, between Workflow Management, *
Inc. and Thomas B. D'Agostino. (Incorporated by reference to the Registrant's
Form 10-K, Commission File No. 0-24383, previously filed with the Commission on
July 24, 1998.)
10.19 Form Secured Promissory Note for Executive Stock Loan Program. (Incorporated by *
reference to the Registrant's Form 10-Q, Commission File No. 0-24383, previously
filed with the Commission on December 8, 1998.)
10.20 Form Unsecured Promissory Note for Executive Stock Loan Program. (Incorporated by *
reference to the Registrant's Form 10-Q, Commission File No. 0-24383, previously
filed with the Commission on December 8, 1998.)
10.21 Form Pledge Agreement for Executive Stock Loan Program. (Incorporated by *
reference to the Registrant's Form 10-Q, Commission File No. 0-24383, previously
filed with the Commission on December 8, 1998.)
10.22 Stock Purchase Agreement dated October 5, 1998 between Workflow Management, Inc., *
Penn-Grover Envelope Corp. and Stuart Grover. (Incorporated by reference to the
Registrant's Form 10-Q, Commission File No. 0-24383, previously filed with the
Commission on December 8, 1998.)
10.23 Stock Purchase Agreement dated October 21, 1998 between SFI of Delaware, LLC, *
Danziger Graphics, Inc., H. Roy Danziger, Inc., Robert Danziger and Roy Danziger.
(Incorporated by reference to the Registrant's Form 10-Q, Commission File No.
0-24383, previously filed with the Commission on December 8, 1998.)
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
10.24 Stock Purchase Agreement dated November 30, 1998 between SFI of Delaware, LLC, *
Caltar, Inc., Jack Tarr and the Tarr Family Trust. (Incorporated by reference to
the Registrant's Form 10-Q, Commission File No. 0-24383, previously filed with the
Commission on December 8, 1998.)
10.25 Stock Purchase Agreement dated November 30, 1998 between Workflow Management, *
Inc., Direct Pro LLC, Robert Sands, TLG Realty LLC, Richard Schlanger and Robert
Fishbein. (Incorporated by reference to the Registrant's Form 10-Q, Commission
File No. 0-24383, previously filed with the Commission on December 8, 1998.)
10.26 Stock Purchase Agreement dated February 5, 1999, among Workflow Management, Inc., *
Premier Graphics, Inc., Stanley L. Pippin, Michael D. Snyder and Dean J. Murry.
(Incorporated by reference to the Registrant's Form 10-Q, Commission File No.
0-24383, previously filed with the Commission on March 8, 1999.)
10.27 Stock Purchase Agreement dated February 12, 1999, among Workflow Management, Inc., *
Pacific-Admail, Inc., James G. Corey and Sharon Corey. (Incorporated by reference
to the Registrant's Form 10-Q, Commission File No. 0-24383, previously filed with
the Commission on March 8, 1999.)
10.28 Amendment and Restatement of Credit Agreement dated December 4, 1998 among *
Workflow Management, Inc., Data Business Forms Limited, Bankers Trust Company, as
Agent, and certain other lenders. (Incorporated by reference to the Registrant's
Form 10-Q, Commission File No. 0-24383, previously filed with the Commission on
March 8, 1999.)
10.29 Subscription Agreement dated January 19, 1999 between Workflow Management, Inc. *
and the Thomas B. and Elzbieta D'Agostino 1997 Charitable Remainder Trust.
(Incorporated by reference to the Registrant's Form 10-Q, Commission File No.
0-24383, previously filed with the Commission on March 8, 1999.)
10.30 Subscription Agreement dated January 19, 1999 between Workflow Management, Inc. *
and Richard M. Schlanger. (Incorporated by reference to the Registrant's Form
10-Q, Commission File No. 0-24383, previously filed with the Commission on March
8, 1999.)
10.31 Subscription Agreement dated January 19, 1999 between Workflow Management, Inc. *
and Robert Fishbein. (Incorporated by reference to the Registrant's Form 10-Q,
Commission File No. 0-24383, previously filed with the Commission on March 8,
1999.)
10.32 12% Subordinate Promissory Note dated January 19, 1999 and form Warrant made by *
Workflow Management, Inc. and held by the Thomas B. and Elzbieta D'Agostino 1997
Charitable Remainder Trust. (Incorporated by reference to the Registrant's Form
10-Q, Commission File No. 0-24383, previously filed with the Commission on March
8, 1999.)
10.33 12% Subordinate Promissory Note dated January 19, 1999 and form Warrant made by *
Workflow Management, Inc. and held by Richard M. Schlanger. (Incorporated by
reference to the Registrant's Form 10-Q, Commission File No. 0-24383, previously
filed with the Commission on March 8, 1999.)
10.34 12% Subordinate Note dated January 19, 1999 and form Warrant made by Workflow *
Management, Inc. and held by Robert Fishbein. (Incorporated by reference to the
Registrant's Form 10-Q, Commission File No. 0-24383, previously filed with the
Commission on March 8, 1999.)
10.35 Lease Agreement dated December 21, 1998 between D&C LLC and SFI of Delaware, LLC. *
(Incorporated by reference to the Registrant's Form 10-Q, Commission File No.
0-24383, previously filed with the Commission on March 8, 1999.)
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
10.36 Lease and Option Agreement dated January 8, 1999 between Workflow Management, Inc. *
and FJK-TEEJAY Limited. (Incorporated by reference to the Registrant's Form 10-Q,
Commission File No. 0-24383, previously filed with the Commission on March 8,
1999.)
10.37 Agreement dated December 30, 1998, among Nationsbank, N.A., Workflow Management, *
Inc. and FJK-TEEJAY Limited. (Incorporated by reference to the Registrant's Form
10-Q, Commission File No. 0-24383, previously filed with the Commission on March
8, 1999.)
10.38 Severance Agreement dated January 19, 1999, between Workflow Management, Inc. and *
Thomas B. D'Agostino. (Incorporated by reference to the Registrant's Form 10-Q,
Commission File No. 0-24383, previously filed with the Commission on March 8,
1999.)
10.39 Severance Agreement dated January 19, 1999, between Workflow Management, Inc. and *
Steven R. Gibson. (Incorporated by reference to the Registrant's Form 10-Q,
Commission File No. 0-24383, previously filed with the Commission on March 8,
1999.)
10.40 Severance Agreement dated January 19, 1999, between Workflow Management, Inc. and *
Claudia S. Amlie. (Incorporated by reference to the Registrant's Form 10-Q,
Commission File No. 0-24383, previously filed with the Commission on March 8,
1999.)
10.41 Severance Agreement dated January 19, 1999, between Workflow Management, Inc. and *
Thomas B. D'Agostino, Jr. (Incorporated by reference to the Registrant's Form
10-Q, Commission File No. 0-24383, previously filed with the Commission on March
8, 1999.)
10.42 Severance Agreement dated January 19, 1999, between Workflow Management, Inc. and *
Richard M. Schlanger. (Incorporated by reference to the Registrant's Form 10-Q,
Commission File No. 0-24383, previously filed with the Commission on March 8,
1999.)
**10.45 Purchase Agreement dated March 1, 1999 between Data Business Forms Limited, Dale
A. Hodgson, Sundog Printing Limited and 408446 Alberta, Inc.
**10.46 Purchase Agreement dated March 1, 1999 between Data Business Forms Limited, Ray
Remenda, Sundog Printing Limited and 517244 Alberta, Ltd.
**10.47 Stock Purchase Agreement dated March 18, 1999 between SFI of Delaware, LLC, JWC
Acquisition Corp., Superior Graphics, Inc., Wesley Cheringal and John Cheringal.
**10.48 Stock Purchase Agreement dated February 26, 1999 between Workflow Management,
Inc., Workflow Management Acquisition Corp., Universal Folding Box Co., Inc. ,
Sanford L. Batkin and the Sanford L. Batkin Annuity Trust.
**10.49 Stock Purchase Agreement dated June 2, 1999 between SFI of Delaware, LLC, Graphic
Management Corporation, Roger Kimps, Starlene Kimps, Rebecca Kaye, Rachael A.
Kimps, and Ryan M. Kimps.
**10.50 Employment Agreement dated April 1, 1999, between Workflow Management, Inc. and
Thomas B. D'Agostino, Sr.
**10.51 Employment Agreement dated April 1, 1999, between Workflow Management, Inc. and
Steven R. Gibson.
**10.52 Employment Agreement dated April 1, 1999, between Workflow Management, Inc. and
Claudia S. Amlie.
**10.53 Employment Agreement dated April 1, 1999, between Workflow Management, Inc. and
Thomas B. D'Agostino, Jr.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
**10.54 Employment Agreement dated April 1, 1999, between Workflow Management, Inc. and
Richard M. Schlanger.
**10.55 Severance Agreement dated April 1, 1999, between Workflow Management, Inc. and
Thomas B. D'Agostino, Jr.
**10.56 Severance Agreement dated April 1, 1999, between Workflow Management, Inc. and
Richard M. Schlanger.
**10.57 Employment Agreement, dated June 1, 1999, between Workflow Management, Inc. and
Frederick Shaw.
**21.1 Subsidiaries of the Registrant.
**23.1 Consent of PricewaterhouseCoopers LLP
**24.1 Power of Attorney (appears on signature page hereto)
**27.1 Financial Data Schedule
</TABLE>
- -----------------------------------------------------------
* (Not filed herewith. In accordance with Rule 12(b)-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934, the
exhibit is incorporated by reference).
** Filed herewith.
33
<PAGE>
EXHIBIT 10.45
PURCHASE AGREEMENT
BETWEEN
DATA BUSINESS FORMS LIMITED
AND
DALE A. HODGSON
AND
408446 ALBERTA INC.
AND
SUNDOG PRINTING LIMITED
made effective as of March 1, 1999
<PAGE>
<TABLE>
TABLE OF CONTENTS
PAGE NO.
<S> <C>
ARTICLE 1 INTERPRETATION
1.1 Definitions............................................................................2
1.2 Headings...............................................................................7
1.3 Extended Meanings......................................................................7
1.4 Currency...............................................................................7
1.5 Accounting Principles..................................................................7
1.6 Schedules..............................................................................8
1.7 Best of Knowledge......................................................................9
ARTICLE 2 DISCLOSURE
2.1 Disclosure.............................................................................9
ARTICLE 3 PURCHASE AND SALE OF THE SHARES AND ASSIGNMENT OF THE SHAREHOLDERS' LOANS
3.1 Purchase and Sale of Shares............................................................9
3.2 Assignment of Shareholders' Loans.....................................................10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
4.1 Vendors' Representations and Warranties...............................................11
4.2 Hodgson's Representations and Warranties..............................................38
ARTICLE 5 PURCHASERS REPRESENTATIONS AND WARRANTIES
5.1 Purchasers Representations............................................................41
ARTICLE 6 COVENANTS
6.1 Taxes.................................................................................42
6.2 Accounts Receivable...................................................................43
6.3 Related Party Agreements..............................................................43
6.4 Cooperation...........................................................................43
6.5 Access to Information; Confidentiality; Public Disclosure.............................44
6.6 Conduct of Business Pending Closing...................................................45
6.7 Prohibited Activities.................................................................45
6.8 Exclusivity...........................................................................47
6.9 Notification of Certain Matters.......................................................48
ARTICLE 7 CONDITIONS
7.1 Conditions for the Benefit of the Purchaser...........................................48
7.2 Conditions for the Benefit of the Vendor, the Company and 408446......................50
7.3 Conditions for the Benefit of the Vendor, Purchaser,
Company and 40844.....................................................................51
ARTICLE 8 INDEMNIFICATION
8.1 General Indemnification by the Vendor.................................................52
8.2 Limitation and Expiration.............................................................53
8.3 Indemnification Procedures............................................................54
8.4 General Indemnification by the Purchaser..............................................56
8.5 Survival of Representations, Warranties and Covenants.................................56
8.6 Remedies Cumulative...................................................................56
8.7 Right to Set Off......................................................................57
ARTICLE 9 NON-COMPETITION
9.1 Prohibited Activities.................................................................57
9.2 Confidentiality.......................................................................58
9.3 Damages...............................................................................58
9.4 Reasonable Restraint..................................................................59
9.5 Severability; Reformation.............................................................59
9.6 Independent Covenant..................................................................59
9.7 Materiality...........................................................................59
ARTICLE 10 CLOSING
10.1 Closing...............................................................................60
10.2 Deliveries at Funding Time............................................................60
10.3 Purchaser Post-Closing Obligations....................................................61
10.4 Johnson Contract......................................................................62
ARTICLE 11 GENERAL
11.1 Termination...........................................................................62
11.2 Effect of Termination.................................................................63
11.3 Successors and Assigns................................................................63
11.4 Entire Agreement; Amendment; Waiver...................................................63
11.5 Counterparts..........................................................................63
11.6 Brokers and Agents....................................................................64
11.7 Expenses..............................................................................64
11.8 Specific Performance; Remedies........................................................64
11.9 Notices...............................................................................64
11.10 Governing Law.........................................................................66
11.11 Severability..........................................................................67
11.12 Absence of Third Party Beneficiary Rights.............................................67
11.13 Mutual Drafting.......................................................................67
11.14 Further Representations...............................................................67
11.15 Further Assurances....................................................................68
</TABLE>
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT made as of the 1st day of March, 1999.
BETWEEN:
DATA BUSINESS FORMS LIMITED, a Corporation governed by
the laws of Ontario (hereinafter referred to as the
"Purchaser")
OF THE FIRST PART
- and -
DALE A. HODGSON, an individual residing in the City of
Calgary, in the Province of Alberta (hereinafter referred to
as the "Vendor" or "Hodgson")
OF THE SECOND PART
- and -
SUNDOG PRINTING LIMITED, a corporation governed by the laws
of Alberta (hereinafter referred to as the "Company")
OF THE THIRD PART
- and -
408446 ALBERTA INC., a corporation governed by the laws of
Alberta (hereinafter referred to as "408446")
OF THE FOURTH PART
WHEREAS the Vendor is the beneficial and registered owner of
all of the 408446 Shares;
AND WHEREAS the Vendor is the beneficial and registered owner
of 29 Class A common shares in the capital of the Company;
AND WHEREAS 408446 is the beneficial and registered owner of
160 Class A common shares in the capital of the Company;
AND WHEREAS, at the Funding Time, the sole assets held by
408446 will be common shares in the capital of the Company;
<PAGE>
AND WHEREAS 408446, Vendor and 517244 in the aggregate own all
of the issued and outstanding shares of the Company;
AND WHEREAS Hodgson desires to sell his shareholder loans, his
common shares in the capital of the Company and the 408446 Shares to the
Purchaser and pursuant to the "Remenda Agreement", Ray Remenda, the sole
shareholder of 517244, desires to sell all of his shares in 517244 and his
shareholder loans and the Purchaser desires to purchase same such that the
Purchaser becomes the sole direct and indirect shareholder of the Company;
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:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, including any recitals and schedules
hereto, unless something in the subject matter or context is inconsistent
therewith:
(a) "408446" means 408446 Alberta Inc., a body corporate
incorporated under the laws of the Province of Alberta;
(b) "517244" means 517244 Alberta Ltd, a body corporate
incorporated under the laws of the Province of Alberta;
(c) "1999 Bonus" has the meaning set forth in Section 7.3(d)
hereof;
(d) "408446 Shares" means 106 Class A Common Shares in the capital
of 408446 owned by Hodgson;
(e) "408446 Shareholder Loan" means the amount of $563,912
advanced by Vendor to 408446 by way of a shareholder's loan
and remaining unpaid as at the Funding Time;
(f) "Account Receivable" has the meaning set forth in Section
4.1(p);
(g) "Affiliates" has the meaning set forth in the BUSINESS
CORPORATIONS ACT (Alberta) or the BUSINESS CORPORATIONS ACT
(Ontario), as the case may be;
(h) "Agreement" means this agreement and all amendments made
hereto by written agreement between the Vendor, 408446,
Company and the Purchaser;
(i) "Balance Sheet Date" means July 31, 1998;
(j) "Benefit Plan" has the meaning set out in Section
4.1(aa)(i)(A);
(k) "Closing" means the consummation of the transactions
contemplated by this Agreement.
(l) "Company" means Sundog Printing Limited, a body corporate
incorporated under the laws of the Province of Alberta;
(m) "Company Financial Statements" has the meaning set out in
Section 4.1(l) hereof;
(n) "Confidential Information" has the meaning set out in Section
9.2 hereof;
(o) "Copyright" means any Canadian or foreign copyright owned by
the Company as of the date of this Agreement, including any
registration of copyrights, in Canada or in any foreign
county, as well as any application for a Canadian or foreign
copyright registration made by the Company;
(p) "Effective Date" means March 1, 1999;
(q) "ETA" shall mean Part IX of the EXCISE TAX ACT (Canada), as
now in effect;
(r) "Funding Date" means March 31, 1999 or such other date as may
be agreed to between the Vendor and the Purchaser;
(s) "Funding Time" means 4:00 p.m. (Calgary Time) on the Funding
Date;
(t) "Governmental Authority" has the meaning set out in Section
4.1(y)(i)(F) hereof;
(u) "Hodgson" or "Vendor" means Dale A. Hodgson, an individual
residing in the City of Calgary, in the Province of Alberta;
(v) "Hodgson Employment Contract" means that certain employment
contract entered into between the Company and Hodgson as set
forth and described in Schedule 1.1(t) hereof;
(w) "Hodgson Insurance" means the policies set forth in
Schedule 1.1(u) insofar as they relate to Hodgson;
(x) "Hodgson Shares" means 29 Class A Common Voting Shares in
the capital of the Company owned by Hodgson;
(y) "Income Statement" has the meaning set out in Section 4.1(l)
hereof;
(z) "Income Tax Act" means the INCOME TAX ACT (Canada), as
amended;
(aa) "Indemnified Party" has the meaning set out in Section 8.1
hereof;
(bb) "Indemnifying Party" has the meaning set out in Section 8.3
hereof;
<PAGE>
(cc) "Johnson Employment Contract" means that certain employment
contract entered into between the Company and Harvey Johnson
as set forth and described in Schedule 4.1(aa) hereof;
(dd) "Johnson Pension Obligation" means the obligation of the
Company to fund and to pay an amount of $290,827 to Harvey
Johnson's registered defined benefit pension plan;
(ee) "Johnson Severance Obligation" means the obligation of the
Company to pay to Johnson a retirement allowance and severance
payment, as set forth in Schedule 4.1(aa);
(ff) "Landlords" means the landlords under the N.E. Lease and the
Parking Lot Lease;
(gg) "Leased Premises" means the N.E. Warehouse Property, the
Parking Lot and the Sundog Premises;
(hh) "Leases" means, collectively, the N.E. Lease, the Parking Lot
Lease and the Sundog Leases;
(ii) "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 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
PERSONAL PROPERTY SECURITY ACT (Alberta) or comparable law of
any jurisdiction);
(jj) "Mark" means all right, title and interest in and to any
Canadian 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 Canada 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 Canada or any foreign country;
(kk) "Material Contracts" has the meaning set out in Section
4.1(u)(ii) hereof;
<PAGE>
(ll) "NASDAQ National Market" means the United States National
Market automated quotation system of the National
Association of Securities Dealers, Inc.;
(mm) "N.E. Lease" means that lease relating to that portion of N.E.
Warehouse Property, dated November 26, 1996 between Herma
Holdings Limited and Sundog Printing Limited, as amended by a
lease amending agreement dated on or about March 1st, 1997
between Herma Holdings Limited and Sundog Printing Limited
respecting premises located on lands municipally described as
2320 - 35th Avenue N.E., Calgary, Alberta, leased to the
Company;
(nn) "N.E. Warehouse Property" means those lands and buildings
located in the City of Calgary, in the Province of Alberta
legally described as: Plan 7410187, Block 6, Lot 7, Excepting
thereout all mines and minerals;
(oo) "Parking Lot" means that portion of those lands located in the
City of Calgary, in the Province of Alberta legally described
as Plan 9412695, Block 45, Lot 3, Excepting thereout all mines
and minerals, leased to the Company;
(pp) "Parking Lot Lease" means that lease relating to the Parking
Lot dated December 22, 1997 between Thomasz Goszczynski as
agent for Stefan Goszczynski and Hanna Goszczynski and Sundog
Printing Limited respecting lands municipally described as
1401 - 9th Avenue S.W., Calgary, Alberta;
(qq) "Patent" means any Canadian or foreign patent to which the
Company has title as of the date of this Agreement, as well
as any application for a Canadian or foreign patent made by
the Company.
(rr) "Person" has the meaning set out in Section 4.1(y)(i)(H)
hereof;
(ss) "Preferred Shares" means the preferred shares held by the
Company in 387177 Alberta Ltd., 387178 Alberta Inc. and D.
Hodgson Investments Ltd. as more particularly set forth in
Schedule 1.1(pp) hereof;
(tt) "Purchase Price" means the aggregate amount payable to the
Vendor pursuant to Section 3.1 hereof;
(uu) "Purchaser" means Data Business Forms Limited;
(vv) "Purchased Interests" means the Shares and the Shareholders'
Loans;
(ww) "Related Party Agreements" has the meaning set out in Section
4.1(u)(ii) hereof;
(xx) "Related Party Debt" means the indebtedness of the Company, in
the aggregate amount of $146,204 to the parties and in the
amounts set forth in Schedule 1.1(xx) hereof;
(yy) "Remenda" means Ray Remenda, an individual residing in the
City of Calgary in the Province of Alberta, the sole
shareholder of 517244;
<PAGE>
(zz) "Remenda Agreement" means that agreement of even date
whereunder inter alia Remenda sells all of the shares Remenda
owns in 517244 to the Purchaser;
(aaa) "Shareholders" means Hodgson and 408446 and "Shareholder"
means any one of them;
(bbb) "Shareholders' Loans" means the Sundog Shareholder Loan and
the 408446 Shareholder Loan;
(ccc) "Shares" means, collectively, the Hodgson Shares and the
408446 Shares;
(ddd) "Significant Customers" has the meaning set out in Section
4.1(u)(i) hereof;
(eee) "Significant Suppliers" has the meaning set out in Section
4.1(u)(i) hereof;
(fff) "Subsidiaries" has the meaning set forth in the BUSINESS
CORPORATIONS ACT (Alberta) or the BUSINESS CORPORATIONS ACT
(Ontario), as the case may be;
(ggg) "Sundog Leases" means, collectively, the lease between the
Company and 387177 Alberta Inc. and 387178 Alberta Inc. with
respect to the lands municipally described as 1311 - 9th
Avenue S.W., Calgary, Alberta and the lease between the
Company and 566657 Alberta Ltd. with respect to the lands
municipally described as 1333 - 9th Avenue S.W., Calgary,
Alberta;
(hhh) "Sundog Shareholder Loan" means the amount of $1,682,454
advanced by Vendor to the Company by way of a shareholder's
loan and remaining unpaid as at the Funding Time;
(iii) "Sundog Premises" means the premises of the Company located
at 1311 - 9 Avenue S.W., and 1313 - 9 Avenue S.W., Calgary,
Alberta;
(jjj) "Tax" shall mean all governmental taxes, levies, duties,
assessments, reassessments and other charges of any nature
whatsoever, whether direct or indirect, including, but not
limited to, income tax, profit tax, gross receipts tax,
corporation tax, sales and use tax, wage tax, payroll tax,
employer health tax, workers' compensation levy, capital tax,
stamp duty, real and personal property tax, land transfer tax,
customs or excise duty, excise tax, turnover or value added
tax on goods sold or services rendered, withholding tax,
social security and unemployment insurance charges and
retirement contributions, and any interest, fines, additions
to tax and penalties thereon;
(kkk) "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 entity in connection with the
determination, assessment, collection or payment of any Tax;
<PAGE>
(mmm) "Third Party Claim" has the meaning set out in Section
8.3(b)(i);
(nnn) "Third Party Consents" has the meaning set out in Section
4.1(u)(iv);
(ooo) "TPI Receivable" means the amount of $963,600 owing by The
Pacific Institute to the Company as of January 31, 1999;
(ppp) "Vendor" means Dale A. Hodgson;
(qqq) "Vendor's Portion" means 75%, being the percentage of common
shares of the Company directly or indirectly held by the
Vendor; and
(rrr) "Year 2000 Compliant and Ready" means that the computer
systems and the presses used in the Company's operations
contain the functionality need for the December 31, 1999
"millennium" date change.
1.2 HEADINGS
The division of this Agreement into Articles and Sections and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles and
Sections are to Articles and Sections of this Agreement.
1.3 EXTENDED MEANINGS
In this Agreement words importing the singular number only
shall include the plural and VICE versa, words importing the masculine gender
shall include the feminine and neuter genders and VICE VERSA and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations.
<PAGE>
1.4 CURRENCY
All references to currency herein are to lawful money of
Canada.
1.5 ACCOUNTING PRINCIPLES
Except as otherwise expressly provided herein or in the
Schedules or agreed between by the parties hereto in writing, 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 Canadian GAAP
consistently applied
1.6 SCHEDULES
The following are the Schedules annexed hereto and
incorporated by reference and deemed to be part hereof:
<TABLE>
<S> <C>
Schedule 1.1(t) - Hodgson Employment Contract
Schedule 1.1(u) - Hodgson Insurance
Schedule 1.1(pp) - Preferred Share
Schedule 1.1(xx) - Related Party Debt
Schedule 3.1(a)(iii) - First Earn-Out
Schedule 3.1(a)(v) - Second Earn-Out
Schedule 3.2(a) - Form of Assignment of 408446
Shareholder Loan
Schedule 4.1(h)(iii) - Promissory Notes
Schedule 4.1(k)(ii) - Add-backs
Schedule 4.1(k)(iv) Related Party Debt since July 31, 1998
Schedule 4.1(l) - Company Financial Statements
Schedule 4.1(m)(iii) - Plans
Schedule 4.1(o) - Bank Accounts, Powers of Attorney
Schedule 4.1(p) Accounts Receivable
Schedule 4.1(r) - Leases of Real Property
Schedule 4.1(s)(i) - Personal Property
Schedule 4.1(s)(ii) - Liens on Personal Property
Schedule 4.1(t)(i) - Trade Marks and Trade Names
Schedule 4.1(t)(ii) - Patents and Copyrights
Schedule 4.1(t)(iii) - Other Rights
Schedule 4.1(t)(iv) - Third Party Rights
Schedule 4.1(u)(i) - Significant Customers and Suppliers
Schedule 4.1(u)(ii) - Material Contracts
Schedule 4.1(u)(iii) - Reductions and Cancellations
Schedule 4.1(u)(iv) - Third Party Consents
Schedule 4.1(u)(v) - Related Party Commitments
Schedule 4.1(u)(vi) - Exception to Acceleration
Schedule 4.1(x) - Insurance Policies
Schedule 4.1(y)(ii) - Environmental Matters
Schedule 4.1(z) - Employees/Compliance
Schedule 4.1(z)(viii) - Employee List
Schedule 4.1(aa) - Employee Benefit Plans
Schedule 4.1(bb) - Tax Exceptions
Schedule 4.1(cc)(iii) - Litigation
Schedule 4.1(ee) - Changes
Schedule 4.1(gg) - Predecessor Status
Schedule 4.1(jj) - Year 2000 Compliance
Schedule 7.1(i) - Lease of Sundog Premises
Schedule 8.2(d) - Indemnity Schedule
</TABLE>
1.7 BEST OF KNOWLEDGE
Any reference herein to "the best of the knowledge" of the
Vendor and the Shareholders or words of similar import shall mean the actual
knowledge of the Vendor and the Shareholders or in the case of 408446 shall mean
the actual knowledge of the Shareholder, directors and officers of 408446. Any
reference herein to "knowledge of the Company" or "Company's knowledge", or
words of similar import means the actual knowledge of the Vendor, Shareholders,
directors and officers of the Company.
ARTICLE 2
DISCLOSURE
2.1 DISCLOSURE
Certain matters may be disclosed on a Schedule hereto that are
not strictly required to be disclosed thereon pursuant to the terms of this
Agreement. Such disclosure is for information purposes only, and should not
constitute an indication or admission of the materiality thereof or create a
standard for disclosure. The Vendor, Company and 408446 shall not be liable for
a breach of any representation or warranty that might result from the failure to
disclose any item on any one Schedule if such item has been disclosed on any
other Schedule hereto in such a manner that a review of such other Schedule
would put Purchaser on notice that such item exists.
<PAGE>
ARTICLE 3
PURCHASE AND SALE OF THE SHARES
AND ASSIGNMENT OF THE SHAREHOLDERS' LOANS
3.1 PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement, at the
Funding Time and effective as of the Effective Date, the Vendor will sell to
Purchaser, and Purchaser will purchase from the Vendor, the Shares, for the
Purchase Price.
(a) The Purchase Price for the Shares shall be comprised of and shall
be paid and satisfied by:
(i) $2,749,376 payable by cheque to the Vendor at the
Funding Time inclusive of interest at a rate of
6.75% per annum calculated from the Effective Time
up to and including the Funding Date;
(ii) the delivery to the Vendor of a demand promissory
note from the Purchaser in the amount of $820,056.
Such demand promissory note shall be paid in full
immediately following the Funding Time by payment
in cash by the Purchaser in an amount equal to the
Vendor's Portion of the TPI Receivable or by an
assignment of the Vendor's Portion of the TPI
Receivable to the Vendor or any combination
thereof, together with an assignment of the Hodgson
Insurance;
(iii) a payment of the Vendor's Portion of the amount
calculated pursuant to Schedule 3.1(a)(iii) to the
Vendor on March 15, 2000;
(iv) $750,000 to the Vendor on April 28, 2000; and
(v) a payment on July 31, 2001 of the amounts, if any:
(A) equal to the Vendor's Portion, of the
amount calculated pursuant to Schedule
3.1(a)(v) hereof less $1,000,000, which
payment to the Vendor shall not exceed the
sum of $750,000; and
(B) equal to the entire amount calculated
pursuant to Schedule 3.1(a)(v) hereof less
the sum of $2,000,000;
<PAGE>
3.2 ASSIGNMENT OF SHAREHOLDERS' LOANS
(a) In consideration of payment to the Vendor in the amount of
$563,912 at the Funding Time, the Vendor shall execute and
deliver an assignment in the form of the assignment set out on
Schedule 3.2(a) hereof assigning to the Purchaser all of
Vendor's right, title and interest in and to the 408446
Shareholder Loan.
(b) In consideration of payment to the Vendor in the amount of
$1,682,454 at the Funding Time, the Vendor shall execute and
deliver an assignment in the form of the assignment set out on
Schedule 3.2(b) hereof assigning to the Purchaser all of
Vendor's right, title and interest in and to the Sundog
Shareholder Loan.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 VENDORS' REPRESENTATIONS AND WARRANTIES
The Vendor, the Company and 408446, represent and warrant to
the Purchaser that:
(a) CORPORATE STANDING The Company is a corporation duly
incorporated and subsisting under the laws of Alberta as a
private company as that term is defined in the SECURITIES ACT
(Alberta) with the corporate power to own its assets and to
carry on its business and has made all necessary filings under
all applicable corporate, securities and taxation laws or any
other laws to which the Company is subject.
(b) CORPORATE RECORDS The corporate records and minute book of the
Company are complete and true and correct in all material
respects and the minute book contains copies of minutes of all
meetings of the directors, committees of directors and
shareholders of the Company and of all written resolutions of
such directors, committees and shareholders.
(c) AUTHORIZATION; VALIDITY The Company has the full legal right,
corporate 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 of
the Vendor and 408446 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 Vendor, the Company and 408446 and the
performance by the Vendor, the Company and 408446 of the
transactions contemplated herein have been duly and validly
authorized by the Board of Directors of the Company and 408446
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 Vendor, the Company and 408446,
enforceable in accordance with its terms subject to
limitations with respect to enforcement imposed by law in
connection with bankruptcy or other laws generally affecting
creditors' rights, and to the extent that equitable remedies,
such as specific performance and injunction, are in the
discretion of the court from which they are sought.
<PAGE>
(d) EXECUTION AND DELIVERY The execution, delivery and performance
of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof
will not:
(i) conflict with, or result in a breach or violation
of, any of the constating documents or by-laws of
the Company;
(ii) 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 Vendor, the Company or any Shareholder is a
party or by which the Vendor, the Company or any
Shareholder is bound, or result in the creation or
imposition of any Lien on any of the Company's
properties pursuant to (A) any law or regulation
to which the Vendor, the Company or any
Shareholder or any of their respective property
is subject, or (B) any judgment, order or decree
to which the Vendor, the Company or any Shareholder
is bound or any of their respective property is
subject;
(iii) result in termination or any impairment of any
permit, license, franchise, contractual right or
other authorization of the Company; or
(iv) violate any law, order, judgment, rule, regulation,
decree or ordinance to which the Vendor, the
Company or any Shareholder is subject or by which
the Vendor, the Company or any Shareholder is bound
provided however, that no representation and
warranty is being provided with respect to
compliance by the Purchaser with the INVESTMENT
CANADA ACT.
(e) AUTHORIZED CAPITAL The authorized capital of the Company
consists of an unlimited number of Class A Common Voting
Shares, Class B Non-Voting Preferred Redeemable Shares, Class
C Non-Voting Preferred Redeemable Convertible Shares, and
Class D Non-voting Preferred Redeemable Convertible Shares, of
which 252 Class A Common Voting Shares are issued and
outstanding as of the date hereof, of which the following are
validly issued and outstanding:
<TABLE>
<S> <C>
SHARES BENEFICIAL & REGISTERED OWNER
160 Class A Common Voting 408446 Alberta Inc.
63 Class A Common Voting 517244 Alberta Limited
29 Class A Common Voting Dale A. Hodgson
</TABLE>
<PAGE>
All of the issued and outstanding shares in the capital of the
Company have been duly authorized and validly issued and are
fully paid and non-assessable. The Shares are owned of record
and beneficially by the Shareholders and 517244 in the amounts
set forth above, free and clear of all Liens. All of the
issued and outstanding shares in the capital of the Company
were offered, issued, sold and delivered by the Company in
compliance with all applicable 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 shares.
(f) ENTITLEMENTS 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 or sell any shares in the capital of the
Company. The Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its
shares or any interests therein or to pay any dividend or make
any distribution in respect thereof.
(g) SHAREHOLDERS' LOANS The total amount of the Sundog
Shareholder Loan is $1,682,454 and the total amount of the
408446 Shareholder Loan is $563,912.
(h) SUBSIDIARIES AND DEBT INTERESTS
(i) The Company has no Subsidiaries or Affiliates;
(ii) Except for the Preferred Shares, the Company does
not presently own, of record or beneficially, or
control, directly or indirectly, any shares,
securities convertible into shares or any other
equity interest in any corporation, limited
liability company, association or other business
entity, nor is the Company, directly or indirectly,
a participant in any joint venture, partnership or
other non-corporate entity; and
(iii) Except as set forth on Schedule 4.1(h)(iii), there
are no promissory notes that have been issued to,
or are held by, the Company.
(i) COMPLETE COPIES OF MATERIALS The Company has delivered to
Purchaser at the Sundog Premises 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 Purchaser.
(j) ABSENCE OF CLAIMS AGAINST COMPANY Except for the Shareholders'
Loans, the 1999 Bonus, benefits and wages due to Dale A.
Hodgson in his capacity as an employee in the ordinary course
of business, and the performance of this Agreement by the
Company, neither 408446 nor the Vendor has any claims against
the Company.
<PAGE>
(k) FINANCIAL CONDITIONS
(i) The Company's revenue for the fiscal year ended
July 31, 1998 was not less than $25,000,000;
(ii) The earnings of the Company before interest and
taxes and bonuses, adjusted to reflect the
add-backs set forth on Schedule 4.1(k)(ii) for the
fiscal year ended July 31, 1998 are not less than
$2,600,000;
(iii) The sum of the Company's total outstanding interest
bearing indebtedness to banks, and all other
financial institutions and creditors (in each case
including the current portions of such
indebtedness, but excluding any amounts referred to
in Section 7.3(d) hereof and Section 7.3(d) of the
Remenda Agreement, and any amounts payable to the
Vendor, 408446, Remenda and 517244, and their
Affiliates, any income taxes payable from the
Balance Sheet Date on earnings, operating leases,
trade payables and other accounts payable incurred
in the ordinary course of the Company's business
consistent with past practice) as of the Funding
Date will not be more than $3,550,000; and
(iv) Except as set forth on Schedule 4.1(k)(iv) no
related party debts other than as set forth herein
or contemplated hereby have been incurred or paid
since July 31, 1998.
(l) FINANCIAL STATEMENTS Schedule 4.1(l) includes true, complete
and correct copies of the Company's audited balance sheet
("Balance Sheet") as of the Balance Sheet Date, and income
statement (the "Income Statement") as at and for the year
ended July 31, 1998 and the Company's internally generated,
unaudited balance sheet and income statement as of and for the
seven months ended February 28, 1999 (collectively, the
"Company Financial Statements").
(i) The Company Financial Statements are materially in
accordance with the books and accounts of the
Company as at the Balance Sheet Date;
(ii) The Company Financial Statements have been prepared
in accordance with GAAP consistently applied;
(iii) The Balance Sheet presents fairly the financial
condition of the Company as of the date indicated
thereon and the Income Statement presents fairly
the results of its operations for the period
indicated thereon;
(iv) Since the dates of the Company Financial
Statements, there have been no material changes in
the Company's accounting policies;
(v) The financial position of the Company as at the
Effective Date will be at least as good as the
financial position of the Company as at the Balance
Sheet Date; and
<PAGE>
(vi) Subject to Schedule 4.1(cc)(iii), the Company
Financial Statements fairly present all of the
assets and liabilities of the Company as at the
Balance Sheet Date and the Effective Date
including, without limitation, all contingent
liabilities of the Company as at the Balance Sheet
Date.
(m) LIABILITIES AND OBLIGATIONS
(i) Except as disclosed on Schedule 4.1(u)(v), the
Company is not liable for or subject to any
liabilities except for:
(A) those liabilities reflected on the Balance
Sheet and not previously paid or
discharged;
(B) 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;
(C) the lease of the Sundog Premises; and
(D) 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.
(ii) The Company has delivered to Purchaser, in the case
of those liabilities which are not fixed or are
contested, a reasonable estimate of the maximum
amount which may be payable;
(iii) Schedule 4.1(m)(iii) sets forth 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 Effective Date,
which if pursued by the Company would require
additional material expenditures of capital; and
(iv) For purposes of this Section 4.1(m), 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 fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
Schedule 4.1(s)(ii) insofar as it relates to the
leases contains a complete list of all
interest-bearing indebtedness of the Company not
disclosed on the Company Financial Statements.
<PAGE>
(n) 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.
(o) BANK ACCOUNTS; POWERS OF ATTORNEY Schedule 4.1(o) sets forth
a complete and accurate list as of the Funding Date, of:
(i) the name of each financial institution at which the
Company has any account or safe deposit box;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account;
(iv) the name of each person authorized to draw thereon
or have access thereto; and
(v) 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.
(p) ACCOUNTS AND NOTES RECEIVABLE At the Funding Time, 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 Funding
Date, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to
employees and the Shareholders) which includes an aging of all
accounts and notes receivables showing amounts due in thirty
(30) day aging increments 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
and twenty (120) days after the day on which it first became
due and payable other than those set forth in Schedule 4.1(p).
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.
(q) PERMITS The Company owns or holds all material permits and
other governmental authorizations, including without
limitation permits, licenses 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 director, shareholder, 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 material compliance with the requirements,
standards, criteria and conditions set forth in the Permits
and other applicable orders, approvals, 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>
(r) REAL PROPERTY
(i) The Company does not own or have any right, title
or interest in any real property except for the
Leases.
(ii) Except as set forth in Schedule 4.1(r) and
4.1(y)(ii):
(A) All of the Leases are valid and in full
force and effect. The Company has
delivered to the Purchaser true and
complete copies of all of the Leases, all
amendments, renewals, extensions,
modifications or supplements thereto, and
all material 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. The
Company has paid all amounts payable to
the landlords under the Leases;
(B) None of the Leases requires the consent or
approval of any party thereto in
connection with the consummation of the
transactions contemplated hereby;
(C) All accounts for work and services
performed or materials placed or furnished
by or on behalf of the Vendor or the
Company upon or in respect of construction
in each of the Leased Premises has been
fully paid by closing and no person will
be entitled to claim a lien under the
BUILDERS' LIEN ACT (Alberta) for work
performed by or on behalf of the Vendor or
the Company;
(D) the Vendor or the Company have not
received any notice of any proceedings by
any Governmental Authority having
jurisdiction advising of any deficiency or
non-compliance with any building
restriction, zoning by-law, fire code, or
any other regulation relating to any of
the Leased Premises, nor is the Vendor or
the Company aware of any such deficiency
or non-compliance;
<PAGE>
(E) to the best of the Vendor's or the
Company's knowledge, all obligations,
conditions and requirements under all
development permits required to be
obtained by the Company have been met and
satisfied and development completion
permits required to be obtained by the
Company evidencing the same have been
obtained from The City of Calgary;
(F) neither the Vendor nor the Company have
received any notice of a proposal to
expropriate any part of the Leased
Premises;
(G) each of the N.E. Lease and the Parking Lot
Lease have been adopted and assumed by and
are binding upon the current registered
owners of the lands on which the N.E.
Warehouse Property and the Parking Lot are
located;
(H) to the best of the Vendor's or the
Company's knowledge, there are no
structural defects, material
non-structural defects or material
deficiencies in any of the buildings on
the Leased Premises, and the Leased
Premises are presently in compliance with
all statutory provisions;
(I) to the best of the Vendor's or the
Company's knowledge, there are no
outstanding work orders or deficiency
notices against the Vendor or the Company
in respect of the Leased Premises, or
other orders relating to any of the Leased
Premises from or required by any police or
fire department, sanitation or health
authorities or from any other federal,
provincial or municipal authority and any
matters under discussion with any such
departments or authorities relating to
work or other orders;
(J) notice has not been received by the Vendor
or the Company from any authority having
jurisdiction advising of any default or
non-compliance with any lawful requirement
or standard of workmanship in the
construction of the improvements on the
Leased Premises placed thereon by the
Vendor or the Company, or in respect of
the plumbing, heating, ventilating, air
conditioning, electrical or other
mechanical systems therein;
(K) the Vendor or the Company have not
received from any of their insurers which
carries on their behalf insurance on the
Leased Premises any written notice of any
defect or inadequacy in connection with
Leased Premises or its maintenance or
operation that would affect the
insurability of the Leased Premises that
has not been cited;
<PAGE>
(L) the Vendor or the Company have not
intentionally withheld any material
information relating to adverse facts or
adverse material in connection with the
Leased Premises or the Leases;
(M) except for the use of premises by
Hostmann-Steinberg, neither the Vendor nor
the Company have granted leases, offers to
lease, options with respect to leases,
licenses, agreements to lease, renewals of
leases, assignments and subleases thereof
or other tenancy agreements or other
agreements granting any right of
occupation, possession or use with respect
to the Leased Premises or buildings
located thereon;
(N) no written notice has been received by the
Vendor or the Company which remains
outstanding from any governmental or
quasi-governmental authority relating to
any defect in the construction of the
buildings or any other improvements on the
Leased Premises, or relating to any work
order, deficiency or non-compliance with
any building restrictions, building codes,
zoning by-laws, fire codes, environmental
laws, or other regulations, laws,
statutes, ordinances or rules, in each
case in respect of the Leased Premises and
the buildings and improvements thereon;
and
(O) each of the Leased Premises are fully
serviced by all required utilities
including electricity, natural gas, water
and sewer.
(s) PERSONAL PROPERTY
(i) Schedule 4.1(s)(i) sets forth a complete and
accurate list of all material personal property
included on the Balance Sheet and all other personal
property owned or leased by the Company and all
trade fixtures and leasehold improvements owned by
both as of the Balance Sheet Date and acquired since
the Balance Sheet Date, including in each case a
list of all leases for material equipment, and an
indication as to which assets are currently owned,
or were formerly owned, by any Shareholder or
business or personal affiliates of any Shareholder
or of the Company. True, complete and correct copies
of the leases for material equipment will be
delivered to Purchaser at the Sundog Premises;
(ii) The Company currently owns or leases all personal
property and other assets necessary to conduct the
business and operations of the Company as they are
currently being conducted, free and clear of all
Liens except for such Liens as are set forth on
Schedule 4.1(s)(ii); and
(iii) All of the material, machinery and equipment of the
Company, including those listed on Schedule
4.1(s)(i), are in good working order and condition,
ordinary wear and tear excepted. All personal
property leases set forth on Schedule 4.1(s)(i) 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 4.1(s)(i) or 4.1(s)(ii).
<PAGE>
(t) INTELLECTUAL PROPERTY
(i) 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
listed on Schedule 4.1(t)(i). Such schedule lists
all of the Marks registered in Canada or in any
foreign country, and 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 4.1(t)(i), the Company
owns all of the registered and unregistered
trademarks, service marks, and trade names that it
uses. The Marks listed on Schedule 4.1(t)(i) 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;
(ii) 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 listed on
Schedule 4.1(t)(ii) and in the Copyrights listed on
Schedule 4.1(t)(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;
(iii) 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 4.1(t)(iii). 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;
(iv) The Marks, Patents, Copyrights, and Other Rights
listed on Schedules 4.1(t)(i), 4.1(t)(ii),
4.1(t)(ii), and 4.1(t)(iii) 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 4.1(t)(iv), 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; and
<PAGE>
(v) 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 4.1(t)(i), 4.1(t)(ii), 4.1(t)(iii) or
4.1(t)(iv). 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 Vendor's or Company's knowledge, do any
grounds for any claims exist: (A) 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; (B) 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; (C) challenging the ownership, validity or
effectiveness of any of the Company Intellectual
Property or other trade secret material to the
Company; or (D) challenging the Company's license or
legally enforceable right to use of the Third Party
Intellectual Property. To the Vendor's or Company's
knowledge, there is no unauthorized use,
infringement or misappropriation of any of the
Company Intellectual Property by any third party.
Neither the Vendor or the Company (i) 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 (ii) has knowledge
of any infringement liability with respect to, or
infringement by, the Company of any trade secret,
patent, trademark, service mark, or copyright of
another.
(u) SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(i) Schedule 4.1(u)(i) 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;
(ii) Schedule 4.1(u)(ii) 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) to which the Company and any
affiliate of the Company or any officer, director or
Shareholder of the Company are parties ("Related
Party Agreements"); that may give rise to
obligations or liabilities exceeding, during the
current term thereof, $110,000 or that may generate
revenues or income exceeding, during the current
term thereof, $110,000 (collectively with the
Related Party Agreements, the "Material Contracts"
for the purposes of this Section 4.1 (u)). The
Company has delivered to the Purchaser at the Sundog
Premises true, complete and correct copies of the
Material Contracts;
(iii) Except to the extent set forth on Schedule
4.1(u)(iii), (A) none of the Company's Significant
Customers has canceled or substantially reduced or,
to the knowledge of the Vendor or the Company, is
currently attempting or threatening to cancel or
substantially reduce, any purchases from the
Company, (B) none of the Company's Significant
Suppliers has canceled or substantially reduced or,
to the knowledge of the Vendor or the Company, is
currently attempting to cancel or substantially
reduce, the supply of products or services to the
Company, and (C) 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 (D) there are no Material Contracts
that were not negotiated at arms 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;
(iv) Each Material Contract 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 Authority 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 except as disclosed in Schedule 4.1(u)(iv);
(v) The approximate outstanding balances on all loans
or credit agreements either (A) between the Company
and any person in which any of the Shareholders
owns a material interest, or (B) guaranteed by the
Company for the benefit of any person in which any
of the Shareholders owns a material interest, are
set forth in Schedule 4.1(u)(v).; and
<PAGE>
(vi) 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
4.1(u)(vi), (A) result in the breach or violation
of, (B) constitute a default under, (C) create a
right of termination under, or (D) 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 Article 4.1(u)(vi)) 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.
(v) GOVERNMENT CONTRACTS The Company is not a party to any
government contracts relative to the provisions of its
services.
(w) 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, as adjusted for the passage
of time through the Funding Date in accordance with the past
custom and practice of the Company.
(x) INSURANCE Schedules 4.1(x), 4.1(aa) and 1.1(u) set forth a
complete and accurate list, as of the Balance Sheet Date, of
all insurance policies carried by the Company and all
insurance claims or workmen's compensation claims received for
the past two (2) policy years. The Company has delivered to
Purchaser at the Sundog Premises 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 set forth in Schedule 4.1(x) 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.
(y) ENVIRONMENTAL MATTERS
(i) For the purposes of this section:
(A) "Environmental Authorization" means all
licenses, permits, grants or other
authorizations issued under or pursuant to
any Environmental Laws pertaining to or
relating in any way to the Company, or any
of its assets, obligations or
undertakings;
<PAGE>
(B) "Environmental Investigation" includes,
but is not limited to, any oral or written
notice received by the Company from any
Governmental Authority relating to any
actual or alleged Release by the Company
of any Hazardous Substance;
(C) Environmental Laws" means all provisions
relating to the environment that are now
in effect under the common law or any
applicable federal, provincial, municipal
or local laws, statutes, by laws,
regulations, rules, orders (including
court orders), judgments, decrees,
ordinances, directives and the terms and
conditions of the Environmental
Authorizations;
(D) "Hazardous Substance" means a substance or
mixture of substances that exhibits
characteristics of flammability, toxicity,
corrosivity or reactivity, including,
without limitation, any contaminants,
pollutants, noise, dangerous substances,
liquid waste, industrial waste, hauled
liquid waste, toxic substances, hazardous
waste, hazardous materials, hazardous
chemicals and hazardous substances as
defined in, regulated by or controlled
pursuant to any Environmental Law now in
effect;
<PAGE>
(E) "Environmental Claims" means any and all
administrative, regulatory or judicial
actions, suits, demands, claims, liens,
notices of non-compliance or violation,
investigations, inspections, inquiries or
proceedings relating in any way to any
Environmental Laws or any permit or
approval issued under any Environmental
Laws including, without limitation:
(a) any claim by a Governmental
Authority for enforcement,
clean-up, removal, response,
remedial or other actions or
damages pursuant to any
Environmental Laws; and
(b) any claim by a Person seeking
damages, contribution,
indemnification, cost recovery,
compensation or injunctive or other
relief resulting from or relating
to Regulated Substances, including
any Release thereof, or arising
from actual, alleged or threatened
injury to human health or safety
(arising from environmental
matters) or to the environment;
(F) the term "Governmental Authority" means
any federal, provincial, state, regional,
municipal or local government or any
department, agency, board, tribunal or
authority thereof or other political
subdivision thereof and any individual or
group exercising executive, legislative,
judicial, regulatory or administrative
functions of, or pertaining to, government
or the operation thereof;
(G) the term "Release" means any release,
spill, emission, leak, pumping, injection,
deposit, disposal, discharge, dispersal,
leaching or migration of Hazardous
Substances into the environment including,
without limitation, the movement of
Hazardous Substances through ambient air,
soil, surface water, ground water,
wetlands, land or sub-surface strata; and
(H) the term "Person" means an individual,
corporation, partnership, trust or other
legal entity and includes any Governmental
Authority.
(ii) Except as set forth on Schedule 4.1(y)(ii): (A)
there are no outstanding orders, notices (whether
written or oral) or similar requirements relating
to the Company issued by any Governmental Authority
with respect to any Environmental Laws, (B) there
are no matters under discussion with any Person
relating to such orders, notices or similar
requirements and (C) the Company is not the subject
of, nor to the Company's knowledge, being
threatened to be the subject of, any Environmental
Investigation or Environmental Claim brought under
any federal, provincial or local Environmental Law
or any third party claim relating to environmental
conditions on or off the properties owned, leased
operated or otherwise occupied by the Company.
<PAGE>
(iii) Except as set forth on Schedule 4.1(y)(ii), the
business conducted by the Company has been and now
is operated in full compliance with all
Environmental Laws, and to the knowledge of the
Company, there are no facts or circumstances which
are likely to give rise to any non-compliance with
any Environmental Law or any Environmental Claim.
(iv) Except as set forth on Schedule 4.1(y)(ii), (A) no
Environmental Authorizations are required to carry
on the business of the Company and the Company has
not received any notice (whether oral or written)
from any Governmental Authority that any
Environmental Authorizations are required to carry
on the business of the Company; (B) the Company and
the Vendor have not placed any underground storage
tanks and Hazardous Substances and to the best of
the Vendor's and Company's knowledge there are no
underground storage tanks and no Hazardous
Substances are present in, on or under the lands
underlying the Sundog Premises (Schedule 4.1(y)(ii)
identifies all underground and aboveground storage
tanks, and the capacity, age and contents of such
tanks, located on real property owned or leased by
the Company), (C) the Company has not transported,
stored, used, manufactured, disposed of, Released,
or exposed its employees or others to any Hazardous
Substance in violation of any Environmental Law in
effect on or before the Funding Date, nor has the
Company manufactured, disposed of, transported,
stored, used Released, or sold, any product
containing a Hazardous Substance in violation of
any Environmental Law;
(v) Except as set forth on Schedule 4.1(y)(ii), the
Company has not ever been prosecuted or convicted
of an offense for non-compliance with any
Environmental Law, nor has it or, to the best of
the Company's knowledge have any of its directors,
officers, employees or agents been fined or
otherwise subjected to any administrative
proceeding or the subject of any Environmental
Investigation, alleged or confirmed as a breach of
any Environmental Law, in relation to either of the
business of the Company or the conduct thereof by
or on behalf of the Company;
(vi) Except as set forth on Schedule 4.1(y)(ii), (A) the
Company has not received any notice of any
Environmental Investigation or Environmental Claim
from any Person, including any notice under or
pursuant to any Environmental Law, nor to the
Company's knowledge are there any facts or
circumstances which could give rise to any such
notice, that the Company is a potentially
responsible or liable party for any environmental
contamination; and (B) the Company has not received
any notice of any conditions on or off the
properties owned, leased, operated or otherwise
occupied by the Company which could give rise to
any liabilities, known or unknown, under any
Environmental Law or as the result of any
Environmental Claim; and
<PAGE>
(vii) Except as set forth on Schedule 4.1(y)(ii), (A) the
Company has not disposed of or arranged (by
contract, agreement or otherwise) for the disposal
of any Hazardous Substance that was generated,
stored or used by the Company at any offsite
location that has been or is listed or proposed for
inclusion on any list promulgated by any
Governmental Authority for the purpose of
identifying sites which pose a danger to health and
safety, and (B) there have been no environmental
studies, assessments, reports or analyses made or
prepared in the last five (5) years relating to the
facilities of the Company.
(z) LABOR AND EMPLOYMENT MATTERS Except as set forth in Schedule
4.1 (z), with respect to employees of and service providers to
the Company:
(i) 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, and
occupational health and safety requirements, and
has not and is not engaged in any unfair labor
practice;
(ii) 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
Vendor's or the Company's knowledge, threatened,
before the Alberta Labor Relations Board or any
other government entity;
(iii) there is not now, nor within the past three (3)
years has there been, any Labour strike, slowdown
or stoppage actually pending or, to the Vendor's or
the Company's knowledge, threatened, against or
directly affecting the Company;
(iv) to the Vendor's or the Company's knowledge, no
labor representation organization effort exists nor
has there been any such activity within the past
three (3) years;
(v) no grievance or arbitration proceeding arising out
of or under collective bargaining agreements is
pending and, to the Vendor's or the Company's
knowledge, no claims therefor exist or have been
threatened;
(vi) 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;
(vii) to the Vendor's or the Company's knowledge, no
trade union, council of trade unions, employee
bargaining agency or affiliated bargaining agent:
<PAGE>
(A) holds bargaining rights with respect to
any of the Company's employees by way of
certification, interim certification,
voluntary recognition, designation or
successor rights, or
(B) has applied to be certified as the
bargaining agent of any of the Company's
employees;
(viii) to the Vendor's or the Company's knowledge, no
executive or key employee or any group of employees
has plans to terminate his, her or their employment
with the Company, the Company has not terminated,
laid-off or dismissed (whether actually or
constructively) any employees of the Company during
the four (4) weeks prior to the Funding Date;
(ix) the Company does not have any written employment
agreement with any person whomsoever except such
agreements as are listed in Schedule 4.1(z)(viii),
which Schedule sets forth a complete and accurate
list, as of March 15, 1999, of all employees of the
Company, their respective positions, dates of hire
with the Company (or any predecessors in interest
thereof), current salaries, benefits and other
remunerations and dates of last salary increases,
and indicates which employees are parties to a
written or oral agreement of employment (including
confidentiality and non-competition agreements);
(x) there have been no claims or allegations brought
against the Company or any officer, director,
Shareholder or employee of the Company or any other
Person with whom an employee may have dealings
through his or her employment by the Company, with
respect to employment, employment practices or
terms or conditions of employment, including,
without limiting the generality of the foregoing,
claims alleging sexual harassment or
discrimination;
(xi) all liabilities due and payable on or before the
Funding Date with respect to present or former
employees of the Company have been paid or shall be
paid in full on or before the Funding Date,
including premiums contributions, remittance and
assessments for unemployment insurance, Canada
Pension Plan, income tax, workers compensation and
any other related legislation, accrued wages,
Taxes, salaries, commissions and Benefit Plan
payments;
(xii) all vacation pay, bonuses, commission and other
emoluments relating to the employees of the Company
are accurately reflected in all respects and have
been accrued in the financial records of the
Company; and
(xiii) the Company has not entered into any agreement with
any of its employees with respect to termination of
their employment, and the Company has no obligation
to reinstate any employees or former employees.
<PAGE>
(aa) EMPLOYEE BENEFIT PLANS
(i) Except as disclosed in Schedule 4.1(aa), the Company
is not bound by or a party to:
(A) any benefit plan including, without
limiting the generality of the foregoing,
any pension plan, retirement savings plan,
retirement compensation arrangement, salary
deferral arrangement, health care plan or
deferred profit sharing plan, or 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 including, without limiting the
generality of the foregoing, 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 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
maintained by or on behalf of the Company
or any of its Subsidiaries for any of their
employees (each, a "Benefit Plan");
(B) any liability for any unfunded obligation
for any benefit or compensation for
employees including, without limiting the
generality of the foregoing, any profit
sharing plans; or
(C) any liability for any contingent obligation
which will become an obligation upon the
Closing including, without limiting the
generality of the foregoing, any retirement
allowance or retirement compensation
arrangement.
(ii) Subject to Schedule 4.1 (aa), all Benefit Plans
listed in Schedule 4.1(aa) have been duly registered
where required by, and are in good standing under,
all applicable legislation including, without
limiting the generality of the foregoing, the INCOME
TAX ACT and the EMPLOYMENT PENSION PLANS ACT
(Alberta), as amended, and all required employer
contributions under each Benefit Plan have been made
and the applicable funds have been funded in
accordance with the terms of such Benefit Plan and no
past service funding liabilities exist thereunder;
<PAGE>
(iii) With respect to each Benefit Plan, true, correct, and
complete copies of all the following documents, to
the extent applicable, have been delivered to
Purchaser or its designee at the Sundog Premises:
(A) all documents constituting the Benefit
Plans, including but not limited to, trust
agreements, insurance policies, service
agreements, and formal and informal
amendments thereto;
(B) the most recent summary plan description;
(C) the most recent written descriptions for all
non-written agreements relating to any such
plan or arrangement;
(D) all annual reports submitted within the two
(2) years preceding the Funding Date.
(E) all notices of non-compliance that were
given within the two (2) years preceding the
Funding Date by any Governmental Authority
with respect to any Benefit Plan; and
(F) employee manuals or handbooks containing
personnel or employee relations policies.
(iv) Subject to Schedule 4.1 (aa), there are no pending
claims or lawsuits by, against, or relating to any
Benefit Plan that would, if successful, result in
liability of the Company, and no claims or lawsuits
have been asserted, instituted or, to the knowledge
of the Vendor or the Company, threatened by,
against, or relating to any Benefit Plan, against
the assets of any trust or other funding
arrangement under any Benefit Plan, by or against
the Company with respect to any Benefit Plan, or by
or against the plan administrator or any fiduciary
of any Benefit Plan, and to the Vendors or the
Company's knowledge there are no facts that could
form the basis for any such claim or lawsuit; and
(v) No Benefit Plan 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.
(bb) TAXES Except as set forth in Schedule 4.1(bb):
(i) The Company has filed or caused to be filed on a
timely basis with the appropriate federal,
provincial or municipal Governmental Authority all
Tax Returns required to be filed on or before the
Funding Date; all such Tax Returns, as filed, are
true, complete and correct in all respects and
fully disclose the income tax, expenses, deductions
and credits to the extent permitted by law; none of
such Tax Returns has been amended; all Taxes due
and payable or remittable with respect to the
periods reflected on such Tax Returns, all
assessments and reassessments and all tax
installments and other remittances required to be
made on or prior to the Funding Date have been or
will be fully paid prior to the Funding Date; there
are no pending assessments or reassessments in
respect of a preceding taxation year or other
taxable period or any audits or investigations in
progress, pending or threatened (either in writing
or verbally, formally or informally), by any
Governmental Authority against the Company or any
of its assets with respect to any Taxes; there are
no agreements, waivers or other arrangements
providing for an extension of time with respect to
the filing, assessment or reassessment of any Taxes
payable by the Company; there are no agreements
with any federal, provincial or municipal taxing
authority that may affect the subsequent Tax
liabilities of the Company; the reserves and
provisions for Taxes on the books of the Company
are adequate for all Taxes which have been or may
in the future be assessed or reassessed against the
Company with respect to the appropriate periods
then ended and all periods prior thereto;
<PAGE>
(ii) The Company (A) has withheld for each payment made
to each of its present and former employees,
officers and directors and to any non-resident of
Canada the amount of any Taxes and other deductions
required to be withheld therefrom, (B) has paid the
same to the proper Government Authority within the
time periods required under any applicable
legislation, and (C) has 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;
(iii) The income tax liabilities of the Company have been
assessed for all taxation years up to and including
the taxation year ended July 31, 1998; true and
complete copies of the federal and provincial Tax
Returns for the Company for each of the fiscal
years ended July 31, 1998, 1997, 1996 and 1995 and
copies of all assessments and reassessments
relating to such taxation years have been delivered
to Purchaser or its representatives;
(iv) The income tax liabilities of Sundog Digital
Printing Limited have been assessed for the
taxation years ended July 31, 1996 and July 31,
1995; true and complete copies of the federal and
provincial Tax Returns for Sundog Digital Printing
Limited for each of the fiscal years ended July 31,
1996 and 1995 and copies of all assessments and
reassessments relating to such taxation years have
been delivered to the Purchaser or its
representatives;
<PAGE>
(v) No amount in respect of any outlay or expense that
is deductible for the purposes of computing the
income of the Company for the purposes of the
Income Tax Act has been owing by the Company for
longer than two (2) years to any person or entity
with whom the Company was not dealing at arm's
length (for the purposes of the Income Tax Act) at
the time that outlay or expense was incurred;
(vi) The Company has not, either directly or indirectly,
transferred property to or acquired property from
any person or entity with whom it was not dealing
at arm's length (for the purposes of the Income Tax
Act) for consideration other than consideration
equal to the fair market value of the property at
the time of the disposition or acquisition thereof;
(vii) The Company has not claimed a deduction with
respect to an outlay or expense which Revenue
Canada may disallow in the circumstances;
(viii) All amounts of consideration paid or agreed to be
paid by the Company with respect to the acquisition
from, the use or reproduction of property of, or
services rendered by, a non-resident of Canada not
dealing at arm's length with the Company for the
purposes of and within the meaning of the Income
Tax Act have been no greater than would be
considered reasonable in the circumstances where
such non-resident would be dealing at arm's length
with such entity;
(ix) All amounts of consideration paid or agreed to be
paid to the Company with respect to the acquisition
by, the use or reproduction of property by, loan
to, or services rendered to, a non-resident of
Canada with whom the Company was not dealing at
arm's length for the purposes of and within the
meaning of the Income Tax Act have been equal to at
least an amount which would be considered
reasonable in circumstances where such non-resident
would be dealing at arm's length with such entity;
(x) There are no circumstances which exist and would
result in, or which have existed and resulted in,
any of sections 80 to and including section 80.04
of the Income Tax Act applying to the Company;
(xi) The Company has not been a party to an election
made under section 83 nor has the Company been a
party to an election under section 85 of the Income
Tax Act;
(xii) The Company is a registrant for the purposes of the
ETA; the Company is not a financial institution
within the meaning of the ETA;
(xiii) The Company has not made any elections under the
ETA;
<PAGE>
(xiv) All applicable retail sales tax was paid by the
Company on the initial acquisition of its tangible
personal property;
(xv) During the three years prior to the Funding Date,
except as set forth in Schedule 4.1(bb), the
Company (A) has not ever done business in, or
currently does not do business in, the United
States of America, and (B) has not ever filed, or
has no obligation to file, any Tax Return in the
United States of America;
(xvi) 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 Balance Sheet, and the amount of the
Company's liability for unpaid Taxes for all
periods or portions thereof ending or deemed to
have ended on or before the Effective 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 made as of the Effective
Date;
(xvii) The Company has filed all reports and has created
and/or retained all records required with respect
to its ownership by and transactions with related
parties. Each related person required to maintain
records with respect to transactions between the
Company and related persons has maintained such
records. All documents that are required to be
created and/or preserved by related persons with
respect to transactions with the Company were
created and are maintained as required by law;
(xviii) The Company currently utilizes the accrual method
of accounting for income tax purposes and such
method of accounting has not changed in the past
five (5) years;
(xix) No deficiencies exist or have been asserted (either
in writing or verbally, formally or informally) or
are expected to be asserted with respect to Taxes
of the Company and the Company has not received
notice (either in writing or verbally, formally or
informally) and does not expect to receive notice
that it has not filed a Tax Return or paid Taxes
required to be filed or paid by it; the Company is
not a party to any action or proceeding for
assessment or collection of Taxes, and no such
event has been asserted or threatened (either in
writing or verbally, formally or informally)
against the Company or any of its assets;
(xx) There are (and as of immediately following the
Funding Date there will be) no Liens on the assets
of the Company relating to or attributable to
Taxes;
(xxi) 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;
<PAGE>
(xxii) None of the Company's assets are leased from or to
a Tax exempt entity under the Income Tax Act (or
comparable laws of any jurisdiction);
(xxiii) 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 9, 18,
20 or 68 of the Income Tax Act (or comparable laws
of any jurisdiction);
(xxiv) The Company is not nor has it ever been, a party to
a Tax indemnity agreement, and the Company has not
assumed the Tax liability of any other Person under
contract;
(xxv) The Company's Tax basis in their assets for
purposes of determining their future amortization,
depreciation and other income tax deductions is
accurately reflected on the Company's books and
records;
(xxvi) The Company has no net operating losses or other
Tax attributes presently subject to limitation
under Section 111 of the Income Tax Act (or
comparable laws of any jurisdiction); and
(xxvii) The Company has filed or caused to be filed, within
the time and manner provided by the Income Tax Act,
any necessary tax elections, pursuant thereto that
relate to the amount of taxable income reported in
any tax returns filed for taxation years ending on
or before the Effective Date.
(cc) CONFORMITY WITH LAW; LITIGATION
(i) The Company has not violated any law or regulation
or any order of any court or federal, provincial,
municipal or other governmental department,
commission, board, bureau, agency or
instrumentality having jurisdiction over it;
(ii) No Shareholder 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 made an assignment in
bankruptcy; and
(iii) Except as set forth on Schedule 4.1(cc)(iii), there
are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Vendor or the
Company, threatened or commenced against or
affecting the Vendor or the Company at law or in
equity, or before or by any federal, provincial,
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 Vendor or the Company or
against any of its properties or business.
<PAGE>
(dd) Intentionally left blank.
(ee) 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 4.1(ee) or
disclosed herein, there has not been:
(i) any change, by itself or together with other
changes, that has materially adversely affected, or
is likely to materially adversely affect, the
business, operations, affairs, prospects,
properties, assets, profits or condition (financial
or otherwise) of the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance) adversely affecting the
properties or business of the Company;
(iii) 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;
<PAGE>
(iv) any declaration or payment of any dividend or
distribution in respect of the shares, or any
direct or indirect redemption, purchase or other
acquisition of any of the shares of the Company;
(v) 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, Shareholders, 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 Employee
Benefit Plan, employment, severance or other
agreement relating to compensation or fringe
benefits;
(vi) 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;
(vii) 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 shareholders and their Affiliates;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the
Company, including without limitation any
indebtedness or obligation of the Shareholders 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;
(ix) 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;
(x) 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;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any breach, amendment or termination of any
material contract, agreement, license, permit or
other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of business;
<PAGE>
(xiv) any capital commitment by the Company, either
individually or in the aggregate, exceeding
$110,000;
(xv) 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;
(xvi) 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);
(xvii) 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 $110,000;
(xviii) any loan by the Company to any Person, 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; or
(xix) negotiation or agreement by the Company or any
officer or employee thereof to do any of the things
described in the preceding clauses (i) through
(xix) (other than negotiations with Purchaser and
its representatives regarding the transactions
contemplated by this Agreement).
(ff) DISCLOSURE All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports,
statements and other writings furnished to Purchaser 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 Vendor, the Company or 408446 contained in
this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Vendor, the
Company or 408446 to Purchaser 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
Vendor, the Company or 408446 that has specific application to
the Vendor, the Company and 408446 (other than general
economic or industry conditions) and that materially adversely
affects or, as far as the Vendor, 408446 and the Company 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>
(gg) PREDECESSOR STATUS; Schedule 4.1(gg) 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 (5) year period immediately preceding the
Closing, the Company has operated only under the names set
forth on Schedule 4.1(gg) in the jurisdiction or jurisdictions
set forth on Schedule 4.1(gg) and has not been a subsidiary or
division of another corporation or a part of an acquisition
which was later rescinded.
(hh) LOCATION OF CHIEF EXECUTIVE OFFICES The Company's chief
executive offices are located at 1311 - 9 Avenue S.W.,
Calgary, Alberta.
(ii) LOCATION OF EQUIPMENT AND INVENTORY All inventory and
equipment held on the date hereof by the Company is located at
either the Sundog Premises or at 2320 - 35th Avenue N.E.,
Calgary or at the premises of Coast Paper in Calgary. For
purposes of this section, (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 of any nature 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.
(jj) YEAR 2000 COMPLIANCE The Company is currently undergoing a
Year 2000 compliance review but has not yet completed same. As
such, the Company may not be Year 2000 Compliant and Ready. To
the best of the knowledge of the Vendor, the Company and
408446 no customer, supplier of the Company or party with whom
the Company has business dealings has notified the Company
that they are not or may not be Year 2000 Complaint and Ready.
Schedule 4.1(jj) appends various reports on Year 2000
Compliance and a Company internal memorandum in regard to Year
2000 Compliance.
<PAGE>
4.2 HODGSON'S REPRESENTATIONS AND WARRANTIES
The Vendor represents and warrants to the Purchaser that:
(a) 408446 is a corporation duly amalgamated, organized and
subsisting under the laws of Alberta as a private company as
that term is defined in the SECURITIES ACT (Alberta) with the
corporate power to own its assets and to carry on its business
and has made all necessary filings under all applicable
corporate, securities and taxation laws or any other laws to
which 408446 is subject;
(b) the authorized capital of 408446 consists of 25,000 Class A
Common Shares, 25,000 Class B Common Shares and unlimited
number of C Preferred Shares which as of the Funding Date
there is issued and outstanding the following as fully-paid
and non-assessable:
<TABLE>
<S> <C>
SHARES BENEFICIAL AND REGISTERED OWNER
------ -------------------------------
106 Class A Common Shares Vendor
</TABLE>
(c) The Vendor is the beneficial and registered owner of the
shares referred to in Section 3.2(b) above and the Hodgson
Shares which, at the Funding Date, will be free and clear of
all Liens and any other rights of others;
(d) The Vendor has good and sufficient power, authority, and right
to enter into and deliver this Agreement and as at the Funding
Date to transfer the legal and beneficial title and ownership
of the 408446 Shares and the Hodgson Shares to the Purchaser
free and clear of all Liens and any other rights of others;
(e) there is no contract, option or any other right of another
binding upon or which at any time in the future may become
binding upon:
(i) The Vendor to sell, transfer, assign, pledge,
charge, mortgage or in any other way dispose of or
encumber any of the 408446 Shares or the Hodgson
Shares other than pursuant to the provisions of
this Agreement, or
(ii) to allot or issue any of the unissued shares of
408446 or to create any additional class of shares.
(f) neither the entering into nor the delivery of this Agreement
nor the completion of the transactions contemplated hereby by
the Vendor or by 408446 will result in the violation of:
(i) any of the provisions of the constating documents
or by-laws of 408446,
<PAGE>
(ii) any agreement or other instrument to which 408446
is a party or by which 408446, is bound, or
(iii) any applicable law, rule or regulation.
(g) at the Funding Time, the sole asset of 408446 will be 160
Class A Common Voting Shares in the capital of the Company
registered in its name and 408446 will be the owner of such
assets with a good and marketable title, free and clear of all
Liens and any other rights of others;
(h) as at the Funding Date, there will be no outstanding
liabilities against 408446 other than the 408446 Shareholders
Loan;
(i) 408446 is not a party to any contract or contractual
commitment other than those agreements entered into in
accordance with the terms of this Agreement;
(j) 408446 is not a party to or bound by any guarantee,
indemnification, surety or similar obligation other than
guarantees granted on behalf of the Company;
(k) 408446 is not a party to any lease or agreement in the nature
of a lease for real property, whether as lessor or lessee;
(l) as of the Funding Date, and except for the shares it holds in
the Company, 408446 will not have any Subsidiaries or
agreements, options or commitments to acquire any shares or
securities of any corporation or to acquire or lease any
business operations, real property or assets;
(m) there are no actions, suits or proceedings (whether or not
purportedly on behalf of 408446) pending or threatened against
or adversely affecting, or which could adversely affect,
408446 or any of its assets before or by any federal,
provincial, municipal or other governmental court, department,
commission, board, bureau, agency or instrumentality, domestic
or foreign, whether or not insured, and which might involve
the possibility of any judgment or liability against 408446;
(n) 408446 is conducting its business in compliance with all
applicable laws, rules, regulations, notices, approvals and
orders of Canada and of the Province of Alberta and all
municipalities thereof in which its business is carried on, is
not in material breach of any such laws, rules, regulations,
notices, approvals or orders and is duly licensed, registered
or qualified, and duly possesses all material permits, in the
Province of Alberta and all municipalities thereof in which
408446 carries on its business to enable its business to be
carried on as now conducted and its assets to be owned, leased
and operated, and all such licences, registrations,
qualifications and permits are valid and subsisting and in
good standing and none of the same contains or is subject to
any term, provision, condition or limitation which has or may
have a material adverse effect on the operation of its
business or which may materially adversely change or terminate
such licence, registration, qualification or permit by virtue
of the completion of the transactions contemplated hereby; and
(o) 408446 does not have any liability, obligation or commitment
for the payment of income taxes, corporation capital taxes or
any other taxes or duties of whatever nature or kind or
interest or penalties with respect thereto, except such as are
disclosed in the 408446 financial statements or such taxes or
duties not yet due as have arisen since the date of last
408446 financial statements in the usual and ordinary course
of business and for which adequate provision in the accounts
of 408446 has been made. 408446 is not in arrears with respect
to any required withholdings, remittances or instalment
payments of any tax or duty of any kind and has not filed any
waiver for a taxation year under the Income Tax Act or any
other legislation imposing tax on it. 408446 has, at the
prescribed times, filed all tax returns, information returns
and schedules thereto required to be filed by it in all
applicable jurisdictions. All such tax returns properly
reflect, and do not in any respect understate, the taxable
income or the liability for taxes of 408446 in a relevant
taxation year or calendar year. Without limiting the
generality of the foregoing, 408446 is in compliance with all
registration, timely reporting, and remittance obligations in
respect of all provincial and federal sales tax legislation
and the goods and services tax. There are no actions, suits,
or other proceedings or investigations or claims in progress,
pending or threatened against 408446 in respect of any taxes,
governmental charges, or assessments and, in particular, there
are no currently outstanding reassessments or written
enquiries that have been issued or raised by any governmental
authority relating to any such taxes, governmental charges and
assessments. To the knowledge of the Vendor and 408446, there
is no basis for any adverse reassessment by any taxing
authority for any year remaining open for reassessment.
ARTICLE 5
PURCHASER'S REPRESENTATIONS AND WARRANTIES
5.1 PURCHASER'S REPRESENTATIONS
The Purchaser represents and warrants to the Vendor that:
(a) CORPORATE STANDING The Purchaser is a corporation duly
organized, validly existing and in good standing under the
laws of the Province of Ontario, 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.
(b) AUTHORIZATION; VALIDITY OF OBLIGATIONS The representative of
the Purchaser executing this Agreement has all requisite
corporate power and authority to enter into and bind the
Purchaser to the terms of this Agreement. The Purchaser 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 the Purchaser
and the performance by the Purchaser of the transactions
contemplated herein has been duly and validly authorized by
the Board of Directors of the Purchaser 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 Purchaser enforceable in accordance with its
terms; and
<PAGE>
(c) 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:
(i) conflict with, or result in a breach or violation
of the constating documents or by-laws of the
Purchaser;
(ii) 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
the Purchaser is a party, or result in the creation
or imposition of any Lien on any of the Purchaser's
properties pursuant to (A) any law or regulation to
which the Purchaser or any of its property is
subject, or (B) any judgment, order or decree to
which the Purchaser is bound or any of its property
is subject;
(iii) result in termination or any impairment of any
material permit, license, franchise, contractual
right or other authorization of the Purchaser;
(iv) violate any law, order, judgment, rule, regulation,
decree or ordinance to which the Purchaser is
subject, or by which the Purchaser is bound
including, without limitation, the Investment
Canada Act.
ARTICLE 6
COVENANTS
6.1 TAXES
The following provisions shall govern the allocation of
responsibility as between the Company and 408446, on the one hand, and the
Vendor, on the other, for certain tax matters following the Effective Date:
<PAGE>
(a) The Vendor 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 and 408446 for all
fiscal periods ending on or deemed to have ended on or before
the Effective Date that are due after the Effective Date. The
Vendor shall pay to the Company and 408446 on or before the
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 books and
records of the Company and 408446 as of the Effective Date.
Such 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 Purchaser. To
the extent reasonably requested by the Vendor or required by
law, Purchaser shall participate in the filing of any Tax
Returns filed pursuant to this paragraph;
(b) The Purchaser, the Company, and 408446 on one hand, and the
Vendor 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 6.1 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 and 408446 for all periods ending
prior to or including the Effective Date; and (C) preserve
information, records or documents relating to Tax matters
pertinent to the Company and 408446 that is in their
possession or under their control until the expiration of any
applicable statue of limitations or extensions thereof;
(c) The Vendor shall timely pay all transfer, documentary, sales,
use, stamp, registration and other Taxes and fees applicable
to the Vendor arising from or relating to the transactions
contemplated by this Agreement, and the Vendor shall, file all
necessary Tax Returns and other documentation with respect to
all such transfers, documentary, sales, use stamp,
registration, and other Taxes and fees. If required by
applicable law the Purchaser and the Company will join in the
execution of any such Tax Returns and other documentation;
(d) The Purchaser does not assume and shall not be liable for any
Taxes under the Income Tax Act or any other Taxes whatsoever
which may be or become payable by the Vendor and 408446
including, without limiting the generality of the foregoing,
any Taxes resulting from or arising as a consequence of this
Agreement;
(e) The Vendor shall prepare or cause to be prepared and file or
cause to be filed, within the time and manner provided by the
Income Tax Act, the elections pursuant to Section 16.1
thereof, that relate to the August 26, 1998 financing
transaction entered into with the Bank of Nova Scotia; and
<PAGE>
(f) The Company shall be responsible for the expense of filing its
Tax Return resulting from the transactions contemplated by
this Agreement.
6.2 ACCOUNTS RECEIVABLE
In the event that all Accounts Receivable as at the Funding
Date are not collected in full (subject to and net of reserves specified in
Section 4.1(p)) within one hundred and twenty (120) days after the Closing then,
at the request of the Company or Purchaser, the Vendor shall pay the Company an
amount equal to the Vendor's Portion of the Accounts Receivable not so
collected, and upon receipt of such payment the Company shall assign to the
Vendor, all rights with respect to the uncollected Accounts Receivable giving
rise to the payment and shall also thereafter promptly remit to Vendor any
excess collections received by it with respect to such assigned Accounts
Receivable. Subsequent to the Funding Time the Purchaser shall cause the Company
to use all commercially reasonable efforts to collect the Accounts Receivable.
6.3 RELATED PARTY AGREEMENTS
The Vendor, the Company and/or 408446, as the case may be,
shall terminate any Related Party Agreements, which Purchaser requests the
Vending the Company or 408446 to terminate, whether before or after the Funding
Time, with the exception of the leases of the Sundog Premises.
6.4 COOPERATION
(a) The Company, Vendor, 408446 and Purchaser shall each deliver
or cause to be delivered to the other on the Funding Date, and
at such other times and places as shall be reasonably agreed
to, such instruments as the other may commercially reasonably
request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief
financial officer of the Company and 408446 shall execute any
documentation reasonably required by Purchaser's independent
public accountants (in connection with such accountant's audit
of the Company and 408446) or the NASDAQ National Market;
(b) The Vendor, the Company and 408446 shall cooperate and use
their commercially reasonable efforts to have the current
officers, directors and employees of the Company and 408446
cooperate with the Purchaser on and after the Funding 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
Funding Date;
(c) Each party hereto shall cooperate in obtaining all consents
and approvals required under this Agreement to effect the
transactions contemplated hereby; and
<PAGE>
(d) The Company, the Vendor, 408446 and the Purchaser shall file
all notices and other information and documents required under
the INVESTMENT CANADA ACT as promptly as practicable after the
date hereof.
6.5 ACCESS TO INFORMATION; CONFIDENTIALITY; PUBLIC DISCLOSURE
(a) Between the date of this Agreement and the Funding Date, the
Vendor will afford to the officers and authorized
representatives of the Purchaser access to (A) all of the
sites, properties, books and records of the Company and 408446
and (B) such additional financial and operating data and other
information as to the business and properties of the Company
and 408446 as the Purchaser 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;
(b) The Purchaser 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. The Purchaser agrees that, unless
there is a Closing, it will not disclose confidential
information with respect to the Company to any person, 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
6.5(b), unless:
(A) such information becomes known to the public
generally through no fault of the Purchaser;
(B) disclosure is required by law or the order
of any governmental authority under color of
law; or
(C) 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 (A), (B) or (C) above, the Purchaser 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; and
(c) Prior to the Funding Date, neither the Vendor, the Company nor
408446 shall make any disclosure (whether or not in response
to an inquiry) of the subject matter of this Agreement unless
such disclosure is previously approved by the Purchaser in
writing. The Purchaser agrees to keep the Vendor, the Company
and 408446 apprised in advance of any disclosure of the
subject matter of this Agreement by the Purchaser prior to the
Funding Date.
<PAGE>
6.6 CONDUCT OF BUSINESS PENDING CLOSING
Between the Effective Date and the Funding Date, the Company
and 517244 will (except as requested or agreed by Purchaser or except as
contemplated by the terms hereof):
(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 the 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 in accordance with
past practice or as contemplated herein.
6.7 PROHIBITED ACTIVITIES
Between the Effective Date and the Funding Date, the Company
and 408446 will not, without the prior written consent of Purchaser, not to be
unreasonably withheld unless the same is contemplated by the terms hereof:
(a) make any change in their respective articles of incorporation
or bylaws, or authorize or propose the same;
<PAGE>
(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 shares or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution
for shares of its shares, or purchase, redeem or otherwise
acquire or retire for value any shares;
(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 $110,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, shareholder, employee, agent,
representative or independent contractor, except for ordinary
and customary bonus and salary increases, make any bonus or
management fee payment to any such person; make any loans or
advances; adopt or amend any plan or 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) amalgamate or consolidate or agree to amalgamate 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;
<PAGE>
(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 Shareholder; 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 Purchaser; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 6.7(a) through (o) above, or any
action which would make any of the representations and
warranties of the Vendor, Company and 408446 contained in this
Agreement untrue or result in any of the conditions set forth
in Article 7 not being satisfied.
6.8 EXCLUSIVITY
None of the Vendor, the Company, 408446 or any agent, officer,
director or any representative of the Vendor, the Company or 408446 or the
Vendor will, during the period commencing on the date of this Agreement and
prior to the earlier to occur of the Funding Time 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) engage in any discussions pertaining to; or
(c) furnish any information to any person other than Purchaser
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 any one of the Vendor, the
Company or 408446 receives any unsolicited offer or proposal, or has actual
knowledge of any unsolicited offer or proposal, relating to any of the above,
the Vendor, the Company or 408446 shall immediately notify Purchaser thereof,
including the identity of the party making such offer or proposal and the
specific terms of such offer or proposal.
<PAGE>
6.9 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
Funding Time; 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 6.9 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 7 and 8, or (z) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE 7
CONDITIONS
7.1 CONDITIONS FOR THE BENEFIT OF THE PURCHASER
The obligation of Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, on or
before the Funding Date, of the following conditions and deliveries:
(a) All of the representations and warranties of the Vendor, the
Company and 408446 contained in this Agreement shall be true,
correct and complete on and as of the Funding 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 Vendor, the Company and
408446 on or before the Funding Date shall have been duly
complied with, performed or satisfied; and a certificate to
the foregoing effects dated the Funding Date and signed on
behalf of the Vendor, the Company and 408446 and shall have
been delivered to Purchaser;
(b) 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 Purchaser's proposed acquisition of the
Shares, or limiting or restricting Purchaser'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;
<PAGE>
(c) There shall be no action, suit, claim or proceeding of any
nature pending or threatened against Purchaser or the Vendor,
the Company or 408446 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 in respect of the Vendor, the Company and 408446
to the foregoing effect dated the Funding Date and signed on
behalf of the Vendor, the Company and 408446 shall have been
delivered to Purchaser;
(d) 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 except those that affect
the industry generally; and Purchaser shall have received a
certificate signed by the Vendor, the Company and 408446 dated
the Funding Date to such effect;
(e) The Purchaser shall have received (i) a copy of the articles
of incorporation of the Company and 408446 certified by an
appropriate authority in the jurisdiction of its incorporation
and (ii) a copy of the bylaws of the Company and 408446
certified by a duly authorized officer of the Company, and
such documents shall be in form and substance reasonably
acceptable to the Purchaser;
(f) Purchaser shall have received from the Company completed
interim financial statements for the period ending on February
28, 1999 in a form reasonably satisfactory to Purchaser;
(g) The Purchaser shall have received a certificate (the "Closing
Financial Certificate"), dated as of the Funding Date, signed
on behalf of the Company and by the Vendor, setting forth:
(i) the revenue of the Company for the fiscal year
ended July 31, 1998 and the period ended February
28, 1999;
(ii) the earnings of the Company before interest and
taxes and bonuses, adjusted to reflect the add-back
of certain non-recurring costs, for the fiscal year
ended July 31, 1998 and the period ended February
28, 1999;
(iii) The sum of the Company's total outstanding interest
bearing indebtedness to banks, and all other
financial institutions and creditors (in each case
including the current portions of such
indebtedness, but excluding any amounts payable
pursuant to Section 3.1(b) hereof and Section
3.1(b) of the Remenda Agreement, and any amounts
payable to the Vendor, Remenda and 517244, and
their Affiliates, any income taxes payable from the
Balance Sheet Date on earnings, operating leases,
trade payables and other accounts payable incurred
in the ordinary course of the Company's business
consistent with past practice) as of the Funding
Date.
<PAGE>
(h) Vendor shall have entered into an employment agreement with
the Purchaser in the form set forth in Schedule 1.1(t) hereof
prior to the Funding Time;
(i) the Company shall have entered into a lease with the
registered owner(s) of the Sundog Premises on the terms set
forth in Schedule 7.1(i) hereof prior to or contemporaneous
with the Funding Time and each of such leases shall be
registered by way of caveat against the certificates of title
to the Sundog Premises and in the event that any mortgage,
encumbrance or financial charge exists, then the holder of
each such mortgage, encumbrance or financial charge shall have
executed and delivered to the Company a non-disturbance
agreement in form and content acceptable to the Purchaser;
(j) Remenda shall have signed the Remenda Agreement; and
(k) The Vendor, the Company and 408446 shall have made all
deliveries as are called for by this Agreement. The Purchaser
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.
7.2 CONDITIONS FOR THE BENEFIT OF THE VENDOR, THE COMPANY AND
408446
The obligation of the Vendor, the Company and 408446 to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction or waiver, at or before the Funding Time, of the following
conditions and deliveries:
(a) All of the representations and warranties of Purchaser
contained in this Agreement shall be true, correct and
complete on and as of the Funding Time 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 Purchaser on or before the Funding Date shall
have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Funding Date
and signed by any officer of the Purchaser shall have been
delivered to the Vendor, the Company and 408446;
(b) 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 Purchaser's proposed acquisition of the
Shares, or limiting or restricting Purchaser'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 Funding Date and signed by any
officer of the Purchaser shall have been delivered to the
Vendor, the Company and 408446;
<PAGE>
(c) All necessary material consents of, and filings with, any
governmental authority or agency or third party relating to
the consummation by the Purchaser of the transactions
contemplated herein, shall have been obtained and made;
(d) The Company or Purchaser shall have entered into an employment
agreement with Vendor in the form set forth in Schedule 1.1(t)
hereof prior to or contemporaneously with the Funding Time;
and
(e) Remenda shall have entered into the Remenda Agreement.
7.3 CONDITIONS FOR BENEFIT OF PURCHASER, VENDOR, COMPANY AND
408446
The obligation of the Purchaser, the Vendor, the Company and
408446 to consummate the transactions contemplated by this Agreement are subject
to the satisfaction or waiver, at or before the Funding Time, of the following
conditions and deliveries to be completed immediately prior to the Funding Time:
(a) the Company shall sell to Vendor, and Vendor will purchase
from the Company, the Preferred Shares for the sum of
$375,000;
(b) the Company shall pay out the Related Party Debt in its
entirety;
(c) the Company shall remit the Johnson Pension Obligation to such
entity as shall be designated by Harvey Johnson. Concurrently
therewith, Harvey Johnson shall unconditionally release the
Company for all claims in relation to the Johnson Pension
Obligation and enter into an amendment of the Johnson
Employment Contract acknowledging deferral of payment of the
Johnson Severance Obligation to June 30, 1999 and providing
for an assignment to Harvey Johnson of the life insurance on
his life held by the Company;
(d) the Company shall declare, as evidenced by a written
resolution of the board of directors of the Company that a
bonus net of withholdings has been credited to the Sundog
Shareholder Loan account in the net amount of $408,715 (the
"1999 Bonus"). The Company shall make all remittances,
including any remittances required under the Income Tax Act,
to be made in connection with the payment of the 1999 Bonus;
and
(e) Hodgson shall release the Company from that certain employment
agreement dated December 22, 1989 between Hodgson and the
Company.
<PAGE>
ARTICLE 8
INDEMNIFICATION
8.1 GENERAL INDEMNIFICATION BY THE VENDOR
The Vendor as to the Vendor's Portion, covenants and agrees to
indemnify, defend, protect and hold harmless the Purchaser and the Company and
their respective officers, directors, employees, shareholders, assigns,
successors and Affiliates (individually, an "Indemnified Party" and
collectively, the "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 legal 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:
(i) any breach of any representation or warranty of the
Vendor, 408446 or the Company set forth in this
Agreement or any Schedule or certificate, delivered
by or on behalf of any of the Vendor, 408446 or the
Company in connection herewith;
(ii) any nonfulfillment of any covenant or agreement by
the Vendor or, prior to the Funding Date, the
Company or 408446, under this Agreement. or
(iii) the business, operations or assets of the Company
or 408446 prior to the Funding Time or the actions
or omissions of the Company's or 408446's
directors, officers, shareholders, employees or
agents prior to the Funding Time, other than
Damages arising from matters expressly disclosed in
the Company Financial Statements, this Agreement or
the Schedules to this Agreement
(iv) any additional assessment, Tax or penalties payable
as a result of the assignment of the Hodgson
Insurance and any other assignment of any employee
insurance in accordance with this 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:
(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 $110,000 (the "Indemnification
Threshold"); provided, however, that the Indemnification
Threshold shall not apply to (i) Damages arising out of any
breaches of the covenants of the Vendor, 408446 or the Company
set forth in this Agreement or representations and warranties
made in Sections 4.1(e) (Authorized Capital), 4.1(f)
(Entitlements), 4.1(u) (Significant Customers; Material
Contracts and Commitments), 4.1(aa) (Employee Benefit Plans),
4.1(bb) (Taxes), or 4.1(cc) (Conformity with Law; Litigation);
<PAGE>
(b) the aggregate amount of the Vendor's liability under this
Article 8 shall not exceed the Purchase Price, provided
however, that the Vendor's liability for Damages arising out
of any breaches of the representations made in Sections
4.1(y), 4.1(aa) or 4.1(bb) 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);
(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) (A) except as to representations, warranties,
and covenants specified in clause (i)(B)
of this Section 8.2(c), the third
anniversary of the Funding Date;
(B) with respect to representations and
warranties contained in Sections 4.1(y),
4.1(aa), 4.1(bb) 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 limitation period
contained in the applicable federal or
provincial statute (including extensions
thereof), or (B) if there is no
applicable federal or provincial statute,
(x) five (5) years after the Funding Date
if the Claim (as defined below) is related
to the cost of investigating, containing,
removing or remediating a release of
Hazardous Substances (as defined above)
into the environment, or (y) five (5) years
after the Funding Date for any other Claim
covered by clause (i)(B) of this Section
8.2(c); or
(ii) The final resolution of claims or demands pending
as of the dates described in clause (i) of this
Section 8.2(c) (such claims referred to as "Pending
Claims").
(d) For greater certainty the Vendor shall, in accordance with the
provisions of this Article 8, indemnify the Purchaser and the
Company in respect of those matters set out in that schedule
delivered at the Funding Time by the Purchaser to the Vendor
which letter is attached hereto as Schedule 8.2(d). The Vendor
acknowledges that Schedule 8.2(d) shall in no way constitute
any amendment, waiver, modification or abridgement of any of
the Purchasers rights under this Article 8.
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 within
thirty (30) days of having actual knowledge of such Claim
(failing which the Indemnified Party shall be deemed to waive
its right to indemnification in respect of such Claim) notify
the Vendor 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 Vendor 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 Vendor within thirty (30) days
of having actual knowledge of such Third Party
Claim (failing which the Indemnified Party shall be
deemed to waive its right to Indemnification in
respect of such Claim). The Vendor 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 the Vendor 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 Vendor 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 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 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 GENERAL INDEMNIFICATION BY THE PURCHASER
The Purchaser covenants and agrees to indemnify, defend,
protect and hold harmless the Vendor from, against and in respect of:
<PAGE>
(a) all Damages suffered, sustained, incurred or paid by the
Vendor in connection with, resulting from or arising out of,
directly or indirectly:
(i) any breach of any representation or warranty of the
Purchaser set forth in this Agreement;
(ii) any nonfulfillment of any covenant or agreement by
the Purchaser, or after the Funding Date, the
Company, under this Agreement, excluding any such
non-fulfillment caused by the Vendor;
(iii) the business, operations or assets of the Company
subsequent to the Funding Date or the actions or
omissions of the Company's directors, officers,
shareholders, employees or agents subsequent to the
Funding Date, excluding Damages caused by or
actions or omissions of the Vendor; or
(iv) guarantees or indemnities or the sureties provided
by Vendor or his Affiliates for the benefit of the
Company as set forth in Schedule 8.4(a)(iv).
(b) the indemnification obligation under this Section 8.4 shall
terminate on the third anniversary of the Funding Date.
8.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants made by the
Vendor, the Company, 408446 and the Purchaser 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 Funding Date. The representations of the Vendor, the
Company and 408446 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 and warranties of the Purchaser will survive
Closing and will remain in effect until, and will expire upon the third
anniversary of the Funding Date.
8.6 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.
8.7 RIGHT TO SET OFF
Subject to complying with the procedures set forth in Section
11.10, Purchaser shall have the right, but not the obligation, to set off, in
whole or in part, against the portion of the Purchase Price payable pursuant to
Sections 3.1(a)(iii), 3.1(a)(iv) or 3.1(a)(v) hereof, amounts finally determined
under Section 8.3 to be owed to the Purchaser by the Vendor, 408446 or the
Company or any Indemnifying Party under this Article 8.
<PAGE>
8.8 CLAIMS
The Vendor's Liability to an Indemnified Party pursuant to
Section 8.1 shall be limited to the Vendor's Portion. Similarly, the Parties
acknowledge that in relation to any other action or claim whatsoever under and
pursuant to this Agreement whether in relation to a breach of the representation
or warranties, the covenants or otherwise, the Vendor's Liability shall be
limited to the Vendor's Portion and the Purchaser shall deliver notice to the
Vendor of such other claim within thirty days of having actual knowledge of such
claim failing which the Purchaser shall be deemed to have waived such claim.
ARTICLE 9
NON - COMPETITION
9.1 PROHIBITED ACTIVITIES
The Vendor 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 the Purchaser as trade secrets. In order to protect the
Company's and/or the Purchaser's critical interest in these relationships and
information, the Vendor covenants that he will not, for a period of four (4)
years following the Funding 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 locations 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 the Vendor
was engaged in prior to the Funding Date or (ii) any facet of
the business of the Company about which the Vendor acquired
proprietary or confidential information during the course of
his ownership of the Shares;
(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 Funding Date, or
that has been, within one (1) year prior to the Funding Date,
a customer of the Company; or
<PAGE>
(d) acquire or enter into any agreement to acquire any prospective
acquisition candidate that was, to the knowledge of the
Vendor, 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 Funding
Date. The Vendor, 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 Vendor 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
The Vendor acknowledges that 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 Vendor covenants and agrees
with the Company and Purchaser that he will not at any time, except in
performance of Vendor'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 or she 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 Purchaser, unless (i) such information
becomes known to the public generally through no fault of any Shareholder, (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 Vendor shall give prior written notice
thereof to Purchaser and provide Purchaser 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
Purchaser's management with respect to the Company's or Purchaser'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
Purchaser as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Purchaser for which it
would have no other adequate remedy, the Vendor agrees that the foregoing
covenant may be enforced by Purchaser in the event of breach by the Vendor, by
injunctions and restraining orders.
<PAGE>
9.4 REASONABLE RESTRAINT
The parties agree that the foregoing covenants in this Article
9 impose a reasonable restraint on the Vendor in light of the activities and
business of the Purchaser 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 the Vendor against the Purchaser,
whether predicated on this Agreement or otherwise, shall not constitute a
defence to the enforcement by the Purchaser 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
Vendor made in this Article 9 shall be effective, shall be completed by
excluding from such computation any time during which the Vendor is found by a
court of competent jurisdiction to have been in violation of any provisions of
this Article 9. The covenants contained in this 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 Vendor 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.
<PAGE>
ARTICLE 10
CLOSING
10.1 CLOSING
(a) 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 the Purchaser and the Vendor may agree, which date is
referred to as the "Funding Date."
(b) The completion of the transactions contemplated herein shall
be carried out pursuant to such reasonable trust conditions as
are agreed upon between the solicitors representing the
Vendor, the Company and 408449 and the Solicitors representing
the Purchaser which shall provide that all closing documents
and funds shall be delivered to the Solicitors representing
the Purchaser and held in escrow and not released until all
parties have delivered all required closing documents and
funds and caveats respecting the Leases have been registered
at the Land Titles Office against the respective certificates
of title to the lands referenced in the Leases, subject only
to the caveats and instruments that were registered against
titles as at the Effective Date.
10.2 DELIVERIES AT FUNDING TIME
At the Funding Time:
(a) the Purchaser shall deliver or cause to be delivered to the
Vendor the following:
(i) funds in the amount of $4,995,742 for the Purchased
Interests;
(ii) demand promissory note in the amount of $820,056;
(iii) releases of the personal guarantees of Vendor and the
corporate guarantees of 408446 and its Affiliates;
(iv) releases of the Vendor by the Company and 408446;
(v) a legal opinion in form reasonably satisfactory to
Vendor's solicitors in relation to the enforceability
of this Agreement and the other agreements delivered
pursuant to the terms hereof;
(vi) an undertaking to pay to the Johnson Severance
Obligation and the Johnson Pension Obligation.
(b) the Vendor shall deliver or cause to be delivered to the
Purchaser the following:
(i) a certificate of each of the Vendor, 408446 and the
Company confirming that the representations set forth
herein by them to are true and correct at the Funding
Date;
<PAGE>
(ii) a certified copy of the resolution of the board of
directors of the Company and 408446 approving the
agreement and the transfer of the Hodgson Shares and
408446 Shares from the Vendor to the Purchaser;
(iii) certificates representing the Shares duly endorsed in
blank for transfer;
(iv) The share certificate book, minute book, corporate
seal and all other corporate records and business
records of 408446;
(v) resignations of the existing directors and officers
of 408446;
(vi) a legal opinion in form reasonably satisfactory to
Purchaser's solicitors in relation to the
enforceability of this Agreement and the other
agreements delivered pursuant to the terms hereof;
(c) At the Funding Time, the Vendor, the Shareholders, the Company
and the Purchaser, as the case may be, shall execute and
deliver or cause to be delivered the following:
(i) an assignment of the Shareholders Loans; and
(ii) the Hodgson Employment contract.
10.3 PURCHASER POST CLOSING OBLIGATIONS
Following the Funding Time the Purchaser shall:
(a) appoint new directors for 408446 and the Company and cause a
duly completed Notice of Change of Directors to be filed with
Alberta Corporate Registry and in any other jurisdictions
where 408446 or the Company is registered and such
notification is required to be filed;
(b) designate a new registered office for 408446 and the Company
and cause a duly completed Notice of Change of Address to be
filed with Alberta Corporate Registry;
(c) cause 408446 and the Company to deliver to the former
directors of 408446 and the Company, as the case may be, duly
executed releases in a form reasonably acceptable to the
solicitors for the Vendor;
(d) assign the Hodgson Insurance from the Company to Hodgson or
his nominee; and
(e) assign the TPI Receivable from the Purchaser in favor of the
Vendor.
<PAGE>
10.4 JOHNSON CONTRACT
In due course, following the Funding Time, the Purchaser shall
ensure the payment to Harvey Johnson of the Johnson Severance Obligation by the
Company.
<PAGE>
ARTICLE 11
GENERAL
11.1 TERMINATION
This Agreement may be terminated at any time prior to the
Funding Date solely:
(a) by mutual consent of the board of directors of Purchaser
and the board of directors of the Company; or
(b) by the Vendor, the Company and 408446 as a group, on the one
hand, or by Purchaser, on the other hand, if the Closing shall
not have occurred on or before April 15, 1999, provided that
the right to terminate this Agreement under this Section
11.1(b) shall not be available to either party (with the
Vendor, the Company and 408446 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 Vendor, the Company and 408446 as a group, on the one
hand, or by Purchaser, 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 Vendor, the Company and
408446 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 Funding Date; or
(d) by the Vendor, the Company and 408446 as a group, on the one
hand, or by Purchaser, on the other hand, if there shall be a
final non-appealable order of a federal or provincial 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.
11.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to
Section 11.1, 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 shareholders. Notwithstanding the foregoing sentence, (i) the
provisions of Articles 11 and 8, 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 11.1(c) above, then
notwithstanding the provisions of Section 11.7 below, the breaching party (with
the Vendor, 408446 and the Company deemed to be a single party for purposes of
this Article 11), 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>
11.3 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 the Purchaser, and
the heirs and legal representatives of the Vendor. Notwithstanding anything in
the foregoing to the contrary, the Purchaser may assign any of its rights or
obligations under this Agreement to any direct or indirect Subsidiary or
Affiliate of the Purchaser in its sole and absolute discretion and without the
consent of the Vendor or the Company or 408446; provided, however that in the
event of such assignment the Purchaser shall continue to be liable to the Vendor
for the payment of the Purchase Price.
11.4 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. 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.
11.5 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.
11.6 BROKERS AND AGENTS
Purchaser and the Vendor, the Company and 408446 (as a group)
each represents and warrants to the other that it has not employed any broker or
agent for which the other would be liable 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.
11.7 EXPENSES
The Purchaser has and will pay the fees, expenses and
disbursements of the Purchaser and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Vendor (and not the Company or 408446) have and will pay the fees, expenses and
disbursements of the Vendor, the Company and 408446 and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
<PAGE>
11.8 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 9.2 and the non-competition provisions set forth in Section
9.1. 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.
11.9 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 the Purchaser or the Company to:
Workflow Management Inc.
240 Royal Palm Way
Palm Beach, Fl.
USA 33480
Attn: Claudia S. Amlie
Vice President and General Counsel
(Telefax: (561) 659-5099)
<PAGE>
with a required copy to:
McCarthy Tetrault
#3300, 421 - 7 Avenue S.W.
Calgary, Alberta T2P 4K9
Attn: John S. Osler
(Telefax: (403) 260-3501)
and to:
Kaufman & Canoles
Post Office Box 3037
Norfolk, Virginia 23514
Attn: T. Richard Litton, Jr., Esq.
(Telefax: (757)624-3169)
If to the Vendor to:
(Telefax: (757) 624-3169)
and to:
the Vendor
R.R. 12
Calgary, Alberta
T3E 6W3
and to:
Field Atkinson Perraton
Suite 1900, 350 - 7 Avenue S.W.
Calgary, Alberta T2P 3N9
Attention: John R. Perraton, Q.C.
(Telefax: (403) 264-7084)
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>
11.10 GOVERNING LAW
(a) Subject to the provisions of Section 11.10(b) below, this
Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of Alberta and the
federal laws of Canada applicable therein. 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
Calgary, Alberta and appeal courts therefrom 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.
(b) Prior to instituting any formal legal actions in connection
with disputes arising under this Agreement, the Vendor, the
Company, 408446 and the Purchaser (collectively, the
"Parties") shall first attempt to resolve their disputes
informally as follows:
(i) upon written request of a Party, each Party shall
appoint a designated representative whose task it
will be to meet for the purpose of endeavoring to
resolve such dispute, such meetings to be held in
Calgary, Alberta;
(ii) the designated representatives shall meet as often
as the Parties reasonably deem necessary in order
to gather and furnish to the other all information
with respect to the matter in issue which the
Parties believe to be appropriate and germane in
connection with its resolution and the
representatives shall discuss the problem and
negotiate in good faith in an effort to resolve the
dispute without the necessity of any formal
proceeding;
(iii) during the course of negotiations, all reasonable
requests made by one Party to another for
nonprivileged information, reasonably related to
this Agreement, shall be honoured in order that
each of the Parties may be fully advised of the
other's position;
(iv) the specific format for discussion shall be left to
the discretion of the Parties, but may include the
preparation of agreed upon statements of fact or
written statements of position;
(v) formal proceedings for the resolution of a dispute
may not be commenced until the earlier of (A) the
designated representatives concluding in good faith
that amicable resolution through continued
negotiation of the matter does not appear likely or
(B) 30 days after the initial request to negotiate
the dispute;
<PAGE>
(vi) the foregoing provisions of this Section 11.10(b)
shall not be construed to prevent a Party from
instituting, and a Party is authorized to
institute, formal proceedings earlier to avoid the
expiration of any applicable limitations period or
to preserve a superior position to creditors. In
addition, (i) nothing in this Section 11.10(b)
shall be construed to limit the rights of the
Purchaser to seek injunctive relief in the event
that the Vendor violates any of the provisions of
Article 9 and (ii) any Party may institute formal
legal proceedings if it makes a good faith
determination that a breach of the terms of this
Agreement by another Party is such that the damages
to such Party resulting from the breach will be so
immediate, so large or severe, and so incapable of
adequate redress after the fact that a temporary
restraining order or other injunctive relief is the
only adequate remedy.
11.11 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.
11.12 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.
11.13 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.
<PAGE>
11.14 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.
11.15 FURTHER ASSURANCES
From time to time subsequent to the Funding Date, the parties
shall execute and deliver or cause the execution and delivery of such additional
documents as may be reasonably required to carry out the intent of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
DATA BUSINESS FORMS LIMITED
By:/s/ Data Business Forms Limited
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
SIGNED, SEALED, AND DELIVERED in the presence of:
/s/ Dale A. Hodgson
- --------------------------------- ----------------------------------
Witness DALE A. HODGSON
SUNDOG PRINTING LIMITED
By: /s/ Sundog Printing Limited
------------------------------
Name:
Title:
408446 ALBERTA INC.
By: /s/ 408446 Alberta Inc.
------------------------------
Name:
Title:
EXHIBIT 10.46
PURCHASE AGREEMENT
Between
Data Business Forms Limited
and
Ray Remenda
and
517244 Alberta Ltd.
and
Sundog Printing Limited
made effective as of March 1, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE 1 INTERPRETATION
1.1 Definitions................................................2
1.2 Headings...................................................7
1.3 Extended Meanings..........................................7
1.4 Currency...................................................7
1.5 Accounting Principles......................................7
1.6 Schedules..................................................8
1.7 Best of Knowledge..........................................9
ARTICLE 2 DISCLOSURE
2.1 Disclosure.................................................9
ARTICLE 3 PURCHASE AND SALE OF THE SHARES AND ASSIGNMENT OF
SHAREHOLDERS' LOANS
3.1 Purchase and Sale of Shares................................9
3.2 Assignment of Shareholders' Loans.........................10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
4.1 Vendors' Representations and Warranties...................11
4.2 Hodgson's Representations and Warranties..................38
ARTICLE 5 PURCHASERS REPRESENTATIONS AND WARRANTIES
5.1 Purchasers Representations................................41
ARTICLE 6 COVENANTS
6.1 Taxes.....................................................42
6.2 Accounts Receivable.......................................43
6.3 Related Party Agreements..................................43
6.4 Cooperation...............................................43
6.5 Access to Information; Confidentiality; Public Disclosure.44
6.6 Conduct of Business Pending Closing.......................45
6.7 Prohibited Activities.....................................45
6.8 Exclusivity...............................................47
6.9 Notification of Certain Matters...........................48
ARTICLE 7 CONDITIONS
7.1 Conditions for the Benefit of the Purchaser...............48
7.2 Conditions for the Benefit of the Vendor, the Company and
408446....................................................50
7.3 Conditions for the Benefit of the Vendor, Purchaser,
Company and 40844.........................................51
ARTICLE 8 INDEMNIFICATION
8.1 General Indemnification by the Vendor.....................52
<PAGE>
8.2 Limitation and Expiration.................................53
8.3 Indemnification Procedures................................54
8.4 General Indemnification by the Purchaser..................56
8.5 Survival of Representations, Warranties and Covenants.....56
8.6 Remedies Cumulative.......................................56
8.7 Right to Set Off..........................................57
ARTICLE 9 NON-COMPETITION
9.1 Prohibited Activities.....................................57
9.2 Confidentiality...........................................58
9.3 Damages...................................................58
9.4 Reasonable Restraint......................................59
9.5 Severability; Reformation.................................59
9.6 Independent Covenant......................................59
9.7 Materiality...............................................59
ARTICLE 10CLOSING
10.1 Closing...................................................60
10.2 Deliveries at Funding Time................................60
10.3 Purchaser Post-Closing Obligations........................61
10.4 Johnson Contract..........................................62
ARTICLE 11 GENERAL
11.1 Termination...............................................62
11.2 Effect of Termination.....................................63
11.3 Successors and Assigns....................................63
11.4 Entire Agreement; Amendment; Waiver.......................63
11.5 Counterparts..............................................63
11.6 Brokers and Agents........................................64
11.7 Expenses..................................................64
11.8 Specific Performance; Remedies............................64
11.9 Notices...................................................64
11.10 Governing Law.............................................66
11.11 Severability..............................................67
11.12 Absence of Third Party Beneficiary Rights.................67
11.13 Mutual Drafting...........................................67
11.14 Further Representations...................................67
11.15 Further Assurances........................................68
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT made as of the 1st day of March, 1999.
BETWEEN:
DATA BUSINESS FORMS LIMITED, a Corporation governed by
the laws of Ontario (hereinafter referred to as the
"Purchaser")
OF THE FIRST PART
- and -
RAY REMENDA, an individual residing in the City of Calgary, in the
Province of Alberta (hereinafter referred to as the "Vendor" or
"Ramenda")
OF THE SECOND PART
- and -
SUNDOG PRINTING LIMITED, a corporation governed by the
laws of Alberta (hereinafter referred to as the
"Company")
OF THE THIRD PART
- and -
517244 ALBERTA LTD., a corporation governed by the laws of Alberta
(hereinafter referred to as "517244")
OF THE FOURTH PART
WHEREAS the Vendor is the beneficial and registered owner of all
of the 517244 Shares;
AND WHEREAS 517244 is the beneficial and registered owner of
63 Class A common shares in the capital of the Company;
AND WHEREAS, at the Funding Time, the sole assets held by 517244
will be common shares in the capital of the Company;
<PAGE>
AND WHEREAS 408446, Hodgson and 517244 in the aggregate own all of
the issued and outstanding shares of the Company;
AND WHEREAS Ramenda desires to sell his shareholder loans and the
517244 Shares to the Purchaser and pursuant to the "Remenda Agreement", Ray
Remenda, the sole shareholder of 517244, desires to sell all of his shares in
517244 and his shareholder loans and the Purchaser desires to purchase same such
that the Purchaser becomes the sole direct and indirect shareholder of the
Company;
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:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, including any recitals and schedules hereto,
unless something in the subject matter or context is inconsistent therewith:
(a) "408446" means 408446 Alberta Inc., a body corporate incorporated
under the laws of the Province of Alberta;
(b) "517244" means 517244 Alberta Ltd, a body corporate incorporated
under the laws of the Province of Alberta;
(c) "1999 Bonus" has the meaning set forth in Section 7.3(d) hereof;
(d) "517244 Shares" means 100 Class "A" Shares in the capital of 517244
owned by Remenda;
(e) "517244 Shareholder Loan" means the amount of $250,448 advanced by
Vendor to 517244 by way of a shareholder's loan and remaining unpaid
as at the Funding Time;
(f) "Account Receivable" has the meaning set forth in Section 4.1(p);
(g) "Affiliates" has the meaning set forth in the Business Corporations
Act (Alberta) or the Business Corporations Act
(Ontario), as the case may be;
(h) "Agreement" means this agreement and all amendments made hereto by
written agreement between the Vendor, 517244, Company and the
Purchaser;
(i) "Balance Sheet Date" means July 31, 1998;
(j) "Benefit Plan" has the meaning set out in Section 4.1(aa)(i)(A);
<PAGE>
(k) "Closing" means the consummation of the transactions contemplated by
this Agreement.
(l) "Company" means Sundog Printing Limited, a body corporate
incorporated under the laws of the Province of Alberta;
(m) "Company Financial Statements" has the meaning set out in Section
4.1(l) hereof;
(n) "Confidential Information" has the meaning set out in Section 9.2
hereof;
(o) "Copyright" means any Canadian or foreign copyright owned by the
Company as of the date of this Agreement, including any registration
of copyrights, in Canada or in any foreign county, as well as any
application for a Canadian or foreign copyright registration made by
the Company;
(p) "Effective Date" means March 1, 1999;
(q) "ETA" shall mean Part IX of the Excise Tax Act (Canada), as now in
effect;
(r) "Funding Date" means March 31, 1999 or such other date as may be
agreed to between the Vendor and the Purchaser;
(s) "Funding Time" means 4:00 p.m. (Calgary Time) on the Funding Date;
(t) "Governmental Authority" has the meaning set out in
Section 4.1(y)(i)(F) hereof;
(u) "Hodgson" means Dale A. Hodgson, an individual residing in the City
of Calgary, in the Province of Alberta and the sole shareholder of
408446;
(v) "Hodgson Agreement" means that agreement of even date whereunder
inter alia Hodgson sells all of the shares Hodgson owns in 408446
and the Comapny to the Purchaser;
(w) "Income Statement" has the meaning set out in Section 4.1(l) hereof;
(x) "Income Tax Act" means the Income Tax Act (Canada), as amended;
(y) "Indemnified Party" has the meaning set out in Section 8.1 hereof;
(z) "Indemnifying Party" has the meaning set out in Section 8.3 hereof;
(aa) "Johnson Employment Contract" means that certain employment contract
entered into between the Company and Harvey Johnson as set forth and
described in Schedule 4.1(aa) hereof;
(bb) "Johnson Pension Obligation" means the obligation of the Company to
fund and to pay an amount of $290,827 to Harvey Johnson's registered
defined benefit pension plan;
<PAGE>
(cc) "Johnson Severance Obligation" means the obligation of the Company
to pay to Johnson a retirement allowance and severance payment, as
set forth in Schedule 4.1(aa);
(dd) "Landlords" means the landlords under the N.E. Lease and the Parking
Lot Lease;
(ee) "Leased Premises" means the N.E. Warehouse Property, the Parking Lot
and the Sundog Premises;
(ff) "Leases" means, collectively, the N.E. Lease, the Parking Lot Lease
and the Sundog Leases;
(ii) "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
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 Personal Property Security Act
(Alberta) or comparable law of any jurisdiction);
(jj) "Mark" means all right, title and interest in and to any Canadian
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 Canada 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 Canada or any foreign country;
(kk) "Material Contracts" has the meaning set out in Section 4.1(u)(ii)
hereof;
(ll) "NASDAQ National Market" means the United States National Market
automated quotation system of the National Association of Securities
Dealers, Inc.;
(mm) "N.E. Lease" means that lease relating to that portion of N.E.
Warehouse Property, dated November 26, 1996 between Herma Holdings
Limited and Sundog Printing Limited, as amended by a lease amending
agreement dated on or about March 1st, 1997 between Herma Holdings
Limited and Sundog Printing Limited respecting premises located on
lands municipally described as 2320 - 35th Avenue N.E., Calgary,
Alberta, leased to the Company;
(nn) "N.E. Warehouse Property" means those lands and buildings located in
the City of Calgary, in the Province of Alberta legally described
as: Plan 7410187, Block 6, Lot 7, Excepting thereout all mines and
minerals;
<PAGE>
(oo) "Parking Lot" means that portion of those lands located in the City
of Calgary, in the Province of Alberta legally described as Plan
9412695, Block 45, Lot 3, Excepting thereout all mines and minerals,
leased to the Company;
(pp) "Parking Lot Lease" means that lease relating to the Parking Lot
dated December 22, 1997 between Thomasz Goszczynski as agent for
Stefan Goszczynski and Hanna Goszczynski and Sundog Printing Limited
respecting lands municipally described as 1401 - 9th Avenue S.W.,
Calgary, Alberta;
(qq) "Patent" means any Canadian or foreign patent to which the Company
has title as of the date of this Agreement, as well as any
application for a Canadian or foreign patent made by the Company.
(rr) "Person" has the meaning set out in Section 4.1(y)(i)(H) hereof;
(ss) "Preferred Shares" means the preferred shares held by the Company
in 387177 Alberta Ltd., 387178 Alberta Inc. and D. Hodgson
Investments Ltd. as more particularly set forth in Schedule
1.1(pp) hereof;
(tt) "Purchase Price" means the aggregate amount payable to the Vendor
pursuant to Section 3.1 hereof;
(uu) "Purchaser" means Data Business Forms Limited;
(vv) "Purchased Interests" means the Shares and the Shareholders' Loans;
(ww) "Related Party Agreements" has the meaning set out in Section
4.1(u)(ii) hereof;
(xx) Intentionally deleted;
(yy) "Remenda" or "Vendor" means Ray Remenda, an individual residing in
the City of Calgary in the Province of Alberta, the sole shareholder
of 517244;
(zz) "Remenda Employment Contract" means that certain employment contract
entered into between the Company and Remenda as set forth and
described in Schedule 1.1(t) hereof;
(aaa) "Remenda Insurance" means the policies set forth in Schedule
1.1(u) insofar as they relate to Remenda;
(bbb) "Shareholder" means Remenda;
(ccc) "Shareholders' Loans" means the Sundog Shareholder Loan and the
517244 Shareholder Loan;
(ddd) "Shares" means the 517244 Shares;
(eee) "Significant Customers" has the meaning set out in Section
4.1(u)(i) hereof;
<PAGE>
(fff) "Significant Suppliers" has the meaning set out in Section
4.1(u)(i) hereof;
(ggg) "Subsidiaries" has the meaning set forth in the Business
Corporations Act (Alberta) or the Business Corporations Act
(Ontario), as the case may be;
(hhh) "Sundog Leases" means, collectively, the lease between the Company
and 387177 Alberta Inc. and 387178 Alberta Inc. with respect to the
lands municipally described as 1311 - 9th Avenue S.W., Calgary,
Alberta and the lease between the Company and 566657 Alberta Ltd.
with respect to the lands municipally described as 1333 - 9th Avenue
S.W., Calgary, Alberta;
(iii) "Sundog Shareholder Loan" means the amount of $420,305 advanced by
Vendor to the Company by way of a shareholder's loan and remaining
unpaid as at the Funding Time;
(jjj) "Sundog Premises" means the premises of the Company located at
1311 - 9 Avenue S.W., and 1313 - 9 Avenue S.W., Calgary, Alberta;
(kkk) "Tax" shall mean all governmental taxes, levies, duties,
assessments, reassessments and other charges of any nature
whatsoever, whether direct or indirect, including, but not limited
to, income tax, profit tax, gross receipts tax, corporation tax,
sales and use tax, wage tax, payroll tax, employer health tax,
workers' compensation levy, capital tax, stamp duty, real and
personal property tax, land transfer tax, customs or excise duty,
excise tax, turnover or value added tax on goods sold or services
rendered, withholding tax, social security and unemployment
insurance charges and retirement contributions, and any interest,
fines, additions to tax and penalties thereon;
(lll) "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 entity in connection with the determination,
assessment, collection or payment of any Tax;
(mmm)"Third Party Claim" has the meaning set out in Section 8.3(b)(i);
(nnn) "Third Party Consents" has the meaning set out in Section
4.1(u)(iv);
(ooo) "TPI Receivable" means the amount of $963,600 owing by The Pacific
Institute to the Company as of January 31, 1999;
(ppp) "Vendor" means Ray Remenda;
(qqq) "Vendor's Portion" means 25%, being the percentage of common shares
of the Company directly or indirectly held by the Vendor; and
(rrr) "Year 2000 Compliant and Ready" means that the computer systems and
the presses used in the Company's operations contain the
functionality need for the December 31, 1999 "millennium" date
change.
<PAGE>
1.2 Headings
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles and
Sections are to Articles and Sections of this Agreement.
1.3 Extended Meanings
In this Agreement words importing the singular number only shall
include the plural and vice versa, words importing the masculine gender shall
include the feminine and neuter genders and vice versa and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations.
<PAGE>
1.4 Currency
All references to currency herein are to lawful money of Canada.
1.5 Accounting Principles
Except as otherwise expressly provided herein or in the Schedules or
agreed between by the parties hereto in writing, 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 Canadian GAAP consistently
applied
1.6 Schedules
The following are the Schedules annexed hereto and incorporated by
reference and deemed to be part hereof:
Schedule 1.1(t) - Remenda Employment Contract
Schedule 1.1(u) - Remenda Insurance
Schedule 3.1(a)(iii) - First Earn-Out
Schedule 3.1(a)(v) - Second Earn-Out
Schedule 3.2(a) - Form of Assignment of 517244
Shareholder Loan
Schedule 4.1(h)(iii) - Promissory Notes
Schedule 4.1(k)(ii) - Add-backs
Schedule 4.1(k)(iv) - Related Party Debt since July 31, 1998
Schedule 4.1(l) - Company Financial Statements
Schedule 4.1(m)(iii) - Plans
Schedule 4.1(o) - Bank Accounts, Powers of Attorney
Schedule 4.1(p) Accounts Receivable
Schedule 4.1(r) - Leases of Real Property
Schedule 4.1(s)(i) - Personal Property
Schedule 4.1(s)(ii) - Liens on Personal Property
Schedule 4.1(t)(i) - Trade Marks and Trade Names
Schedule 4.1(t)(ii) - Patents and Copyrights
Schedule 4.1(t)(iii) - Other Rights
Schedule 4.1(t)(iv) - Third Party Rights
Schedule 4.1(u)(i) - Significant Customers and Suppliers
Schedule 4.1(u)(ii) - Material Contracts
Schedule 4.1(u)(iii) - Reductions and Cancellations
Schedule 4.1(u)(iv) - Third Party Consents
Schedule 4.1(u)(v) - Related Party Commitments
Schedule 4.1(u)(vi) - Exception to Acceleration
<PAGE>
Schedule 4.1(x) - Insurance Policies
Schedule 4.1(y)(ii) - Environmental Matters
Schedule 4.1(z) - Employees/Compliance
Schedule 4.1(z)(viii) - Employee List
Schedule 4.1(aa) - Employee Benefit Plans
Schedule 4.1(bb) - Tax Exceptions
Schedule 4.1(cc)(ii) - Conformity with Law, Litigation
Schedule 4.1(cc)(iii) - Litigation
Schedule 4.1(ee) - Changes
Schedule 4.1(gg) - Predecessor Status
Schedule 4.1(jj) - Year 2000 Compliance
Schedule 7.2(d) - Lease of Sundog Premises
Schedule 8.2(d) - Indemnity Schedule
1.7 Best of Knowledge
Any reference herein to "the best of the knowledge" of the Vendor
and the Shareholder or words of similar import shall mean the actual knowledge
of the Vendor and the Shareholder or in the case of 517244 shall mean the actual
knowledge of the Shareholder, directors and officers of 517244. Any reference
herein to "knowledge of the Company" or "Company's knowledge", or words of
similar import means the actual knowledge of the Vendor, Shareholders, directors
and officers of the Company.
ARTICLE 2
DISCLOSURE
2.1 Disclosure
Certain matters may be disclosed on a Schedule hereto that are not
strictly required to be disclosed thereon pursuant to the terms of this
Agreement. Such disclosure is for information purposes only, and should not
constitute an indication or admission of the materiality thereof or create a
standard for disclosure. The Vendor, Company and 517244 shall not be liable for
a breach of any representation or warranty that might result from the failure to
disclose any item on any one Schedule if such item has been disclosed on any
other Schedule hereto in such a manner that a review of such other Schedule
would put Purchaser on notice that such item exists.
<PAGE>
ARTICLE 3
PURCHASE AND SALE OF THE SHARES
AND ASSIGNMENT OF THE SHAREHOLDERS' LOANS
3.1 Purchase and Sale of Shares
Subject to the terms and conditions of this Agreement, at the
Funding Time and effective as of the Effective Date, the Vendor will sell to
Purchaser, and Purchaser will purchase from the Vendor, the Shares, for the
Purchase Price.
(a) The Purchase Price for the Shares shall be comprised of and shall be
paid and satisfied by:
(i) $928,794 payable by cheque to the Vendor at the Funding Time
inclusive of interest at a rate of 6.75% per annum
calculated from the Effective Time up to and including the
Funding Date;
(ii) the delivery to the Vendor of a demand promissory note
from the Purchaser in the amount of $275,154. Such demand
promissory note shall be paid in full immediately
following the Funding Time by payment in cash by the
Purchaser in an amount equal to the Vendor's Portion of
the TPI Receivable or by an assignment of the Vendor's
Portion of the TPI Receivable to the Vendor or any
combination thereof, together with an assignment of the
Remenda Insurance;
(iii) a payment of the Vendor's Portion of the amount calculated
pursuant to Schedule 3.1(a)(iii) to the Vendor on March 15,
2000;
(iv) $250,000 to the Vendor on April 28, 2000; and
(v) a payment on July 31, 2001 of the amounts, if any, equal to
the Vendor's Portion, of the amount calculated pursuant to
Schedule 3.1(a)(v) hereof less $1,000,000, which payment to
the Vendor shall not exceed the sum of $250,000.
<PAGE>
3.2 Assignment of Shareholders' Loans
(a) In consideration of payment to the Vendor in the amount of $250,448
at the Funding Time, the Vendor shall execute and deliver an
assignment in the form of the assignment set out on Schedule 3.2(a)
hereof assigning to the Purchaser all of Vendor's right, title and
interest in and to the 517244 Shareholder Loan.
(b) In consideration of payment to the Vendor in the amount of $420,305
at the Funding Time, the Vendor shall execute and deliver an
assignment in the form of the assignment set out on Schedule 3.2(b)
hereof assigning to the Purchaser all of Vendor's right, title and
interest in and to the Sundog Shareholder Loan.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Vendors' Representations and Warranties
The Vendor, the Company and 517244, represent and warrant to the
Purchaser that:
(a) Corporate Standing The Company is a corporation duly incorporated
and subsisting under the laws of Alberta as a private company as
that term is defined in the Securities Act (Alberta) with the
corporate power to own its assets and to carry on its business and
has made all necessary filings under all applicable corporate,
securities and taxation laws or any other laws to which the Company
is subject.
(b) Corporate Records The corporate records and minute book of the
Company are complete and true and correct in all material respects
and the minute book contains copies of minutes of all meetings of
the directors, committees of directors and shareholders of the
Company and of all written resolutions of such directors, committees
and shareholders.
(c) Authorization; Validity The Company has the full legal right,
corporate 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 of the Vendor and
517244 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
Vendor, the Company and 517244 and the performance by the Vendor,
the Company and 517244 of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of
the Company and 517244 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 Vendor,
the Company and 517244, enforceable in accordance with its terms
subject to limitations with respect to enforcement imposed by law
in connection with bankruptcy or other laws generally affecting
creditors' rights, and to the extent that equitable remedies, such
as specific performance and injunction, are in the discretion of
the court from which they are sought.
<PAGE>
(d) Execution and Delivery The execution, delivery and performance of
this Agreement, the consummation of the transactions contemplated
hereby, and the fulfillment of the terms hereof will not:
(i) conflict with, or result in a breach or violation of, any
of the constating documents or by-laws of the Company;
(ii) 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 Vendor, the Company or 517244 is a
party or by which the Vendor, the Company or 517244 is
bound, or result in the creation or imposition of any Lien
on any of the Company's properties pursuant to (A) any law
or regulation to which the Vendor, the Company or 517244
or any of their respective property is subject, or (B) any
judgment, order or decree to which the Vendor, the Company
or any Shareholder is bound or any of their respective
property is subject;
(iii) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization
of the Company; or
(iv) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Vendor, the Company or any
Shareholder is subject or by which the Vendor, the Company
or any Shareholder is bound provided however, that no
representation and warranty is being provided with respect
to compliance by the Purchaser with the Investment Canada
Act.
(e) Authorized Capital The authorized capital of the Company consists of
an unlimited number of Class A Common Voting Shares, Class B
Non-Voting Preferred Redeemable Shares, Class C Non-Voting Preferred
Redeemable Convertible Shares, and Class D Non-voting Preferred
Redeemable Convertible Shares, of which 252 Class A Common Voting
Shares are issued and outstanding as of the date hereof, of which
the following are validly issued and outstanding:
Shares Beneficial & Registered Owner
------ -----------------------------
160 Class A Common Voting 408446 Alberta Inc.
63 Class A Common Voting 517244 Alberta Limited
29 Class A Common Voting Dale A. Hodgson
All of the issued and outstanding shares in the capital of the
Company have been duly authorized and validly issued and are fully
paid and non-assessable. The Shares are owned of record and
beneficially by Hodgson, 408446 and 517244 in the amounts set forth
above, free and clear of all Liens. All of the issued and
outstanding shares in the capital of the Company were offered,
issued, sold and delivered by the Company in compliance with all
applicable 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 shares.
<PAGE>
(f) Entitlements 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 or sell any shares in the capital of the
Company. The Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its shares or any
interests therein or to pay any dividend or make any distribution
in respect thereof.
(g) Shareholders' Loans The total amount of the Sundog Shareholder Loan
is $420,305 and the total amount of the 517244 Shareholder Loan is
$250,448.
(h) Subsidiaries and Debt Interests
(i) The Company has no Subsidiaries or Affiliates;
(ii) Except for the Preferred Shares, the Company does not
presently own, of record or beneficially, or control,
directly or indirectly, any shares, securities convertible
into shares or any other equity interest in any
corporation, limited liability company, association or
other business entity, nor is the Company, directly or
indirectly, a participant in any joint venture,
partnership or other non-corporate entity; and
(iii) Except as set forth on Schedule 4.1(h)(iii), there are no
promissory notes that have been issued to, or are held by,
the Company.
(i) Complete Copies of Materials The Company has delivered to Purchaser
at the Sundog Premises 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
Purchaser.
(j) Absence of Claims Against Company Except for the Shareholders'
Loans, the 1999 Bonus, benefits and wages due to Ray Remenda in his
capacity as an employee in the ordinary course of business, and the
performance of this Agreement by the Company, neither 517244 nor the
Vendor has any claims against the Company.
(k) Financial Conditions
(i) The Company's revenue for the fiscal year ended July 31,
1998 was not less than $25,000,000;
(ii) The earnings of the Company before interest and taxes and
bonuses, adjusted to reflect the add-backs set forth on
Schedule 4.1(k)(ii) for the fiscal year ended July 31, 1998
are not less than $2,600,000;
<PAGE>
(iii) The sum of the Company's total outstanding interest
bearing indebtedness to banks, and all other financial
institutions and creditors (in each case including the
current portions of such indebtedness, but excluding any
amounts referred to in Section 7.3(d) hereof and Section
7.3(d) of the Remenda Agreement, and any amounts payable
to the Vendor, 408446, Remenda and 517244, and their
Affiliates, any income taxes payable from the Balance
Sheet Date on earnings, operating leases, trade payables
and other accounts payable incurred in the ordinary course
of the Company's business consistent with past practice)
as of the Funding Date will not be more than $3,550,000;
and
(iv) Except as set forth on Schedule 4.1(k)(iv) no related party
debts other than as set forth herein or contemplated hereby
have been incurred or paid since July 31, 1998.
(l) Financial Statements Schedule 4.1(l) includes true,
complete and correct copies of the Company's audited balance sheet
("Balance Sheet") as of the Balance Sheet Date, and income
statement (the "Income Statement") as at and for the year ended
July 31, 1998 and the Company's internally generated, unaudited
balance sheet and income statement as of and for the seven months
ended February 28, 1999 (collectively, the "Company Financial
Statements").
(i) The Company Financial Statements are materially in
accordance with the books and accounts of the Company as at
the Balance Sheet Date;
(ii) The Company Financial Statements have been prepared in
accordance with GAAP consistently applied;
(iii) The Balance Sheet presents fairly the financial condition of
the Company as of the date indicated thereon and the Income
Statement presents fairly the results of its operations for
the period indicated thereon;
(iv) Since the dates of the Company Financial Statements, there
have been no material changes in the Company's accounting
policies;
(v) The financial position of the Company as at the Effective
Date will be at least as good as the financial position of
the Company as at the Balance Sheet Date; and
(vi) Subject to Schedule 4.1(cc)(iii), the Company Financial
Statements fairly present all of the assets and liabilities
of the Company as at the Balance Sheet Date and the
Effective Date including, without limitation, all contingent
liabilities of the Company as at the Balance Sheet Date.
(m) Liabilities and Obligations
<PAGE>
(i) Except as disclosed on Schedule 4.1(u)(v), the Company is
not liable for or subject to any liabilities except for:
(A) those liabilities reflected on the Balance Sheet and
not previously paid or discharged;
(B) 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;
(C) the lease of the Sundog Premises; and
(D) 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.
(ii) The Company has delivered to Purchaser, in the case of those
liabilities which are not fixed or are contested, a
reasonable estimate of the maximum amount which may be
payable;
(iii) Schedule 4.1(m)(iii) sets forth 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 Effective
Date, which if pursued by the Company would require
additional material expenditures of capital; and
(iv) For purposes of this Section 4.1(m), 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 fixed or unfixed, choate or inchoate, liquidated
or unliquidated, secured or unsecured. Schedule
4.1(s)(ii) insofar as it relates to the leases contains a
complete list of all interest-bearing indebtedness of the
Company not disclosed on the Company Financial Statements.
(n) 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>
(o) Bank Accounts; Powers of Attorney Schedule 4.1(o) sets forth a
complete and accurate list as of the Funding Date, of:
(i) the name of each financial institution at which the
Company has any account or safe deposit box;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account;
(iv) the name of each person authorized to draw thereon or have
access thereto; and
(v) 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.
(p) Accounts and Notes Receivable At the Funding Time, 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 Funding
Date, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to
employees and the Shareholders) which includes an aging of all
accounts and notes receivables showing amounts due in thirty (30)
day aging increments 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 and twenty (120) days after the day on
which it first became due and payable other than those set forth
in Schedule 4.1(p). 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.
(q) Permits The Company owns or holds all material permits and other
governmental authorizations, including without limitation permits,
licenses 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 director, shareholder, 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
material compliance with the requirements, standards, criteria and
conditions set forth in the Permits and other applicable orders,
approvals, 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>
(r) Real Property
(i) The Company does not own or have any right, title or
interest in any real property except for the Leases.
(ii) Except as set forth in Schedule 4.1(r) and 4.1(y)(ii):
(A) All of the Leases are valid and in full force and
effect. The Company has delivered to the Purchaser
true and complete copies of all of the Leases, all
amendments, renewals, extensions, modifications or
supplements thereto, and all material 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. The
Company has paid all amounts payable to the
landlords under the Leases;
(B) None of the Leases requires the consent or approval of
any party thereto in connection with the consummation
of the transactions contemplated hereby;
(C) All accounts for work and services performed or
materials placed or furnished by or on behalf of the
Vendor or the Company upon or in respect of
construction in each of the Leased Premises has been
fully paid by closing and no person will be entitled
to claim a lien under the Builders' Lien Act (Alberta)
for work performed by or on behalf of the Vendor or
the Company;
(D) the Vendor or the Company have not received any notice
of any proceedings by any Governmental Authority
having jurisdiction advising of any deficiency or
non-compliance with any building restriction, zoning
by-law, fire code, or any other regulation relating to
any of the Leased Premises, nor is the Vendor or the
Company aware of any such deficiency or
non-compliance;
(E) to the best of the Vendor's or the Company's
knowledge, all obligations, conditions and
requirements under all development permits required to
be obtained by the Company have been met and satisfied
and development completion permits required to be
obtained by the Company evidencing the same have been
obtained from The City of Calgary;
(F) neither the Vendor nor the Company have received any
notice of a proposal to expropriate any part of the
Leased Premises;
<PAGE>
(G) each of the N.E. Lease and the Parking Lot Lease have
been adopted and assumed by and are binding upon the
current registered owners of the lands on which the
N.E. Warehouse Property and the Parking Lot are
located;
(H) to the best of the Vendor's or the Company's
knowledge, there are no structural defects, material
non-structural defects or material deficiencies in any
of the buildings on the Leased Premises, and the
Leased Premises are presently in compliance with all
statutory provisions;
(I) to the best of the Vendor's or the Company's
knowledge, there are no outstanding work orders or
deficiency notices against the Vendor or the Company
in respect of the Leased Premises, or other orders
relating to any of the Leased Premises from or
required by any police or fire department,
sanitation or health authorities or from any other
federal, provincial or municipal authority and any
matters under discussion with any such departments
or authorities relating to work or other orders;
(J) notice has not been received by the Vendor or the
Company from any authority having jurisdiction
advising of any default or non-compliance with any
lawful requirement or standard of workmanship in the
construction of the improvements on the Leased
Premises placed thereon by the Vendor or the
Company, or in respect of the plumbing, heating,
ventilating, air conditioning, electrical or other
mechanical systems therein;
(K) the Vendor or the Company have not received from any
of their insurers which carries on their behalf
insurance on the Leased Premises any written notice of
any defect or inadequacy in connection with Leased
Premises or its maintenance or operation that would
affect the insurability of the Leased Premises that
has not been cited;
(L) the Vendor or the Company have not intentionally
withheld any material information relating to adverse
facts or adverse material in connection with the
Leased Premises or the Leases;
(M) except for the use of premises by
Hostmann-Steinberg, neither the Vendor nor the
Company have granted leases, offers to lease,
options with respect to leases, licenses, agreements
to lease, renewals of leases, assignments and
subleases thereof or other tenancy agreements or
other agreements granting any right of occupation,
possession or use with respect to the Leased
Premises or buildings located thereon;
<PAGE>
(N) no written notice has been received by the Vendor or
the Company which remains outstanding from any
governmental or quasi-governmental authority
relating to any defect in the construction of the
buildings or any other improvements on the Leased
Premises, or relating to any work order, deficiency
or non-compliance with any building restrictions,
building codes, zoning by-laws, fire codes,
environmental laws, or other regulations, laws,
statutes, ordinances or rules, in each case in
respect of the Leased Premises and the buildings and
improvements thereon; and
(O) each of the Leased Premises are fully serviced by all
required utilities including electricity, natural gas,
water and sewer.
(s) Personal Property
(i) Schedule 4.1(s)(i) sets forth a complete and accurate list
of all material personal property included on the Balance
Sheet and all other personal property owned or leased by
the Company and all trade fixtures and leasehold
improvements owned by both as of the Balance Sheet Date
and acquired since the Balance Sheet Date, including in
each case a list of all leases for material equipment, and
an indication as to which assets are currently owned, or
were formerly owned, by any Shareholder or business or
personal affiliates of any Shareholder or of the Company.
True, complete and correct copies of the leases for
material equipment will be delivered to Purchaser at the
Sundog Premises;
(ii) The Company currently owns or leases all personal property
and other assets necessary to conduct the business and
operations of the Company as they are currently being
conducted, free and clear of all Liens except for such Liens
as are set forth on Schedule 4.1(s)(ii); and
(iii) All of the material, machinery and equipment of the
Company, including those listed on Schedule 4.1(s)(i), are
in good working order and condition, ordinary wear and
tear excepted. All personal property leases set forth on
Schedule 4.1(s)(i) 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
4.1(s)(i) or 4.1(s)(ii).
(t) Intellectual Property
(i) 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 listed on
Schedule 4.1(t)(i). Such schedule lists all of the Marks
registered in Canada or in any foreign country, and 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 4.1(t)(i), the
Company owns all of the registered and unregistered
trademarks, service marks, and trade names that it uses.
The Marks listed on Schedule 4.1(t)(i) 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;
<PAGE>
(ii) 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 listed on Schedule
4.1(t)(ii) and in the Copyrights listed on Schedule
4.1(t)(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;
(iii) 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 4.1(t)(iii). 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;
(iv) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 4.1(t)(i), 4.1(t)(ii), 4.1(t)(ii), and
4.1(t)(iii) 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 4.1(t)(iv), 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; and
<PAGE>
(v) 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 4.1(t)(i), 4.1(t)(ii),
4.1(t)(iii) or 4.1(t)(iv). 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
Vendor's or Company's knowledge, do any grounds for any
claims exist: (A) 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; (B) 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; (C)
challenging the ownership, validity or effectiveness of
any of the Company Intellectual Property or other trade
secret material to the Company; or (D) challenging the
Company's license or legally enforceable right to use of
the Third Party Intellectual Property. To the Vendor's or
Company's knowledge, there is no unauthorized use,
infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the
Vendor or the Company (i) 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 (ii) has
knowledge of any infringement liability with respect to,
or infringement by, the Company of any trade secret,
patent, trademark, service mark, or copyright of another.
(u) Significant Customers; Material Contracts and Commitments
(i) Schedule 4.1(u)(i) 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;
(ii) Schedule 4.1(u)(ii) 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) to which the Company and any
affiliate of the Company or any officer, director or
Shareholder of the Company are parties ("Related Party
Agreements"); that may give rise to obligations or
liabilities exceeding, during the current term thereof,
$110,000 or that may generate revenues or income
exceeding, during the current term thereof, $110,000
(collectively with the Related Party Agreements, the
"Material Contracts" for the purposes of this Section 4.1
(u)). The Company has delivered to the Purchaser at the
Sundog Premises true, complete and correct copies of the
Material Contracts;
<PAGE>
(iii) Except to the extent set forth on Schedule 4.1(u)(iii),
(A) none of the Company's Significant Customers has
canceled or substantially reduced or, to the knowledge of
the Vendor or the Company, is currently attempting or
threatening to cancel or substantially reduce, any
purchases from the Company, (B) none of the Company's
Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Vendor or the Company,
is currently attempting to cancel or substantially reduce,
the supply of products or services to the Company, and
(C) 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 (D) there are no
Material Contracts that were not negotiated at arms
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;
(iv) Each Material Contract 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 Authority 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 except as disclosed in
Schedule 4.1(u)(iv);
(v) The approximate outstanding balances on all loans or credit
agreements either (A) between the Company and any person in
which any of the Shareholders owns a material interest, or
(B) guaranteed by the Company for the benefit of any person
in which any of the Shareholders owns a material interest,
are set forth in Schedule 4.1(u)(v).; and
(vi) 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 4.1(u)(vi), (A) result in the breach
or violation of, (B) constitute a default under,
(C) create a right of termination under, or (D) 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
Article 4.1(u)(vi)) 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>
(v) Government Contracts The Company is not a party to any
government contracts relative to the provisions of its
services.
(w) 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, as adjusted for the passage
of time through the Funding Date in accordance with the past
custom and practice of the Company.
(x) Insurance Schedules 4.1(x), 4.1(aa) and 1.1(u)
set forth a complete and accurate list, as of the Balance
Sheet Date, of all insurance policies carried by the Company
and all insurance claims or workmen's compensation claims
received for the past two (2) policy years. The Company has
delivered to Purchaser at the Sundog Premises 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 set forth in Schedule 4.1(x) 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.
(y) Environmental Matters
(i) For the purposes of this section:
(A) "Environmental Authorization" means all
licenses, permits, grants or other
authorizations issued under or pursuant to any
Environmental Laws pertaining to or relating in
any way to the Company, or any of its assets,
obligations or undertakings;
(B) "Environmental Investigation" includes, but is
not limited to, any oral or written notice
received by the Company from any Governmental
Authority relating to any actual or alleged
Release by the Company of any Hazardous
Substance;
(C) Environmental Laws" means all provisions
relating to the environment that are now in
effect under the common law or any applicable
federal, provincial, municipal or local laws,
statutes, by laws, regulations, rules, orders
(including court orders), judgments, decrees,
ordinances, directives and the terms and
conditions of the Environmental Authorizations;
(D) "Hazardous Substance" means a substance or
mixture of substances that exhibits
characteristics of flammability, toxicity,
corrosivity or reactivity, including, without
limitation, any contaminants, pollutants, noise,
dangerous substances, liquid waste, industrial
waste, hauled liquid waste, toxic substances,
hazardous waste, hazardous materials, hazardous
chemicals and hazardous substances as defined
in, regulated by or controlled pursuant to any
Environmental Law now in effect;
<PAGE>
(E) "Environmental Claims" means any and all
administrative, regulatory or judicial actions,
suits, demands, claims, liens, notices of
non-compliance or violation, investigations,
inspections, inquiries or proceedings relating
in any way to any Environmental Laws or any
permit or approval issued under any
Environmental Laws including, without
limitation:
(a) any claim by a Governmental Authority for
enforcement, clean-up, removal, response,
remedial or other actions or damages
pursuant to any Environmental Laws; and
(b) any claim by a Person seeking damages,
contribution, indemnification, cost
recovery, compensation or injunctive or
other relief resulting from or relating to
Regulated Substances, including any
Release thereof, or arising from actual,
alleged or threatened injury to human
health or safety (arising from
environmental matters) or to the
environment;
(F) the term "Governmental Authority" means any
federal, provincial, state, regional, municipal
or local government or any department, agency,
board, tribunal or authority thereof or other
political subdivision thereof and any individual
or group exercising executive, legislative,
judicial, regulatory or administrative functions
of, or pertaining to, government or the operation
thereof;
(G) the term "Release" means any release, spill,
emission, leak, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or
migration of Hazardous Substances into the
environment including, without limitation, the
movement of Hazardous Substances through ambient
air, soil, surface water, ground water, wetlands,
land or sub-surface strata; and
(H) the term "Person" means an individual,
corporation, partnership, trust or other legal
entity and includes any Governmental Authority.
(ii) Except as set forth on Schedule 4.1(y)(ii): (A) there
are no outstanding orders, notices (whether written or
oral) or similar requirements relating to the Company
issued by any Governmental Authority with respect to
any Environmental Laws, (B) there are no matters under
discussion with any Person relating to such orders,
notices or similar requirements and (C) the Company is
not the subject of, nor to the Company's knowledge,
being threatened to be the subject of, any
Environmental Investigation or Environmental Claim
brought under any federal, provincial or local
Environmental Law or any third party claim relating to
environmental conditions on or off the properties
owned, leased operated or otherwise occupied by the
Company.
<PAGE>
(iii) Except as set forth on Schedule 4.1(y)(ii), the
business conducted by the Company has been and now is
operated in full compliance with all Environmental
Laws, and to the knowledge of the Company, there are
no facts or circumstances which are likely to give
rise to any non-compliance with any Environmental Law
or any Environmental Claim.
(iv) Except as set forth on Schedule 4.1(y)(ii), (A) no
Environmental Authorizations are required to carry on
the business of the Company and the Company has not
received any notice (whether oral or written) from any
Governmental Authority that any Environmental
Authorizations are required to carry on the business
of the Company; (B) the Company and the Vendor have
not placed any underground storage tanks and Hazardous
Substances and to the best of the Vendor's and
Company's knowledge there are no underground storage
tanks and no Hazardous Substances are present in, on
or under the lands underlying the Sundog Premises
(Schedule 4.1(y)(ii) identifies all underground and
aboveground storage tanks, and the capacity, age and
contents of such tanks, located on real property owned
or leased by the Company), (C) the Company has not
transported, stored, used, manufactured, disposed of,
Released, or exposed its employees or others to any
Hazardous Substance in violation of any Environmental
Law in effect on or before the Funding Date, nor has
the Company manufactured, disposed of, transported,
stored, used Released, or sold, any product containing
a Hazardous Substance in violation of any
Environmental Law;
(v) Except as set forth on Schedule 4.1(y)(ii), the
Company has not ever been prosecuted or convicted of
an offense for non-compliance with any Environmental
Law, nor has it or, to the best of the Company's
knowledge have any of its directors, officers,
employees or agents been fined or otherwise subjected
to any administrative proceeding or the subject of any
Environmental Investigation, alleged or confirmed as a
breach of any Environmental Law, in relation to either
of the business of the Company or the conduct thereof
by or on behalf of the Company;
(vi) Except as set forth on Schedule 4.1(y)(ii), (A) the
Company has not received any notice of any
Environmental Investigation or Environmental Claim
from any Person, including any notice under or
pursuant to any Environmental Law, nor to the
Company's knowledge are there any facts or
circumstances which could give rise to any such
notice, that the Company is a potentially responsible
or liable party for any environmental contamination;
and (B) the Company has not received any notice of any
conditions on or off the properties owned, leased,
operated or otherwise occupied by the Company which
could give rise to any liabilities, known or unknown,
under any Environmental Law or as the result of any
Environmental Claim; and
<PAGE>
(vii) Except as set forth on Schedule 4.1(y)(ii), (A) the
Company has not disposed of or arranged (by contract,
agreement or otherwise) for the disposal of any
Hazardous Substance that was generated, stored or used
by the Company at any offsite location that has been
or is listed or proposed for inclusion on any list
promulgated by any Governmental Authority for the
purpose of identifying sites which pose a danger to
health and safety, and (B) there have been no
environmental studies, assessments, reports or
analyses made or prepared in the last five (5) years
relating to the facilities of the Company.
(z) Labor and Employment Matters Except as set forth in Schedule 4.1
(z), with respect to employees of and service providers to the
Company:
(i) 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, and occupational health and safety
requirements, and has not and is not engaged in any unfair
labor practice;
(ii) 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 Vendor's or the Company's
knowledge, threatened, before the Alberta Labor Relations
Board or any other government entity;
(iii) there is not now, nor within the past three (3) years has
there been, any Labour strike, slowdown or stoppage actually
pending or, to the Vendor's or the Company's knowledge,
threatened, against or directly affecting the Company;
(iv) to the Vendor's or the Company's knowledge, no labor
representation organization effort exists nor has there been
any such activity within the past three (3) years;
(v) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to
the Vendor's or the Company's knowledge, no claims therefor
exist or have been threatened;
(vi) 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;
<PAGE>
(vii) to the Vendor's or the Company's knowledge, no trade union,
council of trade unions, employee bargaining agency or
affiliated bargaining agent:
(A) holds bargaining rights with respect to any of the
Company's employees by way of certification, interim
certification, voluntary recognition, designation or
successor rights, or
(B) has applied to be certified as the bargaining agent of
any of the Company's employees;
(viii) to the Vendor's or the Company's knowledge, no executive or
key employee or any group of employees has plans to
terminate his, her or their employment with the Company, the
Company has not terminated, laid-off or dismissed (whether
actually or constructively) any employees of the Company
during the four (4) weeks prior to the Funding Date;
(ix) the Company does not have any written employment agreement
with any person whomsoever except such agreements as are
listed in Schedule 4.1(z)(viii), which Schedule sets forth
a complete and accurate list, as of March 15, 1999, of all
employees of the Company, their respective positions,
dates of hire with the Company (or any predecessors in
interest thereof), current salaries, benefits and other
remunerations and dates of last salary increases, and
indicates which employees are parties to a written or oral
agreement of employment (including confidentiality and
non-competition agreements);
(x) there have been no claims or allegations brought against
the Company or any officer, director, Shareholder or
employee of the Company or any other Person with whom an
employee may have dealings through his or her employment
by the Company, with respect to employment, employment
practices or terms or conditions of employment, including,
without limiting the generality of the foregoing, claims
alleging sexual harassment or discrimination;
(xi) all liabilities due and payable on or before the Funding
Date with respect to present or former employees of the
Company have been paid or shall be paid in full on or
before the Funding Date, including premiums contributions,
remittance and assessments for unemployment insurance,
Canada Pension Plan, income tax, workers compensation and
any other related legislation, accrued wages, Taxes,
salaries, commissions and Benefit Plan payments;
(xii) all vacation pay, bonuses, commission and other emoluments
relating to the employees of the Company are accurately
reflected in all respects and have been accrued in the
financial records of the Company; and
<PAGE>
(xiii) the Company has not entered into any agreement with any of
its employees with respect to termination of their
employment, and the Company has no obligation to reinstate
any employees or former employees.
(aa) Employee Benefit Plans
(i) Except as disclosed in Schedule 4.1(aa), the Company is not
bound by or a party to:
(A) any benefit plan including, without limiting the
generality of the foregoing, any pension plan,
retirement savings plan, retirement compensation
arrangement, salary deferral arrangement, health
care plan or deferred profit sharing plan, or 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 including, without limiting the
generality of the foregoing, 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 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 maintained by or on behalf of
the Company or any of its Subsidiaries for any of
their employees (each, a "Benefit Plan");
(B) any liability for any unfunded obligation for any
benefit or compensation for employees including,
without limiting the generality of the foregoing, any
profit sharing plans; or
(C) any liability for any contingent obligation which will
become an obligation upon the Closing including,
without limiting the generality of the foregoing, any
retirement allowance or retirement compensation
arrangement.
(ii) Subject to Schedule 4.1 (aa), all Benefit Plans listed in
Schedule 4.1(aa) have been duly registered where required
by, and are in good standing under, all applicable
legislation including, without limiting the generality of
the foregoing, the Income Tax Act and the Employment Pension
Plans Act (Alberta), as amended, and all required employer
contributions under each Benefit Plan have been made and the
applicable funds have been funded in accordance with the
terms of such Benefit Plan and no past service funding
liabilities exist thereunder;
<PAGE>
(iii) With respect to each Benefit Plan, true, correct, and complete
copies of all the following documents, to the extent
applicable, have been delivered to Purchaser or its designee
at the Sundog Premises:
(A) all documents constituting the Benefit Plans, including
but not limited to, trust agreements, insurance
policies, service agreements, and formal and informal
amendments thereto;
(B) the most recent summary plan description;
(C) the most recent written descriptions for all non-written
agreements relating to any such plan or arrangement;
(D) all annual reports submitted within the two (2) years
preceding the Funding Date.
(E) all notices of non-compliance that were given within the
two (2) years preceding the Funding Date by any
Governmental Authority with respect to any Benefit Plan;
and
(F) employee manuals or handbooks containing personnel or
employee relations policies.
(iv) Subject to Schedule 4.1 (aa), there are no pending claims or
lawsuits by, against, or relating to any Benefit Plan that
would, if successful, result in liability of the Company, and
no claims or lawsuits have been asserted, instituted or, to
the knowledge of the Vendor or the Company, threatened by,
against, or relating to any Benefit Plan, against the assets
of any trust or other funding arrangement under any Benefit
Plan, by or against the Company with respect to any Benefit
Plan, or by or against the plan administrator or any fiduciary
of any Benefit Plan, and to the Vendors or the Company's
knowledge there are no facts that could form the basis for any
such claim or lawsuit; and
(v) No Benefit Plan 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.
(bb) Taxes Except as set forth in Schedule 4.1(bb):
<PAGE>
(i) The Company has filed or caused to be filed on a timely
basis with the appropriate federal, provincial or
municipal Governmental Authority all Tax Returns required
to be filed on or before the Funding Date; all such Tax
Returns, as filed, are true, complete and correct in all
respects and fully disclose the income tax, expenses,
deductions and credits to the extent permitted by law;
none of such Tax Returns has been amended; all Taxes due
and payable or remittable with respect to the periods
reflected on such Tax Returns, all assessments and
reassessments and all tax installments and other
remittances required to be made on or prior to the Funding
Date have been or will be fully paid prior to the Funding
Date; there are no pending assessments or reassessments in
respect of a preceding taxation year or other taxable
period or any audits or investigations in progress,
pending or threatened (either in writing or verbally,
formally or informally), by any Governmental Authority
against the Company or any of its assets with respect to
any Taxes; there are no agreements, waivers or other
arrangements providing for an extension of time with
respect to the filing, assessment or reassessment of any
Taxes payable by the Company; there are no agreements with
any federal, provincial or municipal taxing authority that
may affect the subsequent Tax liabilities of the Company;
the reserves and provisions for Taxes on the books of the
Company are adequate for all Taxes which have been or may
in the future be assessed or reassessed against the
Company with respect to the appropriate periods then ended
and all periods prior thereto;
(ii) The Company (A) has withheld for each payment made to each
of its present and former employees, officers and
directors and to any non-resident of Canada the amount of
any Taxes and other deductions required to be withheld
therefrom, (B) has paid the same to the proper Government
Authority within the time periods required under any
applicable legislation, and (C) has 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;
(iii) The income tax liabilities of the Company have been assessed
for all taxation years up to and including the taxation year
ended July 31, 1998; true and complete copies of the federal
and provincial Tax Returns for the Company for each of the
fiscal years ended July 31, 1998, 1997, 1996 and 1995 and
copies of all assessments and reassessments relating to such
taxation years have been delivered to Purchaser or its
representatives;
(iv) The income tax liabilities of Sundog Digital Printing
Limited have been assessed for the taxation years ended July
31, 1996 and July 31, 1995; true and complete copies of the
federal and provincial Tax Returns for Sundog Digital
Printing Limited for each of the fiscal years ended July 31,
1996 and 1995 and copies of all assessments and
reassessments relating to such taxation years have been
delivered to the Purchaser or its representatives;
<PAGE>
(v) No amount in respect of any outlay or expense that is
deductible for the purposes of computing the income of the
Company for the purposes of the Income Tax Act has been
owing by the Company for longer than two (2) years to any
person or entity with whom the Company was not dealing at
arm's length (for the purposes of the Income Tax Act) at the
time that outlay or expense was incurred;
(vi) The Company has not, either directly or indirectly,
transferred property to or acquired property from any person
or entity with whom it was not dealing at arm's length (for
the purposes of the Income Tax Act) for consideration other
than consideration equal to the fair market value of the
property at the time of the disposition or acquisition
thereof;
(vii) The Company has not claimed a deduction with respect to an
outlay or expense which Revenue Canada may disallow in the
circumstances;
(viii) All amounts of consideration paid or agreed to be paid by
the Company with respect to the acquisition from, the use
or reproduction of property of, or services rendered by, a
non-resident of Canada not dealing at arm's length with
the Company for the purposes of and within the meaning of
the Income Tax Act have been no greater than would be
considered reasonable in the circumstances where such
non-resident would be dealing at arm's length with such
entity;
(ix) All amounts of consideration paid or agreed to be paid to
the Company with respect to the acquisition by, the use or
reproduction of property by, loan to, or services rendered
to, a non-resident of Canada with whom the Company was not
dealing at arm's length for the purposes of and within the
meaning of the Income Tax Act have been equal to at least
an amount which would be considered reasonable in
circumstances where such non-resident would be dealing at
arm's length with such entity;
(x) There are no circumstances which exist and would result in,
or which have existed and resulted in, any of sections 80 to
and including section 80.04 of the Income Tax Act applying
to the Company;
(xi) The Company has not been a party to an election made under
section 83 nor has the Company been a party to an election
under section 85 of the Income Tax Act;
(xii) The Company is a registrant for the purposes of the ETA; the
Company is not a financial institution within the meaning of
the ETA;
(xiii) The Company has not made any elections under the ETA;
(xiv) All applicable retail sales tax was paid by the Company on
the initial acquisition of its tangible personal property;
<PAGE>
(xv) During the three years prior to the Funding Date, except as
set forth in Schedule 4.1(bb), the Company (A) has not ever
done business in, or currently does not do business in, the
United States of America, and (B) has not ever filed, or has
no obligation to file, any Tax Return in the United States
of America;
(xvi) 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 Balance Sheet, and the
amount of the Company's liability for unpaid Taxes for all
periods or portions thereof ending or deemed to have ended
on or before the Effective 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 made as
of the Effective Date;
(xvii) The Company has filed all reports and has created and/or
retained all records required with respect to its
ownership by and transactions with related parties. Each
related person required to maintain records with respect
to transactions between the Company and related persons
has maintained such records. All documents that are
required to be created and/or preserved by related persons
with respect to transactions with the Company were created
and are maintained as required by law;
(xviii) The Company currently utilizes the accrual method of
accounting for income tax purposes and such method of
accounting has not changed in the past five (5) years;
(xix) No deficiencies exist or have been asserted (either in
writing or verbally, formally or informally) or are
expected to be asserted with respect to Taxes of the
Company and the Company has not received notice (either in
writing or verbally, formally or informally) and does not
expect to receive notice that it has not filed a Tax
Return or paid Taxes required to be filed or paid by it;
the Company is not a party to any action or proceeding for
assessment or collection of Taxes, and no such event has
been asserted or threatened (either in writing or
verbally, formally or informally) against the Company or
any of its assets;
(xx) There are (and as of immediately following the Funding Date
there will be) no Liens on the assets of the Company
relating to or attributable to Taxes;
(xxi) 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;
<PAGE>
(xxii) None of the Company's assets are leased from or to a Tax
exempt entity under the Income Tax Act (or comparable laws
of any jurisdiction);
(xxiii) 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 9, 18, 20 or 68 of
the Income Tax Act (or comparable laws of any jurisdiction);
(xxiv) The Company is not nor has it ever been, a party to a Tax
indemnity agreement, and the Company has not assumed the Tax
liability of any other Person under contract;
(xxv) The Company's Tax basis in their assets for purposes of
determining their future amortization, depreciation and
other income tax deductions is accurately reflected on the
Company's books and records;
(xxvi) The Company has no net operating losses or other Tax
attributes presently subject to limitation under Section 111
of the Income Tax Act (or comparable laws of any
jurisdiction); and
(xxvii) The Company has filed or caused to be filed, within the time
and manner provided by the Income Tax Act, any necessary tax
elections, pursuant thereto that relate to the amount of
taxable income reported in any tax returns filed for
taxation years ending on or before the Effective Date.
(cc) Conformity with Law; Litigation
(i) The Company has not violated any law or regulation or any
order of any court or federal, provincial, municipal or
other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over it;
(ii) Except as set out on Schedule 4.1(cc)(ii) no Shareholder
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 made an assignment in
bankruptcy; and
(iii) Except as set forth on Schedule 4.1(cc)(iii), there are no
claims, actions, suits or proceedings, pending or, to the
knowledge of the Vendor or the Company, threatened or
commenced against or affecting the Vendor or the Company
at law or in equity, or before or by any federal,
provincial, 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 Vendor or the Company or against
any of its properties or business.
<PAGE>
(dd) Intentionally left blank.
(ee) 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 4.1(ee) or disclosed
herein, there has not been:
(i) any change, by itself or together with other changes, that
has materially adversely affected, or is likely to
materially adversely affect, the business, operations,
affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
the Company;
(iii) 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;
(iv) any declaration or payment of any dividend or distribution
in respect of the shares, or any direct or indirect
redemption, purchase or other acquisition of any of the
shares of the Company;
(v) 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, Shareholders,
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 Employee Benefit Plan, employment,
severance or other agreement relating to compensation or
fringe benefits;
(vi) 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;
(vii) 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 shareholders
and their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without
limitation any indebtedness or obligation of the
Shareholders 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;
<PAGE>
(ix) 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;
(x) 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;
(xi) any waiver of any material rights or claims of the Company;
(xii) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which
the Company is a party;
(xiii) any transaction by the Company outside the ordinary course
of business;
(xiv) any capital commitment by the Company, either individually
or in the aggregate, exceeding $110,000;
(xv) 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;
(xvi) 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);
(xvii) 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
$110,000;
(xviii) any loan by the Company to any Person, 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; or
(xix) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the
preceding clauses (i) through (xix) (other than negotiations
with Purchaser and its representatives regarding the
transactions contemplated by this Agreement).
<PAGE>
(ff) Disclosure All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports,
statements and other writings furnished to Purchaser 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 Vendor,
the Company or 517244 contained in this Agreement, in the
Schedules attached hereto or in any certificate furnished or to be
furnished by the Vendor, the Company or 517244 to Purchaser 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 Vendor, the Company or 517244 that has specific
application to the Vendor, the Company and 517244 (other than
general economic or industry conditions) and that materially
adversely affects or, as far as the Vendor, 517244 and the Company
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.
(gg) Predecessor Status; Schedule 4.1(gg) 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 (5)
year period immediately preceding the Closing, the Company has
operated only under the names set forth on Schedule 4.1(gg) in the
jurisdiction or jurisdictions set forth on Schedule 4.1(gg) and
has not been a subsidiary or division of another corporation or a
part of an acquisition which was later rescinded.
(hh) Location of Chief Executive Offices The Company's chief executive
offices are located at 1311 - 9 Avenue S.W., Calgary, Alberta.
(ii) Location of Equipment and Inventory All inventory and equipment
held on the date hereof by the Company is located at either the
Sundog Premises or at 2320 - 35th Avenue N.E., Calgary or at the
premises of Coast Paper in Calgary. For purposes of this section,
(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 of any nature 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>
(jj) Year 2000 Compliance The Company is currently undergoing a
Year 2000 compliance review but has not yet completed same. As such,
the Company may not be Year 2000 Compliant and Ready. To the best of
the knowledge of the Vendor, the Company and 408443 no customer,
supplier of the Company or party with whom the Company has business
dealings has notified the Company that they are not or may not be
Year 2000 Compliant and Ready. Schedule 4.1(jj) appends various
reports on Year 2000 Compliance and a Company internal memorandum in
regard to Year 2000 Compliance.
4.2 Remenda's Representations and Warranties
The Vendor represents and warrants to the Purchaser that:
(a) 517244 is a corporation duly amalgamated, organized and subsisting
under the laws of Alberta as a private company as that term is
defined in the Securities Act (Alberta) with the corporate power to
own its assets and to carry on its business and has made all
necessary filings under all applicable corporate, securities and
taxation laws or any other laws to which 517244 is subject;
(b) the authorized capital of 517244 consists of 25,000 Class A Common
Shares, 25,000 Class B Common Shares and unlimited number of C
Preferred Shares which as of the Funding Date there is issued and
outstanding the following as fully-paid and non-assessable:
Shares Beneficial and Registered Owner
------ -------------------------------
100 Class "A" Shares Vendor
(c) The Vendor is the beneficial and registered owner of the shares
referred to in Section 3.2(b) above which, at the Funding Date, will
be free and clear of all Liens and any other rights of others;
(d) The Vendor has good and sufficient power, authority, and right to
enter into and deliver this Agreement and as at the Funding Date to
transfer the legal and beneficial title and ownership of the 517244
Shares to the Purchaser free and clear of all Liens and any other
rights of others;
(e) there is no contract, option or any other right of another binding
upon or which at any time in the future may become binding upon:
(i) The Vendor to sell, transfer, assign, pledge, charge,
mortgage or in any other way dispose of or encumber any of
the 517244 Shares other than pursuant to the provisions of
this Agreement, or
(ii) to allot or issue any of the unissued shares of 517244 or to
create any additional class of shares.
(f) neither the entering into nor the delivery of this Agreement nor the
completion of the transactions contemplated hereby by the Vendor or
by 517244 will result in the violation of:
<PAGE>
(i) any of the provisions of the constating documents or
by-laws of 517244,
(ii) any agreement or other instrument to which 517244 is a party
or by which 517244, is bound, or
(iii) any applicable law, rule or regulation.
(g) at the Funding Time, the sole asset of 517244 will be 100 Class "A"
Shares in the capital of the Company registered in its name and
517244 will be the owner of such assets with a good and marketable
title, free and clear of all Liens and any other rights of others;
(h) as at the Funding Date, there will be no outstanding liabilities
against 517244 other than the 517244 Shareholders Loan;
(i) 517244 is not a party to any contract or contractual commitment
other than those agreements entered into in accordance with the
terms of this Agreement;
(j) 517244 is not a party to or bound by any guarantee, indemnification,
surety or similar obligation other than guarantees granted on behalf
of the Company;
(k) 517244 is not a party to any lease or agreement in the nature of a
lease for real property, whether as lessor or lessee;
(l) as of the Funding Date, and except for the shares it holds in the
Company, 517244 will not have any Subsidiaries or agreements,
options or commitments to acquire any shares or securities of any
corporation or to acquire or lease any business operations, real
property or assets;
(m) there are no actions, suits or proceedings (whether or not
purportedly on behalf of 517244) pending or threatened against or
adversely affecting, or which could adversely affect, 517244 or
any of its assets before or by any federal, provincial, municipal
or other governmental court, department, commission, board,
bureau, agency or instrumentality, domestic or foreign, whether or
not insured, and which might involve the possibility of any
judgment or liability against 517244;
(n) 517244 is conducting its business in compliance with all
applicable laws, rules, regulations, notices, approvals and orders
of Canada and of the Province of Alberta and all municipalities
thereof in which its business is carried on, is not in material
breach of any such laws, rules, regulations, notices, approvals or
orders and is duly licensed, registered or qualified, and duly
possesses all material permits, in the Province of Alberta and all
municipalities thereof in which 517244 carries on its business to
enable its business to be carried on as now conducted and its
assets to be owned, leased and operated, and all such licences,
registrations, qualifications and permits are valid and subsisting
and in good standing and none of the same contains or is subject
to any term, provision, condition or limitation which has or may
have a material adverse effect on the operation of its business or
which may materially adversely change or terminate such licence,
registration, qualification or permit by virtue of the completion
of the transactions contemplated hereby; and
<PAGE>
(o) 517244 does not have any liability, obligation or commitment for
the payment of income taxes, corporation capital taxes or any
other taxes or duties of whatever nature or kind or interest or
penalties with respect thereto, except such as are disclosed in
the 517244 financial statements or such taxes or duties not yet
due as have arisen since the date of last 517244 financial
statements in the usual and ordinary course of business and for
which adequate provision in the accounts of 517244 has been made.
517244 is not in arrears with respect to any required
withholdings, remittances or instalment payments of any tax or
duty of any kind and has not filed any waiver for a taxation year
under the Income Tax Act or any other legislation imposing tax on
it. 517244 has, at the prescribed times, filed all tax returns,
information returns and schedules thereto required to be filed by
it in all applicable jurisdictions. All such tax returns properly
reflect, and do not in any respect understate, the taxable income
or the liability for taxes of 517244 in a relevant taxation year
or calendar year. Without limiting the generality of the
foregoing, 517244 is in compliance with all registration, timely
reporting, and remittance obligations in respect of all provincial
and federal sales tax legislation and the goods and services tax.
There are no actions, suits, or other proceedings or
investigations or claims in progress, pending or threatened
against 517244 in respect of any taxes, governmental charges, or
assessments and, in particular, there are no currently outstanding
reassessments or written enquiries that have been issued or raised
by any governmental authority relating to any such taxes,
governmental charges and assessments. To the knowledge of the
Vendor and 517244, there is no basis for any adverse reassessment
by any taxing authority for any year remaining open for
reassessment.
ARTICLE 5
PURCHASER'S REPRESENTATIONS AND WARRANTIES
5.1 Purchaser's Representations
The Purchaser represents and warrants to the Vendor that:
(a) Corporate Standing The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the Province
of Ontario, 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.
(b) Authorization; Validity of Obligations The representative of the
Purchaser executing this Agreement has all requisite corporate power
and authority to enter into and bind the Purchaser to the terms of
this Agreement. The Purchaser 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 the Purchaser and the performance by the Purchaser of
the transactions contemplated herein has been duly and validly
authorized by the Board of Directors of the Purchaser 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 Purchaser enforceable in accordance with its
terms; and
<PAGE>
(c) 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:
(i) conflict with, or result in a breach or violation of the
constating documents or by-laws of the Purchaser;
(ii) 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 the Purchaser is a party, or result in the
creation or imposition of any Lien on any of the
Purchaser's properties pursuant to (A) any law or
regulation to which the Purchaser or any of its property
is subject, or (B) any judgment, order or decree to which
the Purchaser is bound or any of its property is subject;
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other
authorization of the Purchaser;
(iv) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Purchaser is subject, or by which
the Purchaser is bound including, without limitation, the
Investment Canada Act.
ARTICLE 6
COVENANTS
6.1 Taxes
The following provisions shall govern the allocation of
responsibility as between the Company and 517244, on the one hand, and the
Vendor, on the other, for certain tax matters following the Effective Date:
(a) The Vendor 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 and 517244 for all fiscal periods
ending on or deemed to have ended on or before the Effective Date
that are due after the Effective Date. The Vendor shall pay to
the Company and 517244 on or before the 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 books and records of the Company and 517244 as of the
Effective Date. Such 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
Purchaser. To the extent reasonably requested by the Vendor or
required by law, Purchaser shall participate in the filing of any
Tax Returns filed pursuant to this paragraph;
<PAGE>
(b) The Purchaser, the Company, and 517244 on one hand, and the Vendor
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 6.1 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 and
517244 for all periods ending prior to or including the Effective
Date; and (C) preserve information, records or documents relating to
Tax matters pertinent to the Company and 517244 that is in their
possession or under their control until the expiration of any
applicable statue of limitations or extensions thereof;
(c) The Vendor shall timely pay all transfer, documentary, sales, use,
stamp, registration and other Taxes and fees applicable to the
Vendor arising from or relating to the transactions contemplated by
this Agreement, and the Vendor shall, file all necessary Tax Returns
and other documentation with respect to all such transfers,
documentary, sales, use stamp, registration, and other Taxes and
fees. If required by applicable law the Purchaser and the Company
will join in the execution of any such Tax Returns and other
documentation;
(d) The Purchaser does not assume and shall not be liable for any Taxes
under the Income Tax Act or any other Taxes whatsoever which may be
or become payable by the Vendor and 517244 including, without
limiting the generality of the foregoing, any Taxes resulting from
or arising as a consequence of this Agreement;
(e) The Vendor shall prepare or cause to be prepared and file or cause
to be filed, within the time and manner provided by the Income Tax
Act, the elections pursuant to Section 16.1 thereof, that relate to
the August 26, 1998 financing transaction entered into with the Bank
of Nova Scotia; and
<PAGE>
(f) The Company shall be responsible for the expense of filing its Tax
Return resulting from the transactions contemplated by this
Agreement.
6.2 Accounts Receivable
In the event that all Accounts Receivable as at the Funding Date are
not collected in full (subject to and net of reserves specified in Section
4.1(p)) within one hundred and twenty (120) days after the Closing then, at the
request of the Company or Purchaser, the Vendor shall pay the Company an amount
equal to the Vendor's Portion of the Accounts Receivable not so collected, and
upon receipt of such payment the Company shall assign to the Vendor, all rights
with respect to the uncollected Accounts Receivable giving rise to the payment
and shall also thereafter promptly remit to Vendor any excess collections
received by it with respect to such assigned Accounts Receivable. Subsequent to
the Funding Time the Purchaser shall cause the Company to use all commercially
reasonable efforts to collect the Accounts Receivable.
6.3 Related Party Agreements
The Vendor, the Company and/or 517244, as the case may be, shall
terminate any Related Party Agreements, which Purchaser requests the Vending the
Company or 517244 to terminate, whether before or after the Funding Time, with
the exception of the leases of the Sundog Premises,.
6.4 Cooperation
(a) The Company, Vendor, 517244 and Purchaser shall each deliver or
cause to be delivered to the other on the Funding Date, and at
such other times and places as shall be reasonably agreed to, such
instruments as the other may commercially reasonably request for
the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer
of the Company and 517244 shall execute any documentation
reasonably required by Purchaser's independent public accountants
(in connection with such accountant's audit of the Company and
517244) or the NASDAQ National Market;
(b) The Vendor, the Company and 517244 shall cooperate and use their
commercially reasonable efforts to have the current officers,
directors and employees of the Company and 517244 cooperate with
the Purchaser on and after the Funding 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 Funding Date;
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions
contemplated hereby; and
<PAGE>
(d) The Company, the Vendor, 517244 and the Purchaser shall file all
notices and other information and documents required under the
Investment Canada Act as promptly as practicable after the date
hereof.
6.5 Access to Information; Confidentiality; Public Disclosure
(a) Between the date of this Agreement and the Funding Date, the
Vendor will afford to the officers and authorized representatives
of the Purchaser access to (A) all of the sites, properties, books
and records of the Company and 517244 and (B) such additional
financial and operating data and other information as to the
business and properties of the Company and 517244 as the Purchaser
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;
(b) The Purchaser 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. The Purchaser agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the
Company to any person, 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
6.5(b), unless:
(A) such information becomes known to the public generally
through no fault of the Purchaser;
(B) disclosure is required by law or the order of any
governmental authority under color of law; or
(C) 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 (A), (B) or (C) above, the Purchaser 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; and
(c) Prior to the Funding Date, neither the Vendor, the Company nor
517244 shall make any disclosure (whether or not in response to an
inquiry) of the subject matter of this Agreement unless such
disclosure is previously approved by the Purchaser in writing. The
Purchaser agrees to keep the Vendor, the Company and 517244 apprised
in advance of any disclosure of the subject matter of this Agreement
by the Purchaser prior to the Funding Date.
6.6 Conduct of Business Pending Closing
<PAGE>
Between the Effective Date and the Funding Date, the Company and
517244 will (except as requested or agreed by Purchaser or except as
contemplated by the terms hereof):
(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
the 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 in accordance with past practice or as
contemplated herein.
6.7 Prohibited Activities
Between the Effective Date and the Funding Date, the Company and
517244 will not, without the prior written consent of Purchaser, not to be
unreasonably withheld unless the same is contemplated by the terms hereof:
(a) make any change in their respective articles of incorporation or
bylaws, or authorize or propose the same;
<PAGE>
(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
shares or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its shares,
or purchase, redeem or otherwise acquire or retire for value any
shares;
(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 $110,000,
including contracts to provide services to customers;
(e) increase the compensation payable or to become payable to any
officer, director, shareholder, employee, agent, representative or
independent contractor, except for ordinary and customary bonus and
salary increases, make any bonus or management fee payment to any
such person; make any loans or advances; adopt or amend any plan or
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) amalgamate or consolidate or agree to amalgamate 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;
<PAGE>
(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
Shareholder; 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
Purchaser; or
(p) take, or agree (in writing or otherwise) to take, any of the actions
described in Sections 6.7(a) through (o) above, or any action which
would make any of the representations and warranties of the Vendor,
Company and 517244 contained in this Agreement untrue or result in
any of the conditions set forth in Article 7 not being satisfied.
6.8 Exclusivity
None of the Vendor, the Company, 517244 or any agent, officer,
director or any representative of the Vendor, the Company or 517244 or the
Vendor will, during the period commencing on the date of this Agreement and
prior to the earlier to occur of the Funding Time 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) engage in any discussions pertaining to; or
(c) furnish any information to any person other than Purchaser 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 any one of the Vendor, the Company
or 517244 receives any unsolicited offer or proposal, or has actual knowledge of
any unsolicited offer or proposal, relating to any of the above, the Vendor, the
Company or 517244 shall immediately notify Purchaser thereof, including the
identity of the party making such offer or proposal and the specific terms of
such offer or proposal.
<PAGE>
6.9 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 Funding Time; 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 6.9 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 7 and 8, or (z) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE 7
CONDITIONS
7.1 Conditions For the Benefit of the Purchaser
The obligation of Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, on or
before the Funding Date, of the following conditions and deliveries:
(a) All of the representations and warranties of the Vendor, the
Company and 517244 contained in this Agreement shall be true,
correct and complete on and as of the Funding 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 Vendor, the Company and 517244 on or before the
Funding Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the
Funding Date and signed on behalf of the Vendor, the Company and
517244 and shall have been delivered to Purchaser;
(b) 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 Purchaser's proposed acquisition of the Shares, or
limiting or restricting Purchaser'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;
(c) There shall be no action, suit, claim or proceeding of any nature
pending or threatened against Purchaser or the Vendor, the Company
or 517244 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 in respect
of the Vendor, the Company and 517244 to the foregoing effect
dated the Funding Date and signed on behalf of the Vendor, the
Company and 517244 shall have been delivered to Purchaser;
<PAGE>
(d) 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 except those that affect the industry
generally; and Purchaser shall have received a certificate signed
by the Vendor, the Company and 517244 dated the Funding Date to
such effect;
(e) The Purchaser shall have received (i) a copy of the articles of
incorporation of the Company and 517244 certified by an appropriate
authority in the jurisdiction of its incorporation and (ii) a copy
of the bylaws of the Company and 517244 certified by a duly
authorized officer of the Company, and such documents shall be in
form and substance reasonably acceptable to the Purchaser;
(f) Purchaser shall have received from the Company completed interim
financial statements for the period ending on February 28, 1999 in a
form reasonably satisfactory to Purchaser;
(g) The Purchaser shall have received a certificate (the "Closing
Financial Certificate"), dated as of the Funding Date, signed on
behalf of the Company and by the Vendor, setting forth:
(i) the revenue of the Company for the fiscal year ended July
31, 1998 and the period ended February 28, 1999;
(ii) the earnings of the Company before interest and taxes and
bonuses, adjusted to reflect the add-back of certain
non-recurring costs, for the fiscal year ended July 31, 1998
and the period ended February 28, 1999;
(iii) The sum of the Company's total outstanding interest
bearing indebtedness to banks, and all other financial
institutions and creditors (in each case including the
current portions of such indebtedness, but excluding any
amounts payable pursuant to Section 3.1(b) hereof and
Section 3.1(b) of the Hodgson Agreement, and any amounts
payable to the Vendor, Hodgson and 408446, and their
Affiliates, any income taxes payable from the Balance
Sheet Date on earnings, operating leases, trade payables
and other accounts payable incurred in the ordinary course
of the Company's business consistent with past practice)
as of the Funding Date.
(h) Vendor shall have entered into an employment agreement with the
Purchaser in the form set forth in Schedule 1.1(t) hereof prior to
the Funding Time;
<PAGE>
(i) the Company shall have entered into a lease with the registered
owner(s) of the Sundog Premises on the terms set forth in Schedule
7.1(i) hereof prior to or contemporaneous with the Funding Time and
each of such leases shall be registered by way of caveat against the
certificates of title to the Sundog Premises and in the event that
any mortgage, encumbrance or financial charge exists, then the
holder of each such mortgage, encumbrance or financial charge shall
have executed and delivered to the Company a non-disturbance
agreement in form and content acceptable to the Purchaser;
(j) Remenda shall have signed the Remenda Agreement; and
(k) The Vendor, the Company and 517244 shall have made all deliveries
as are called for by this Agreement. The Purchaser 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.
7.2 Conditions for the Benefit of the Vendor, the Company and 517244
The obligation of the Vendor, the Company and 517244 to consummate
the transactions contemplated by this Agreement are subject to the satisfaction
or waiver, at or before the Funding Time, of the following conditions and
deliveries:
(a) All of the representations and warranties of Purchaser contained in
this Agreement shall be true, correct and complete on and as of the
Funding Time 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 Purchaser on or before the
Funding Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the
Funding Date and signed by any officer of the Purchaser shall have
been delivered to the Vendor, the Company and 517244;
(b) 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
Purchaser's proposed acquisition of the Shares, or limiting or
restricting Purchaser'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 Funding Date and signed by any
officer of the Purchaser shall have been delivered to the Vendor,
the Company and 517244;
<PAGE>
(c) All necessary material consents of, and filings with, any
governmental authority or agency or third party relating to the
consummation by the Purchaser of the transactions contemplated
herein, shall have been obtained and made;
(d) The Company or Purchaser shall have entered into an employment
agreement with Vendor in the form set forth in Schedule 1.1(t)
hereof prior to or contemporaneously with the Funding Time; and
(e) Hodgson shall have entered into the Hodgson Agreement.
7.3 Conditions for Benefit of Purchaser, Vendor, Company and 517244
The obligation of the Purchaser, the Vendor, the Company and 517244
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction or waiver, at or before the Funding Time, of the following
conditions and deliveries to be completed immediately prior to the Funding Time:
(a) the Company shall remit the Johnson Pension Obligation to such
entity as shall be designated by Harvey Johnson. Concurrently
therewith, Harvey Johnson shall unconditionally release the Company
for all claims in relation to the Johnson Pension Obligation and
enter into an amendment of the Johnson Employment Contract
acknowledging deferral of payment of the Johnson Severance
Obligation to June 30, 1999 and providing for an assignment to
Harvey Johnson of the life insurance on his life held by the
Company;
(b) the Company shall declare, as evidenced by a written resolution of
the board of directors of the Company that a bonus net of
withholdings has been credited to the Sundog Shareholder Loan
account in the net amount of $136,238 (the "1999 Bonus"). The
Company shall make all remittances, including any remittances
required under the Income Tax Act, to be made in connection with the
payment of the 1999 Bonus; and
(c) Remenda shall release the Company from that certain employment
agreement dated December 22, 1989 between Remenda and the Company.
<PAGE>
ARTICLE 8
INDEMNIFICATION
8.1 General Indemnification by the Vendor
The Vendor as to the Vendor's Portion, covenants and agrees to
indemnify, defend, protect and hold harmless the Purchaser and the Company and
their respective officers, directors, employees, shareholders, assigns,
successors and Affiliates (individually, an "Indemnified Party" and
collectively, the "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 legal 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:
(i) any breach of any representation or warranty of the Vendor,
517244 or the Company set forth in this Agreement or any
Schedule or certificate, delivered by or on behalf of any of
the Vendor, 517244 or the Company in connection herewith;
(ii) any nonfulfillment of any covenant or agreement by the
Vendor or, prior to the Funding Date, the Company or 517244,
under this Agreement. or
(iii) the business, operations or assets of the Company or 517244
prior to the Funding Time or the actions or omissions of the
Company's or 517244's directors, officers, shareholders,
employees or agents prior to the Funding Time, other than
Damages arising from matters expressly disclosed in the
Company Financial Statements, this Agreement or the
Schedules to this Agreement
(iv) any additional assessment, Tax or penalties payable as a
result of the assignment of the Remenda Insurance and any
other assignment of any employee insurance in accordance
with this 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:
(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 $110,000 (the "Indemnification Threshold");
provided, however, that the Indemnification Threshold shall not
apply to (i) Damages arising out of any breaches of the covenants
of the Vendor, 517244 or the Company set forth in this Agreement
or representations and warranties made in Sections 4.1(e)
(Authorized Capital), 4.1(f) (Entitlements), 4.1(u) (Significant
Customers; Material Contracts and Commitments), 4.1(aa) (Employee
Benefit Plans), 4.1(bb) (Taxes), or 4.1(cc) (Conformity with Law;
Litigation);
<PAGE>
(b) the aggregate amount of the Vendor's liability under this Article 8
shall not exceed the Purchase Price, provided however, that the
Vendor's liability for Damages arising out of any breaches of the
representations made in Sections 4.1(y), 4.1(aa) or 4.1(bb) 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);
(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) (A) except as to representations, warranties, and
covenants specified in clause (i)(B) of this Section
8.2(c), the third anniversary of the Funding Date;
(B) with respect to representations and warranties
contained in Sections 4.1(y), 4.1(aa), 4.1(bb) 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 limitation period contained in the
applicable federal or provincial statute (including
extensions thereof), or (B) if there is no
applicable federal or provincial statute, (x) five
(5) years after the Funding Date if the Claim (as
defined below) is related to the cost of
investigating, containing, removing or remediating a
release of Hazardous Substances (as defined above)
into the environment, or (y) five (5) years after
the Funding Date for any other Claim covered by
clause (i)(B) of this Section 8.2(c); or
(ii) The final resolution of claims or demands pending as of the
dates described in clause (i) of this Section 8.2(c) (such
claims referred to as "Pending Claims").
(d) For greater certainty the Vendor shall, in accordance with the
provisions of this Article 8, indemnify the Purchaser and the
Company in respect of those matters set out in that schedule
delivered at the Funding Time by the Purchaser to the Vendor which
letter is attached hereto as Schedule 8.2(d). The Vendor
acknowledges that Schedule 8.2(d) shall in no way constitute any
amendment, waiver, modification or abridgement of any of the
Purchasers rights under this Article 8.
<PAGE>
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 within thirty (30) days of having
actual knowledge of such Claim (failing which the Indemnified
Party shall be deemed to waive its right to indemnification in
respect of such Claim) notify the Vendor 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
Vendor 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 Vendor within thirty (30) days of
having actual knowledge of such Third Party Claim (failing
which the Indemnified Party shall be deemed to waive its
right to Indemnification in respect of such Claim). The
Vendor 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 the Vendor 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
<PAGE>
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 Vendor 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 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
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.
<PAGE>
8.4 General Indemnification by the Purchaser
The Purchaser covenants and agrees to indemnify, defend, protect and
hold harmless the Vendor from, against and in respect of:
(a) all Damages suffered, sustained, incurred or paid by the Vendor in
connection with, resulting from or arising out of, directly or
indirectly:
(i) any breach of any representation or warranty of the
Purchaser set forth in this Agreement;
(ii) any nonfulfillment of any covenant or agreement by the
Purchaser, or after the Funding Date, the Company, under
this Agreement, excluding any such non-fulfillment caused by
the Vendor;
(iii) the business, operations or assets of the Company subsequent
to the Funding Date or the actions or omissions of the
Company's directors, officers, shareholders, employees or
agents subsequent to the Funding Date, excluding Damages
caused by or actions or omissions of the Vendor; or
(iv) guarantees or indemnities or the sureties provided by Vendor
or his Affiliates for the benefit of the Company as set
forth in Schedule 8.4(a)(iv).
(b) the indemnification obligation under this Section 8.4 shall
terminate on the third anniversary of the Funding Date.
8.5 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants made by the Vendor,
the Company, 517244 and the Purchaser 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 Funding Date. The representations of the Vendor, the Company
and 517244 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 and warranties of the Purchaser will survive
Closing and will remain in effect until, and will expire upon the third
anniversary of the Funding Date.
8.6 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.
<PAGE>
8.7 Right to Set Off
Subject to complying with the procedures set forth in of Section
11.10, the Purchaser shall have the right, but not the obligation, to set off,
in whole or in part, against the portion of the Purchase Price payable pursuant
to Sections 3.1(a)(iii), 3.1(a)(iv) or 3.1(a)(v) hereof, amounts finally
determined under Section 8.3 to be owed to the Purchaser by the Vendor, 517244
or the Company or any Indemnifying Party under this Article 8.
8.8 Claims
The Vendor's Liability to an Indemnified Party pursuant to Section
8.1 shall be limited to the Vendor's Portion. Similarly, the Parties acknowledge
that in relation to any other action or claim whatsoever under and pursuant to
this Agreement whether in relation to a breach of the representation or
warranties, the covenants or otherwise, the Vendor's Liability shall be limited
to the Vendor's Portion and the Purchaser shall deliver notice to the Vendor of
such other claim within thirty days of having actual knowledge of such claim
failing which the Purchaser shall be deemed to have waived such claim.
ARTICLE 9
NON - COMPETITION
9.1 Prohibited Activities
The Vendor 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 the Purchaser as trade secrets. In order to protect the
Company's and/or the Purchaser's critical interest in these relationships and
information, the Vendor covenants that he will not, for a period of four (4)
years following the Funding 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 locations 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 the Vendor was engaged in prior to the Funding
Date or (ii) any facet of the business of the Company about which
the Vendor acquired proprietary or confidential information during
the course of his ownership of the Shares;
(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 Funding Date, or that has
been, within one (1) year prior to the Funding Date, a customer of
the Company; or
<PAGE>
(d) acquire or enter into any agreement to acquire any prospective
acquisition candidate that was, to the knowledge of the Vendor,
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 Funding Date. The Vendor, 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 Vendor 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
The Vendor acknowledges that 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 Vendor covenants and agrees
with the Company and Purchaser that he will not at any time, except in
performance of Vendor'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 or she 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 Purchaser, unless (i) such information
becomes known to the public generally through no fault of any Shareholder, (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 Vendor shall give prior written notice
thereof to Purchaser and provide Purchaser 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
Purchaser's management with respect to the Company's or Purchaser'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 Purchaser
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to Purchaser for which it would have
no other adequate remedy, the Vendor agrees that the foregoing covenant may be
enforced by Purchaser in the event of breach by the Vendor, 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 Vendor in light of the activities and
business of the Purchaser 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 the Vendor against the Purchaser,
whether predicated on this Agreement or otherwise, shall not constitute a
defence to the enforcement by the Purchaser 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
Vendor made in this Article 9 shall be effective, shall be completed by
excluding from such computation any time during which the Vendor is found by a
court of competent jurisdiction to have been in violation of any provisions of
this Article 9. The covenants contained in this 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 Vendor 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.
<PAGE>
ARTICLE 10
CLOSING
10.1 Closing
(a) 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 the
Purchaser and the Vendor may agree, which date is referred to as the
"Funding Date."
(b) The completion of the transactions contemplated herein shall be
carried out pursuant to such reasonable trust conditions as are
agreed upon between the solicitors representing the Vendor, the
Company and 517244 and the Solicitors representing the Purchaser
which shall provide that all closing documents and funds shall be
delivered to the Solicitors representing the Purchaser and held in
escrow and not released until all parties have delivered all
required closing documents and funds and caveats respecting the
Leases have been registered at the Land Titles Office against the
respective certificates of title to the lands referenced in the
Leases, subject only to the caveats and instruments that were
registered against titles as at the Effective Date.
10.2 Deliveries at Funding Time
At the Funding Time:
(a) the Purchaser shall deliver or cause to be delivered to the Vendor
the following:
(i) funds in the amount of $1,599,547 for the Purchased Interests;
(ii) demand promissory note in the amount of $275,154;
(iii) releases of the personal guarantees of Vendor and the
corporate guarantees of 517244 and its Affiliates;
(iv) releases of the Vendor by the Company and 517244;
(v) a legal opinion in form reasonably satisfactory to Vendor's
solicitors in relation to the enforceability of this Agreement
and the other agreements delivered pursuant to the terms
hereof;
(vi) an undertaking to pay to the Johnson Severance Obligation and
the Johnson Pension Obligation.
(b) the Vendor shall deliver or cause to be delivered to the Purchaser
the following:
(i) a certificate of each of the Vendor, 517244 and the Company
confirming that the representations set forth herein by them
to are true and correct at the Funding Date;
<PAGE>
(ii) a certified copy of the resolution of the board of directors
of the Company and 517244 approving the agreement and the
transfer of the 517244 Shares from the Vendor to the
Purchaser;
(iii) certificates representing the Shares duly endorsed in blank
for transfer;
(iv) The share certificate book, minute book, corporate seal and
all other corporate records and business records of 517244;
(v) resignations of the existing directors and officers of
517244;
(vi) a legal opinion in form reasonably satisfactory to Purchaser's
solicitors in relation to the enforceability of this Agreement
and the other agreements delivered pursuant to the terms
hereof;
(c) At the Funding Time, the Vendor, 517244, the Company and the
Purchaser, as the case may be, shall execute and deliver or cause to
be delivered the following:
(i) an assignment of the Shareholders Loans; and
(ii) the Remenda Employment contract.
10.3 Purchaser Post Closing Obligations
Following the Funding Time the Purchaser shall:
(a) appoint new directors for 517244 and the Company and cause a duly
completed Notice of Change of Directors to be filed with Alberta
Corporate Registry and in any other jurisdictions where 517244 or
the Company is registered and such notification is required to be
filed;
(b) designate a new registered office for 517244 and the Company and
cause a duly completed Notice of Change of Address to be filed with
Alberta Corporate Registry;
(c) cause 517244 and the Company to deliver to the former directors of
517244 and the Company, as the case may be, duly executed releases
in a form reasonably acceptable to the solicitors for the Vendor;
(d) assign the Remenda Insurance from the Company to the Vendor or his
nominee; and
(e) assign the TPI Receivable from the Purchaser in favor of the Vendor.
10.4 Johnson Contract
In due course, following the Funding Time, the Purchaser shall
ensure the payment to Harvey Johnson of the Johnson Severance Obligation by the
Company.
<PAGE>
ARTICLE 11
GENERAL
11.1 Termination
This Agreement may be terminated at any time prior to the Funding
Date solely:
(a) by mutual consent of the board of directors of Purchaser and the
board of directors of the Company; or
(b) by the Vendor, the Company and 517244 as a group, on the one hand,
or by Purchaser, on the other hand, if the Closing shall not have
occurred on or before April 15, 1999, provided that the right to
terminate this Agreement under this Section 11.1(b) shall not be
available to either party (with the Vendor, the Company and 517244
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 Vendor, the Company and 517244 as a group, on the one hand,
or by Purchaser, 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 Vendor, the Company and 517244 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
Funding Date; or
(d) by the Vendor, the Company and 517244 as a group, on the one hand,
or by Purchaser, on the other hand, if there shall be a final
non-appealable order of a federal or provincial 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.
11.2 Effect of Termination
In the event of the termination of this Agreement pursuant to
Section 11.1, 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 shareholders. Notwithstanding the foregoing sentence, (i) the
provisions of Articles 11 and 8, 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 11.1(c) above, then
notwithstanding the provisions of Section 11.7 below, the breaching party (with
the Vendor, 517244 and the Company deemed to be a single party for purposes of
this Article 11), 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>
11.3 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 the Purchaser, and the
heirs and legal representatives of the Vendor. Notwithstanding anything in the
foregoing to the contrary, the Purchaser may assign any of its rights or
obligations under this Agreement to any direct or indirect Subsidiary or
Affiliate of the Purchaser in its sole and absolute discretion and without the
consent of the Vendor or the Company or 517244; provided, however that in the
event of such assignment the Purchaser shall continue to be liable to the Vendor
for the payment of the Purchase Price.
11.4 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. 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.
11.5 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.
11.6 Brokers and Agents
Purchaser and the Vendor, the Company and 517244 (as a group) each
represents and warrants to the other that it has not employed any broker or
agent for which the other would be liable 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.
11.7 Expenses
The Purchaser has and will pay the fees, expenses and disbursements
of the Purchaser and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The Vendor
(and not the Company or 517244) have and will pay the fees, expenses and
disbursements of the Vendor, the Company and 517244 and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
<PAGE>
11.8 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 9.2 and the non-competition provisions set forth in Section
9.1. 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.
11.9 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:
<PAGE>
If to the Purchaser or the Company to:
Workflow Management Inc.
240 Royal Palm Way
Palm Beach, Fl.
USA 33480
Attn: Claudia S. Amlie
Vice President and General Counsel
(Telefax: (561) 659-5099)
with a required copy to:
McCarthy Tetrault
#3300, 421 - 7 Avenue S.W.
Calgary, Alberta T2P 4K9
Attn: John S. Osler
(Telefax: (403) 260-3501)
and to:
Kaufman & Canoles
Post Office Box 3037
Norfolk, Virginia 23514
Attn: T. Richard Litton, Jr., Esq.
(Telefax: (757)624-3169)
If to the Vendor to:
(Telefax: (757) 624-3169)
and to:
the Vendor
11163 Harvest Hills Gate N.E.
Calgary, Alberta
T3K 3X2
and to:
Field Atkinson Perraton
Suite 1900, 350 - 7 Avenue S.W.
Calgary, Alberta T2P 3N9
Attention: John R. Perraton, Q.C.
(Telefax: (403) 264-7084)
<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.
11.10 Governing Law
(a) Subject to the provisions of Section 11.10(b) below, this Agreement
shall be governed by and construed, interpreted and enforced in
accordance with the laws of Alberta and the federal laws of Canada
applicable therein. 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
Calgary, Alberta and appeal courts therefrom 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.
(b) Prior to instituting any formal legal actions in connection with
disputes arising under this Agreement, the Vendor, the Company,
517244 and the Purchaser (collectively, the "Parties") shall first
attempt to resolve their disputes informally as follows:
(i) upon written request of a Party, each Party shall appoint a
designated representative whose task it will be to meet for
the purpose of endeavoring to resolve such dispute, such
meetings to be held in Calgary, Alberta;
(ii) the designated representatives shall meet as often as the
Parties reasonably deem necessary in order to gather and
furnish to the other all information with respect to the
matter in issue which the Parties believe to be appropriate
and germane in connection with its resolution and the
representatives shall discuss the problem and negotiate in
good faith in an effort to resolve the dispute without the
necessity of any formal proceeding;
(iii) during the course of negotiations, all reasonable requests
made by one Party to another for nonprivileged information,
reasonably related to this Agreement, shall be honoured in
order that each of the Parties may be fully advised of the
other's position;
<PAGE>
(iv) the specific format for discussion shall be left to the
discretion of the Parties, but may include the preparation
of agreed upon statements of fact or written statements of
position;
(v) formal proceedings for the resolution of a dispute may not
be commenced until the earlier of (A) the designated
representatives concluding in good faith that amicable
resolution through continued negotiation of the matter does
not appear likely or (B) 30 days after the initial request
to negotiate the dispute;
(vi) the foregoing provisions of this Section 11.10(b) shall not
be construed to prevent a Party from instituting, and a
Party is authorized to institute, formal proceedings earlier
to avoid the expiration of any applicable limitations period
or to preserve a superior position to creditors. In
addition, (i) nothing in this Section 11.10(b) shall be
construed to limit the rights of the Purchaser to seek
injunctive relief in the event that the Vendor violates any
of the provisions of Article 9 and (ii) any Party may
institute formal legal proceedings if it makes a good faith
determination that a breach of the terms of this Agreement
by another Party is such that the damages to such Party
resulting from the breach will be so immediate, so large or
severe, and so incapable of adequate redress after the fact
that a temporary restraining order or other injunctive
relief is the only adequate remedy.
11.11 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.
11.12 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.
11.13 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.
<PAGE>
11.14 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.
11.15 Further Assurances
From time to time subsequent to the Funding Date, the parties shall
execute and deliver or cause the execution and delivery of such additional
documents as may be reasonably required to carry out the intent of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
DATA BUSINESS FORMS LIMITED
By: /s/ Data Business Forms Limited
--------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
SIGNED, SEALED, AND DELIVERED in
the presence of:
/s/ Ray Remenda
- --------------------------------- -----------------------------------
Witness Ray Remenda
SUNDOG PRINTING LIMITED
By:/s/ Sundog Printing Limited
-----------------------------------
Name:
Title:
517244 ALBERTA LIMITED
By: /s/ 517244 Alberta Limited
-----------------------------------
Name:
Title:
AGREEMENT AND PLAN OF MERGER
By and Among
SFI of Delaware, LLC
JWC Acquisition Corp.
Superior Graphics, Inc.
and
The Stockholders Named Therein
made effective as of March 18, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into this 18th day of March, 1999, by and among SFI of Delaware, LLC, a
Delaware limited liability company ("Buyer") whose sole member is Workflow
Management, Inc., a Delaware corporation ("Workflow"), JWC Acquisition Corp.,
a New York corporation and a newly formed, wholly owned subsidiary of the
Buyer ("Newco"), Superior Graphics, Inc. a New York corporation (the
"Company"), Wesley Cheringal and John Cheringal (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 (the "Stock"). The respective Boards of Directors
of Newco and the Company (which together are sometimes referred to as the
"Constituent Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco merge
with and into the Company (the "Merger") pursuant to this Agreement, the Plan
of Merger (defined below) and the applicable provisions of the laws of the
State of New York.
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. PLAN OF REORGANIZATION
1.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section
2), Newco shall be merged with and into the Company pursuant to this Agreement
and a plan of merger (the "Plan of Merger") substantially in the form attached
as Schedule 1.1 hereto, and the separate corporate existence of Newco shall
cease. The Company, as it exists from and after the Effective Time, is
sometimes referred to as the "Surviving Corporation."
(b) Effects of the Merger. The Merger shall have the effects
provided therefor by the New York Business Corporation Law (the "State
Corporation Laws"). Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time (i) all the rights, privileges,
immunities, powers and franchises, of a public as well as of a private nature,
and all property, real, personal and mixed, and all debts due on whatever
account, including without limitation subscriptions to shares, and all other
chooses in action, and all and every other interest of or belonging to or due
to the Company or Newco shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, immunities, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation, as they were of the Company and Newco, and (ii) all
debts, liabilities, duties and obligations of the Company and Newco shall
become the debts, liabilities and duties of the Surviving Corporation and the
Surviving Corporation shall thenceforth be responsible and liable for all the
debts, liabilities, duties and obligations of the Company and Newco and
neither the rights of creditors nor any liens upon the property of the Company
or Newco shall be impaired by the Merger, and may be enforced against the
Surviving Corporation; provided, however, that nothing in the foregoing shall
limit or otherwise qualify the indemnification obligations of the Stockholders
set forth in Article 8 of this Agreement.
<PAGE>
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of the Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Newco until
thereafter amended in accordance with the provisions therein and as provided
by the applicable provisions of the State Corporation Laws. The Bylaws of the
Surviving Corporation from and after the Effective Time shall be the Bylaws of
Newco in effect immediately prior to the Effective Time, continuing until
thereafter amended in accordance with their terms and the Articles of
Incorporation of the Surviving Corporation and as provided by the State
Corporation Laws. The initial directors of the Surviving Corporation shall
be: Thomas B. D'Agostino, Jr.; Claudia S. Amlie; Wesley Cheringal, John
Cheringal, and Steven R. Gibson, in each case until their successors are
elected and qualified, and the initial officers of the Surviving Corporation
shall be Wesley Cheringal (President), John Cheringal (Vice President,
Assistant Secretary), Thomas B. D'Agostino, Jr. (Vice President), Steven R.
Gibson (Vice President, Treasurer) and Claudia S. Amlie (Secretary) in each
case until their successors are duly elected and qualified.
(d) Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Buyer, Newco, the Company
or any Stockholder, the shares of capital stock of each of the Constituent
Corporations shall be converted as follows:
(i) Each issued and outstanding share of capital stock of
Newco shall continue to be issued and outstanding and shall be converted into
one share of validly issued, fully paid and non-assessable share of common
stock of the Surviving Corporation. Each stock certificate of Newco
evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
(ii) All shares of capital stock of the Company that are
owned directly or indirectly by the Company shall be canceled and no
consideration shall be delivered in exchange therefor.
(iii) Subject to Sections 1.2, 1.3, and 1.4, each issued and
outstanding share of the Stock (other than shares to be canceled pursuant to
Section 1.1(d)(ii), if any), that is issued and outstanding immediately prior
to the Effective Time shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the
right to receive the Purchase Price (as defined in Section 1.2) divided by the
number of shares of Stock outstanding immediately prior to the Effective
Time. All such shares of Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
consideration set forth herein upon the surrender of such certificate in
accordance with Section 1.5 of this Agreement.
<PAGE>
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 in the following
manner:
(i) $8,133,396 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 first be applied
to satisfy the escrow obligations set forth in Section 1.4 and the balance
shall be paid to the Stockholders in cash at the Effective Time in proportion
to their respective holdings of Stock as set forth on Schedule 1.2.
(ii) Certain other payments of the Purchase Price shall be
made to the Stockholders based upon the "Gross Profit" of the Company, as
specifically set forth in Section 1.7 hereof. For purposes of the Internal
Revenue Code of 1986, as amended ("Code"), 4.83% 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 March 1999 in Revenue Ruling 99-11.
(iii) Buyer shall reimburse the Stockholders for adverse Tax
consequences they may suffer ("Incremental Taxes") in connection with the
Section 338(h)(10) Election (as defined in Section 5.1(c)(i)). The actual
amount of Incremental Taxes payable to the Stockholders with respect to the
Cash Purchase Price actually received by the Stockholders shall be determined
in a manner consistent with the allocation of Purchase Price (as provided in
Section 5.1(c)(ii)) and by applying the method set forth on Schedule
1.2(a)(iii) The actual amount of Incremental Taxes which are so determined
shall be paid by the Buyer to the Stockholders (in proportion to their
respective holdings of Stock as set forth on Schedule 1.2) no later than
fifteen (15) days after 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). In addition, with respect to the Earn-out payments only (as
defined and described in Section 1.7), if the Buyer makes a Section 338(h)(10)
Election (as more specifically set forth in Section 5.1), (x) the Buyer shall
pay to the Stockholders (in proportion to their respective holdings of Stock
as set forth on Schedule 1.2) an aggregate amount equal to 1.01% of each
annual Earn-out Payment actually received by the Stockholders together with
the payment of each such annual Earn-out Payment; and (y) the Buyer shall
assume and pay the Company's entity level New York State and/or New York City
tax liability, including interest for any late payment of such liability, that
may be imposed with respect to such Earn-out payments ("Earn-out Tax
Liability") but in no event shall such assumption of liability be deemed to be
"Purchase Price" as such term is used in this Agreement.
(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 with the Closing Balance Sheet and the cover letter
accompanying such Closing Balance Sheet prepared by the Company's independent
accountant (as defined in Section 1.2(d) below) ("Net Worth"), is equal to or
greater than $2,772,000 (the "Net Worth Target") as of the Closing. The
Stockholders represent to Buyer that the Net Worth of the Company exceeds the
Net Worth Target as of the Closing Date. The Company and the Stockholders are
permitted to distribute from the Company to the Stockholders immediately prior
to, or contemporaneously with, the Closing accounts receivable of the Company
to the extent the aggregate amount of such distributions do not reduce the Net
Worth below the Net Worth Target (any such assets "Distributed Assets").
Distributed Assets shall consist first of accounts receivable owed to the
Company by any persons or entities that are affiliates of the Stockholders (as
the term "affiliate" is defined under federal securities laws). If such
affiliate receivables exceed the total amount of the Distributed Assets, the
oldest affiliate receivables shall be distributed to the Stockholders up to
the aggregate amount of the Distributed Assets. To the extent the aggregate
amount of such affiliate receivables is less that the total amount of the
Distributed Assets, the oldest non-affiliate accounts receivable of the
Company shall be distributed to the Stockholders in an amount that, when
aggregated with the affiliate receivables, equals the total amount of the
Distributed Assets. The Distributed Assets are identified on Schedule 1.2(b)
attached hereto. Buyer acknowledges that it will have no right, title or
interest in or to the Distributed Assets by virtue of Buyer's purchase of the
Stock pursuant to the terms of this Agreement and that the Company will be
subject to the Accounts Receivable Assignment Agreement entered into by the
Stockholders and the Company contained in Schedule 1.2(b).
<PAGE>
(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.
(d) The parties acknowledge that the Net Worth Target was
calculated based on a closing balance sheet of the Company, which is attached
to this Agreement as Schedule 1.2(d) ("Closing Balance Sheet") and which
reflects the Certified Closing Net Worth as determined in a manner consistent
with GAAP and the cover letter accompanying the Closing Balance Sheet prepared
by the Company's independent accountant. The parties further acknowledge that
the Closing Balance Sheet contains a deferred tax payable liability of
$658,000, which has been calculated based solely on the Company's estimated
deferred tax liability as of October 31, 1998 ("Deferred Tax Liability").
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 eighty (180) days following the Closing
Date, Buyer, at its option, shall cause PriceWaterhouseCoopers ("Buyer's
Accountant") to audit the Closing Balance Sheet to determine whether the Net
Worth Target has been met (the "Post-Closing Audit"). The parties acknowledge
and agree that for purposes of determining the Net Worth of the Company as of
March 18, 1999 (the "Net Worth Calculation Date"), the value of the assets of
the Company shall, except with the prior written consent of Stockholders and
Buyer, be calculated as provided in Section 1.2(b) and the last paragraph of
Section 6.9. In the event that Buyer's Accountant determines that the actual
Company net worth as of the Net Worth Calculation Date, as determined in a
manner consistent with GAAP, the Closing Balance Sheet, and the cover letter
accompanying such Closing Balance Sheet prepared by the Company's independent
accountant (except that the actual amount of the Company's deferred tax
payable liability as of the Closing shall be used) 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 Company net worth (the "Actual Company Net Worth"), (ii) the amount
of the Cash Purchase Price that would have been payable at the Effective Time
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 the Effective Time 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). In
addition, and notwithstanding anything in this Section 1.3 to the contrary, in
the event the Buyer's Accountant determines that (i) the Actual Company Net
Worth exceeds the Certified Closing Net Worth (any such excess the "Net Worth
Excess") and (ii) the Deferred Tax Liability reflected on the Closing Balance
Sheet exceeds the actual amount of the Company's deferred tax payable
liability as of the Net Worth Calculation Date as determined by the Buyer's
Accountant during the Post-Closing Audit (any such excess the "Deferred Tax
Excess"), then the Buyer shall pay to the Stockholders in cash an amount equal
to the lesser of (i) the Net Worth Excess or (ii) the Deferred Tax Excess.
The actual amount of the Company's deferred tax payable liability as of the
Net Worth Calculation Date as determined by the Buyer's Accountant during the
Post-Closing Audit shall include all Company level tax liability to the State
of New York and/or the City of New York with respect to the Distributed
Assets, which tax liability the Surviving Corporation shall pay.
<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 or the determination of
the Deferred Tax Excess, if any. 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 shall, to the extent available, be from the
Pledged Assets as defined in Section 1.4) any 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 Balance Sheet, Closing Financial Certificate and Financial
Adjustment Notice (and related information) to determine the amount, if any,
of the Purchase Price Adjustment and Deferred Tax Excess. 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 also be directed to determine
the Purchase Price Adjustment and Deferred Tax Excess, if any, in a manner
consistent with GAAP, the Closing Balance Sheet and the cover letter
accompanying such Closing Balance Sheet prepared by the Company's independent
accountant (except that the actual amount of the Company's deferred tax
payable liability as of Closing shall be used). The independent accounting
firm shall make its determination of the Purchase Price Adjustment and
Deferred Tax Excess, 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 shall, to the extent available, be from
the Pledged Assets as defined in Section 1.4) any Purchase Price Adjustment,
or, if applicable, the Stockholders shall be entitled to receive from the
Buyer an amount determined pursuant to the formula set forth in the last
sentence of Section 1.3(b). To the extent any Purchase Price Adjustment (as
finally determined pursuant to this Section 1.3) exceeds the Pledged Assets
(any such amount the "Pledged Asset Deficit"), the Stockholders shall
immediately pay to the Buyer in cash the amount of the Pledged Asset Deficit.
The costs of the independent accounting firm shall be borne by the party
(either Buyer or the Stockholders 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 Stockholders in the
event that the determination by the independent accounting firm is equidistant
between the Certified Closing Net Worth and the Actual Company Net Worth.
<PAGE>
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 Stockholders pursuant to Article 8, the
Stockholders shall, and by execution hereof do, transfer to Kaufman & Canoles,
a Virginia professional corporation ("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 Buyer, the
Company and the Stockholders.
(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 Stockholders pursuant to Article 8
until September 18, 1999 (the "Release Date"). Promptly following the Release
Date, subject to the terms and conditions of the Escrow Agreement, the Escrow
Agent shall return or cause to be returned to the Stockholders (in proportion
to their respective holdings of Stock as set forth on Schedule 1.2), the
Pledged Assets (including any interest earned thereon), 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 against the Stockholders pursuant to Article 8, and (iii) any
indemnification obligations of the Stockholders finally determined to be owed
by the Stockholders 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 to the Stockholders by wire transfer the Cash Purchase
Price, as adjusted pursuant to Section 1.2 and Section 1.3, and subject to
Section 1.4.
(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. The Certificates so delivered shall forthwith be
canceled. Until delivered as contemplated by this Section 1.5(b), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender only the Purchase Price as provided
by this Article 1.
(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 Effective Time, the Stockholders shall have no further rights to, or
ownership in, shares of capital stock of the Company. After the Effective
Time, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Stock which were
outstanding immediately prior to the Effective Time.
(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.
1.6 Stockholders' Representative.
(a) Each holder of the Stock, by signing this Agreement,
designates Wesley Cheringal or, in the event that Wesley Cheringal is unable
or unwilling to serve, designates John Cheringal, 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.
(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.
<PAGE>
(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 or 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 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 Closing Date (such periods individually an "Annual Earn-out
Period"), the Stockholders, as a group, shall be entitled to receive from the
Buyer seventeen percent (17%) of the annual Gross Profit (as defined herein)
of the Company for any Annual Earn-out Period ("Gross Profit Earn-out"), on
the specific terms and conditions set forth in this Section 1.7. In addition
to the foregoing, the Stockholders, as a group, shall be entitled to received
from the Buyer for each of the first five (5) fiscal years (complete twelve
(12) month periods following the Closing Date) (i) the sum of $48,984 for the
first fiscal year, $46,723 for the second fiscal year, $44,462 for the third
fiscal year, $42,201 for the fourth fiscal year and $39,940 for the fifth
fiscal year; provided, that, with respect to each such fiscal year, Total
Solution Graphics, Inc. shall be an independent contractor of the Company and
Ricki Noto shall provide all of the consultant services to the Company under
the terms of such independent contract ("Noto Earn-out") and (ii) the sum of
$32,656 for the first fiscal year, $31,148 for the second fiscal year, $29,641
for the third fiscal year, $28,134 for the fourth fiscal year and $26,627 for
the fifth fiscal year, provided, that, with respect to each such fiscal year,
End to End Inc. shall be an independent contractor of the Company and Chet
Woods shall provide all of the consultant services to the Company under the
terms of such independent contract ("Woods Earn-out") (the Gross Profit
Earn-out, the Noto Earn-out and the Woods Earn-out are herein collectively
referred to as the "Earn-out" and the payments are individually referred to as
"Earn-out Payment" and collectively referred to as "Earn-out Payments"). Any
Earn-out due shall be payable in cash by wire transfer within thirty (30) days
after the last day of the Annual Earn-out Period and shall be payable to the
Stockholders in proportion to their respective holdings of Stock as set forth
on Schedule 1.2.
(b) (i) "Gross Profit" of the Company for any period shall
mean the "Net Sales" (as hereinafter defined) of the Company for such period
less the "Cost of Goods Sold" allocable to such Net Sales of the Company as
determined in accordance with GAAP. The Gross Profit of the Company and the
Net Sales of the Company shall be determined without regard to the results of
operations of any direct or indirect parent or subsidiary of the Company and
without regard to the fact that they may be included on a consolidated basis
with the results of operations of any direct or indirect parent or subsidiary
of the Company. "Net Sales" of the Company for any period shall mean 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.
During any Annual Earn-out Period, the Net Sales of the Company shall include
the sale of all products by the Company to the Earn-out Accounts during such
period regardless of whether such products are being sold by the Company as of
the date of this Agreement.
<PAGE>
(ii) "Earn-out Accounts" means those accounts of the
Company existing on the date hereof as identified on Schedule 1.7(b).
Earn-out Accounts consist of the accounts of the customers of the Company as
of the Closing Date and future accounts generated by certain special
relationship individuals (regardless of where such persons are employed) that
are specifically identified on Schedule 1.7(b). To the extent the Company's
accounts include entities ("Entities") controlled by independent contractors,
sales agents, consultants or other persons who perform selling services for
the Company ("Entity Accounts"), Earn-out Accounts shall not mean such Entity
Accounts but rather all of the underlying customers and accounts of such
Entities that are in existence as of the date hereof (to the extent such
customers and accounts are identified on Schedule 1.7(b)). If any Earn-out
Account is acquired by, merges into, or is otherwise consolidated with any
other person or entity (any such Earn-out Account an "Acquired Earn-out
Account" and any such person or entity into which an Earn-out Account is
merged or consolidated an "Acquiror"), then sales by the Company to an
Acquired Earn-out Account and to an Acquiror shall be included in Net Sales
for purposes of this Section 1.7.
(iii) "Cost of Goods Sold" for any period means the cost of
goods sold allocable to the Net Sales of the Company for such period as
determined in accordance with GAAP; provided, however, that Cost of Goods Sold
(i) shall not be reduced by any purchased discounts, bulk purchase discounts,
discounts for payment, special discounts or other similar incentives and
(ii) shall include (and be increased by) finder fees and similar selling
expenses incurred by the Company in the course of its sales to Earn-out
Accounts, as determined in a manner consistent with the Company's historical
calculation of cost of goods sold as reflected in the Company Financial
Statements (as defined in Section 3.10).
(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.
<PAGE>
(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 Buyer shall cause such Merger Affiliate to (i) conduct the
business of the Earn-out Accounts as a division of the Merger Affiliate
("Company Division") and (ii) maintain such financial records as are necessary
to accurately calculate the Gross Profit (or Gross Profit Losses) of the
Company Division. The business of the Company Division shall not consider any
other business or operations of the Merger Affiliate and shall not consider
the results of operations of any direct or indirect parent or subsidiary of
the Merger Affiliate.
(e) 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 records as are necessary to accurately calculate the Gross Profit
(or Gross Profit Losses) of the Company (or the Company Division) with respect
to the Earn-out Accounts without taking into account the results of any other
operations of the Company or any such other entity.
(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 (i) any indemnification obligations of the
Stockholders finally determined to be owed by the Stockholders under
Article 8, or (ii) any Pledged Asset Deficit owed by the Stockholders but not
paid under the terms and conditions of Section 1.3(c).
(g) Notwithstanding anything in this Section 1.7 to the
contrary, if the Buyer directly or indirectly takes any action which causes
the Net Sales of the Company to Earn-out Accounts to be transferred from the
Company to any affiliate of the Buyer, then Net Sales to Earn-out Accounts by
such affiliate shall continue to constitute Net Sales of the Company for
purposes of this Section 1.7.
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; provided that with respect to
any such financial statements (other than the Interim Financials), Schedules,
certificates and reports reflecting the Company's operations prior to the
Closing Date, they shall be prepared in accordance with GAAP consistently
applied taking into account the Company's prior practices and except that the
1996 and 1997 Company Financial Statements were not prepared in accordance
with GAAP.
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 Stockholders may mutually
agree, which date shall be referred to as the "Closing Date." The merger
shall become effective upon the filing of the articles of merger, certificate
of merger, or other appropriate documents executed in accordance with the
State Corporation Laws, together with any required officers' certificates with
the Secretary of State of the State of New York in accordance with the
provisions of the State Corporation Laws (the "Effective Time"). Unless
otherwise specifically agreed in writing by all the parties hereto, the
parties hereto shall cause the Closing Date and the Effective Time to occur on
the same day.
<PAGE>
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, 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):
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and 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 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.
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 and to perform its obligations pursuant to
the terms of this Agreement. Each Stockholder 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 Board of Directors of the Company and
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 the Company and each Stockholder, enforceable in accordance with
its terms.
<PAGE>
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 3.3(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 (as defined in Section 3.4) 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) except as set forth on Schedule 3.3(b), 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.
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 200
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 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 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).
<PAGE>
3.5 Transactions in Capital Stock. 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, limited liability company, association or
other business entity, nor is the Company, 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.
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 and received by Buyer.
3.8 Absence of Claims Against Company. No Stockholder has any claims
against the Company other than (i) for salary, employee benefits and other
payments due in the ordinary course of business as an employee of the Company,
or (ii) for amounts due to affiliates of the Stockholders in the ordinary
course of business, or (iii) for amounts under the Accounts Receivable
Assignment Agreement entered into by the Stockholders and Company contained in
Schedule 1.2(b).
3.9 Company Financial Conditions.
(a) The Company's net worth as of the Closing will not be less
than the Net Worth Target.
(b) The Company's gross sales for its fiscal year ending
December 31, 1997 were not materially less than $17,148,596.
<PAGE>
(c) The sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) the Stockholders, and (iii) 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 $0.
For purposes of Section 3.9(a), 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 compiled balance sheet as of December 31,
1998 (the end of its most recent completed fiscal year) and December 31, 1997
and 1996 and income statement and schedule of retained earnings for the years
ended December 31, 1998, 1997 and 1996 (collectively, the "Compiled
Financials"), provided, however, that the cover letter to the Interim Balance
Sheet modifies the December 31, 1998 financial statements and (b) true,
complete and correct copies of the Company's compiled balance sheet (the
"Interim Balance Sheet") as of March 18, 1999 (the "Balance Sheet Date") and
income statement and schedule of retained earnings, for the period beginning
January 1, 1999 and ending on the Balance Sheet Date (collectively, the
"Interim Financials," and together with the Compiled Financials, the "Company
Financial Statements"). Except as noted on the compilation reports
accompanying the Compiled Financials and Interim 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. Except as set forth on Schedule 3.10, 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 and schedule of retained earnings 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.
3.11 Liabilities and Obligations.
(a) Except as set forth on Schedule 3.11(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
<PAGE>
(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 or the Surviving Corporation 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.
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.
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.
<PAGE>
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
which is contained in Schedule 3.14. 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.
Notwithstanding anything in the foregoing to the contrary, no representations
or warranties are made with respect to accounts receivable of the Company
included within the Distributed Assets (as defined in Section 1.2(b)), and the
term "Accounts Receivable" as used in this Agreement shall not include any
such Distributed Assets.
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, director, stockholder
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.
(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, or subleased 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.
<PAGE>
(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, ordinary wear and tear excepted. For
purposes of this Section, a defect shall mean a condition relating to the
structures or any structural, mechanical or physical system which the Company
is required to repair at its expense and which requires an expenditure of more
than $1,000 to correct. To the knowledge of the Company, 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 in the conduct of the
Company's business are connected pursuant to valid permits to municipal or
public utility services or facilities, or proper drainage facilities, are
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.
(iv) To the knowledge of the Company (but without
independent verification and absent due diligence), 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.
<PAGE>
(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 or any
of the Stockholders 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.
(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) 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.
<PAGE>
(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 any Stockholder or business or
personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
and other assets necessary to conduct the business and operations of the
Company as they are currently being conducted, free and clear of all Liens
except for such Liens as are set forth on Schedule 3.17(a).
(c) All of the 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 not the owner of, and is not licensed and
does not otherwise possesses legally enforceable rights to use, any registered
or unregistered Marks (as defined below). 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, 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 not the owner of, and is not licensed and
does not otherwise possesses legally enforceable rights to use, any rights in
Patents (as defined below) or in Copyright (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; 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.
<PAGE>
(c) The Company is not the owner of, and is not licensed and
does not otherwise possesses legally enforceable rights to use, any rights in
trade secrets, franchises, or similar rights (collectively, "Other Rights").
(d) Marks, Patents, Copyrights, and Other Rights are referred to
collectively herein as the "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 Intellectual Property license, sublicense or
agreement. No claims with respect to the 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
and (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. 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 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) Except for purchase orders received in the ordinary course
of business, 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. Schedule 3.19(b) designates whether
a Material Contract is written or oral. The Company has no obligation,
contractual or otherwise, to continue to make rental (or other) payments on
behalf of a personal acquaintance of the Stockholders with respect to real
property located in New Jersey (or elsewhere) and not used by the Company in
its business or operations. Except as otherwise expressly provided or
contemplated by this Agreement, or as set forth on Schedule 3.19(b), the
Company also has no obligation, contractual or otherwise, to pay any bonuses
or other payments after the Closing Date to any person or entity based on the
profits or other financial results of the Company.
<PAGE>
(c) Except to the extent set forth on Schedule 3.19(c), (i) none
of the Company's Significant Customers has, except for ordinary course of
business purchase fluctuations, 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 5.5, 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).
<PAGE>
(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.
(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 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.
<PAGE>
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
3.21 Work In Process. The work in process on the Closing Balance Sheet
consists of goods in process and finished goods, all of which is merchantable
and fit for the purposes for which it was manufactured, and none of which is
slow-moving, obsolete, damaged, or defective (except as reserved for on the
Closing Balance Sheet).
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
when due (or within any grace period) 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).
<PAGE>
(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 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 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.
<PAGE>
(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. Except as set forth on Schedule
3.24, with respect to employees of and service providers to the Company:
(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.
<PAGE>
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.
(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.
<PAGE>
(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, except as set forth on Schedule 3.25(c):
(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) 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; (F) 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 (G) employee manuals or handbooks
containing personnel or employee relations policies;
(ii) the Superior Graphics Retirement 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;
<PAGE>
(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 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 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 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;
<PAGE>
(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;
(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 earned more than $70,000
in 1998 and who may earn more than $70,000 in 1999, 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.
<PAGE>
3.26 Taxes.
(a) Except as set forth on Schedule 3.26(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 and payable 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) 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 of
each year.
(vi) The Company currently utilizes the cash method of
accounting for income Tax purposes and such method of accounting has not
changed.
(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.
<PAGE>
(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 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 or 404
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 its incorporation 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) For purposes of this Agreement:
(i) the term "Tax" or "Taxes" 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.
<PAGE>
3.27 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 3.27(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) filed for personal bankruptcy;
or (iii) 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. Except as set forth on Schedule 3.28,
prior to the Closing Date, 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) except for distributions to the Stockholders of the
Distributed Assets (any such distributions a "Permitted Distribution"), 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;
(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) except for any Permitted Distribution, 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) except for any Permitted Distribution, 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 $10,000;
(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;
<PAGE>
(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 payments by the Company, either
individually or in the aggregate, 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;
(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.
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 (5) 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.
<PAGE>
3.33 Location of Equipment and Work In Process. Except as set forth in
Schedule 3.33, all work in process 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 "work in process" shall mean all
goods in process and finished goods (in all stages of production -- from raw
materials through work-in-process to finished goods) owned by the Company as
of the date hereof, wherever located, together with all supplies, incidentals,
packaging materials and any other items used or usable in manufacturing,
processing, packaging or shipping the same; and (b) the term "equipment" shall
mean any "equipment" of any nature 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. The Company shall be Year 2000 Compliant
and Ready (as defined below) on or before June 30, 1999. The cost, if any, to
be incurred in order to cause the Company to become Year 2000 Compliant and
Ready between the date hereof and June 30, 1999 shall not exceed $25,000.
Furthermore, to the extent the Company may not be Year 2000 Compliant and
Ready at any time prior to June 30, 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 or customers of the Company 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 (excluding
systems of third parties such as telephones, electricity and elevators) 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.
3.35 No Other Representations or Warranties. Except for
representations and warranties contained in this Agreement and in
certificates, Schedules, and other documents delivered by the Stockholders or
the Company in connection herewith, the Company and the Stockholders make no
representations or warranties, express or implied, written or oral.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES 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.
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 Consideration. The Buyer presently has, and at all times until
paid will have, the financial resources available to Buyer in order to enable
Buyer to pay to the Stockholders the Cash Purchase Price and the Earn-out.
<PAGE>
4.5 No Change. Buyer knows of no reason (financial, legal or
otherwise) why it would be unable to make the payments required to be paid by
Buyer to the Stockholders hereunder.
4.6 Reliance by Buyer. Buyer is relying on the representations,
warranties and covenants of the Company and the Stockholders contained in this
Agreement and in all certificates delivered by the Company and the
Stockholders in connection with the Closing and, after investigation, is not
relying on any other representation, fact or circumstance.
4.7 No Other Representations or Warranties. Except for
representations and warranties contained in this Agreement and in any other
documents delivered by the Buyer in connection herewith, the Buyer makes no
representations or warranties, express or implied, written or oral.
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
Surviving Corporation on or before the due date of such Tax Returns (as
extended) 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 or as reflected in the Closing Balance Sheet
and the cover letter accompanying such Closing Balance Sheet from the
Company's independent account. 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 (which approval
shall not be unreasonably withheld). To the extent reasonably requested by
the Stockholders or required by law, Buyer and the Surviving Corporation shall
participate in the filing of any Tax Returns filed pursuant to this
paragraph. Notwithstanding anything in the foregoing to the contrary, Buyer
expressly acknowledges that it is assuming (and shall pay) the Earn-out Tax
Liability. In the event that the Earn-out Tax Liability is imposed as a
result of Buyer's decision to make a Section 338(h)(10) Election, then Buyer
shall prepare and file the appropriate Tax Return(s) or amendments thereto
with the State and/or City of New York and shall pay any amounts owed to the
State and/or City of New York with respect to the Earn-out Tax Liability.
(ii) Except as set forth in Section 5.1(a)(v) with respect
to income Tax Returns for the Company for 1999, the Surviving Corporation
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns for Tax periods ending on or after the Closing Date. To the extent
the Buyer claims that Stockholders are responsible for any Taxes with respect
to such Tax periods, the Tax Returns for such Tax periods shall be subject to
the review and approval of Stockholders (which approval shall not be
unreasonably withheld). The Stockholders shall pay to the Surviving
Corporation 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 Surviving Corporation 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.
(iv) 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 except
those imposed upon the Buyer by applicable law, 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
Surviving Corporation will join in the execution of any such Tax Returns and
other documentation.
(v) The Stockholders 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. 1362-3(b)(3)
wherein the 1999 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 Stockholders and the Surviving
Corporation shall file income Tax Returns for the 1999 calendar tax year in a
manner consistent with the foregoing.
<PAGE>
(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 Stockholders 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 Stockholders 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 Surviving Corporation and
Stockholders 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"). Stockholders will include any
income, gain, loss, deduction, or other tax item resulting from the
Section 338(h)(10) Election on their Tax Returns to the extent permitted by
applicable law; provided, however, that Buyer shall be responsible for the
Earn-out Tax Liability as set forth in Section 5.1(a)(i) and 1.2(a)(iii).
Buyer and Stockholders 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. Stockholders 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 Stockholders 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 (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 Forms 8023 pursuant to the Treasury Regulations promulgated under
Section 338 of the Code. Buyer shall deliver said forms to Stockholders for
review no later than 45 days prior to the date the Section 338 Forms are
required to be filed. In the event the Stockholders object to the manner in
which the Section 338 Forms have been prepared, the Stockholders'
Representative 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 the Stockholders'
Representative shall submit such dispute to an independent accounting firm of
recognized national standing (the "Allocation Arbiter") selected by Buyer and
the Stockholders' Representative, which firm shall not be the regular
accounting firm of Buyer or the Stockholders. 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 the Stockholders'
Representative 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 or Surviving
Corporation 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
Stockholders' Representative.
(d) Buyer and Stockholders agree as follows with respect to the
allocation of income Tax liabilities:
(i) Stockholders shall be responsible for all federal
income Taxes attributable to the Company for the period prior to the Closing
Date (including all Taxes resulting from the Section 338(h)(10) Election).
Buyer shall be responsible for all federal income Taxes of the Surviving
Corporation for the period after the Closing Date, including Taxes resulting
from a change in the accounting method of the Surviving Corporation after the
Closing Date.
(ii) The Stockholders 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 (other
than the Earn-out Tax Liability). 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, Stockholders will be liable for any Tax
imposed on the Company or Surviving Corporation by such state, local and/or
foreign jurisdiction resulting from the transactions contemplated by this
Agreement (other than the Earn-out Tax Liability). Finally, Stockholders will
be liable for nonfederal income Taxes of the Company ending on or before the
Closing Date, and the Buyer and Surviving Corporation will be liable for
nonfederal income Taxes of the Company for the period ending after the Closing
Date, including Taxes resulting from a change in the accounting method of the
Company after the Closing Date and any Earn-out Tax Liability.
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
Surviving Corporation or Buyer, the Stockholders shall pay (based on their
percentage ownership of the Company immediately prior to the Closing Date) the
Surviving Corporation an amount equal to the Accounts Receivable not so
collected, and upon receipt of such payment the Surviving Corporation shall
assign to the Stockholders (or their affiliate J&W Ventures LLC) 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.
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 Surviving Corporation 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 Surviving Corporation, the Stockholders shall provide
it with a status report concerning the collection of assigned Accounts
Receivable.
<PAGE>
5.3 Removal of Guaranties. Within one hundred eighty days of the
Closing Date, the Stockholders shall use reasonable efforts to cause to be
removed, canceled or otherwise extinguished the guaranty given by the Company
prior to Closing with respect to the Axis Lease (as defined below), as
specifically identified on Schedule 5.3. Upon the expiration of the current
term and any renewal terms of the Axis Global Systems, LLC ("Axis Systems")
lease, dated November 1, 1997, with respect to premises located at 47-55 58th
Street, Woodside, New York ("Axis Lease"), the Stockholders shall not permit
Axis Systems to enter into a new lease or modification of the existing Axis
Lease that would continue the guaranty of the Surviving Corporation of any
obligations under such new or modified lease. In addition, the Stockholders
shall give written notice to the Buyer of any default declared by the landlord
under the Axis Lease within two (2) business days of the day on which the
Stockholders receive notice of such default from the landlord. The
Stockholders shall indemnify and hold Buyer and the Surviving Corporation
harmless with respect to the Company's guaranty of the Axis Lease as
specifically set forth in Section 8.1(a)(iv).
With respect to the Lease and Assignment of Lease, pursuant to which the
Company occupies its premises at 250 Hudson Street, New York, New York
("Company Lease"), the Buyer and the Surviving Corporation shall not enter
into a new lease or modification of the existing lease that would continue the
guaranty of the Stockholders of any obligations under such new or modified
lease. Buyer shall indemnify and hold Stockholders harmless with respect to
such guaranty as specifically set forth in Section 8.1(b)(iii).
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 prior to the Closing.
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.
<PAGE>
(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) After the Closing Date, the Buyer shall cooperate with the
Stockholders as reasonably necessary to permit the Stockholders to collect the
Distributed Assets and Stockholders shall be entitled, as employees of the
Company after the Closing Date, to take action and to spend a reasonable
amount of time collecting the Distributed Assets. The Stockholders shall
incur all costs and expenses in connection with the collection of the
Distributed Assets. After the Closing Date, the Buyer shall permit the
Stockholders and their representatives reasonable access to such books and
records of the Company as may be necessary for the purpose of confirming and
reviewing the Closing Balance Sheet, for the purpose of preparing the
Company's final Tax Return for the period up to and including the Closing
Date, and for the purpose of reviewing or confirming any indemnification claim
against Stockholders.
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) Unless and until there is a Closing, Buyer, the Company and
the Stockholders shall be subject to the terms and conditions set forth in the
Confidentiality Agreement dated November 18, 1998, as amended by letter dated
December 15, 1998, between Workflow and the Company ("Confidentiality
Agreement"). In accordance therewith, the terms and conditions of the
Confidentiality Agreement are incorporated by reference herein and made a part
hereof.
5.8 Conduct of Business Pending Closing. Except as set forth on
Schedule 5.8, between the Net Worth Calculation Date and the Effective Time,
the Company will (except as requested or agreed by Buyer):
<PAGE>
(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 employees who are also Stockholders) in accordance
with past practice.
5.9 Prohibited Activities. Except as set forth on Schedule 5.9,
between the Net Worth Calculation Date and the Effective Time, 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) except for any Permitted Distribution, 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 individually in excess of $10,000 or collectively
in excess of $50,000, 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) except for any Permitted Distribution, 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) except for any
Permitted Distribution, 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 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.
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) engage 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.
5.13 Post-Closing Balance Sheet. Within fifteen (15) business days
after Closing, the Stockholders' Representative 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 the
Stockholders' Representative in connection with the preparation of such
Post-Closing Balance Sheet.
<PAGE>
5.14 Pay-off of Company Debt. The Company has paid off or otherwise
satisfied (or will do so prior to Closing) all liabilities of the Company to
the extent necessary to cause the representation and warranty set forth in
Section 3.9(d) of this Agreement to be true in all respects as of the Closing
Date.
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.
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 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 the Company
and each Stockholder 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 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 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 Intentionally Omitted.
6.8 Intentionally Omitted.
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 the Company as of the Closing Date (the
"Certified Closing Net Worth");
(b) the sales of the Company for the fiscal year ending
December 31, 1997;
(c) the sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) the Stockholders and (iii) 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 course of the Company's business consistent
with past practice) as of the Closing Date shall be $-0-.
The parties acknowledge and agree that for purposes of determining the
Certified Closing Net Worth, 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 Intentionally Omitted.
6.11 Stockholder Employment/Consulting Agreements. Each of the
Stockholders shall have entered into an employment agreement with the Company
in the forms attached hereto as Exhibits A-1 and A-2 (individually,
"Employment Agreement" and collectively, "Employment Agreements"). In
addition, the Company shall have entered into an independent contractor
agreement with an entity controlled by the Stockholders in the form attached
hereto as Exhibit B-1 ("Contractor Agreement").
<PAGE>
6.12 Salesman Employment/Consulting Agreements Each of (i) Chet
Woods, (ii) Ricki Noto, (iii) David Manne, (iv) Lise Rapp and (v) Andrew Rich,
or entities controlled by them, shall have entered into an employment
agreement or independent contractor agreement with the Company in a form
reasonably satisfactory to Buyer.
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; 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.
7.3 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 Stockholder Employment and Consulting Agreements. Each of the
Stockholders shall have entered into an Employment Agreement with the
Company. In addition, the Company shall have entered into the Contractor
Agreement with an entity controlled by the Stockholders.
<PAGE>
8. INDEMNIFICATION
8.1 General Indemnification. Each Stockholder, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless Buyer,
Workflow and the Surviving Corporation 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:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder 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, 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 reserved for in the Company Financial Statements; 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 (prior to
the Closing Date) to pay income, sales or use taxes in the State of New
Jersey, (C) the failure of the Company (prior to the Closing Date) to file an
election to be taxed as an S corporation for New Jersey state Tax purposes,
(D) the failure of the Company (prior to the Closing Date) to pay sales and
use taxes in New York, (E) any breach or default by the Company (prior to the
Closing Date) under the Company Lease, or (F) any actions taken against the
Surviving Corporation pursuant to the Company's guaranty of the Axis Lease; or
(v) any and all Damages incident to any of the foregoing
or to the enforcement of this Section 8.1(a).
<PAGE>
(b) Buyer and the Surviving Corporation covenant and agree to
indemnify defend, protect and hold harmless the Stockholders from, against and
in respect of all Damages suffered, sustained, incurred or paid by
Stockholders 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) any actions taken by the landlord against the
Stockholders as guarantors of the Company Lease with respect to any event
occurring after the Closing Date; or
(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) there shall be no liability for indemnification under
Section 8.1(a) 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 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), 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);
(b) the aggregate amount of the Stockholders' liability under
this Article 8 shall not exceed the Purchase Price; 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) or
(iv) (except for Section 3.27 (conformity with law; litigation) in said
Section 8.1(a)(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);
(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) or (3) of this Section 8.2(c), the third
anniversary of the Closing Date, or
<PAGE>
(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 the date that is six (6) months after the expiration of six
(6) years after the Closing Date; or
(3) with respect to indemnification obligations of
the Buyer and the Surviving Corporation under Sections 8.1(b)(ii) and (iii),
on the date that is six (6) months after the expiration of six (6) years after
the Closing Date.
(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 Stockholders for purposes of this Section 8.3 to the extent the
Stockholders are 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 forty-five
(45) 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 forty-five (45) 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 forty-five (45) 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 Surviving
Corporation 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 amount of any claim by an Indemnified Party for
indemnification pursuant to this Article VIII shall be computed net of
insurance proceeds and tax benefits received by such Indemnified Party on
account of such claim, provided that no Indemnified Party shall be obligated
to continue pursuing any payment pursuant to the terms of any insurance
policy. Damages does not include any consequential damages or charges for any
management time of the Indemnified Party.
<PAGE>
(f) If the Stockholders are required to make an indemnification
payment to the Buyer under this Article 8, such payment shall be deemed to be
the repayment from the Stockholders to the Buyer of the Purchase Price in the
order actually received by the Stockholders. In such event, the Stockholders
shall also repay to the Buyer a pro rata portion (allocable to the portion of
the Purchase Price repaid) of the Incremental Taxes paid to the Stockholders
pursuant to the provisions of Section 1.2(a)(iii).
(g) If the Stockholders are required to make an indemnification
payment to the Buyer under Section 8.1(a)(iv)(E) for a breach or default by
the Company prior to the Closing under the Company Lease, the Buyer agrees to
exert its reasonable best efforts to sublease (consistent with the terms of
the Company Lease) any excess space which is not then occupied or otherwise
needed by the Buyer in connection with the Company business (whether standing
alone or as a part of Buyer or an affiliated entity of Buyer) at the then fair
market value for said space in order to mitigate the Damages suffered by Buyer
with respect to such breach or default.
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, warranties and covenants of
Buyer 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; provided that Buyer's obligation to pay the Earn-out pursuant to
Section 1.7 shall not expire until the fifth anniversary of the Closing Date.
8.5 Exclusive Remedy. After the Closing, the remedies contained in
this Article VIII shall constitute the sole and exclusive remedies for money
damages available to any party under this agreement; provided that the
foregoing shall not limit in any way the parties' respective rights to seek
equitable remedies, including the remedies of specific performance and
injunctive relief.
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.
9. NONCOMPETITION
9.1 Prohibited Activities. Each Stockholder acknowledges that during
the course of his or her ownership of the Stock, he or she 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, Stockholders 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 herself or on behalf of or in conjunction with
any other person, persons, partnership, corporation, or business of whatever
nature:
<PAGE>
(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 locations 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 Stockholder
acquired proprietary or confidential information during the course of his or
her 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. Each 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 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. In addition,
notwithstanding anything in this Article 9 to the contrary, the provisions of
Section 9.1(a) and (c) shall not apply to those entities specifically
identified on Schedule 9.1 (such entities collectively "Affiliated Companies")
or to any Start-Up Business as hereinafter defined. "Start-Up Business" shall
mean any new business in which the Stockholders have a direct or indirect
interest and which does not, on the date of the commencement of its business
(i) compete with WMI Disclosed Businesses (as defined in the Employment
Agreements) or (ii) compete with any business Workflow is contemplating
entering into of which the Stockholders have knowledge; provided that in
either such case the Stockholders shall only devote such time and attention to
such Start-Up Business as are consistent with the time and attention
Stockholders devoted to the Affiliated Companies prior to the date of the
Closing. Notwithstanding anything herein to the contrary, the Affiliated
Companies shall only be engaged in those businesses and activities as are
generally described on Schedule 9.1. The Buyer acknowledges that neither the
Buyer nor the Surviving Corporation will have any ownership interest in the
Affiliated Companies after Closing. Additional rights of the Stockholders
with respect to the Affiliated Companies are set forth in the Employment and
related Agreements being entered into at Closing pursuant to Sections 6.11 and
7.4 of this Agreement.
<PAGE>
9.2 Confidentiality. Each Stockholder recognizes that by reason of
his or her ownership of the Stock and his or her employment by the Company, he
or she 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 or she will not at any time, except in performance of
Stockholders' 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 or she may learn or has learned by reason of
his or her ownership of the Company or his or her 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.
<PAGE>
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;
provided, that (i) upon the termination of the Contractor Agreement without
cause, or (ii) upon the termination of the Employment Agreements without cause
or (iii) upon the failure of the Buyer to make payments, which in the
aggregate equal or exceed $250,000.00 under the terms of this Agreement, the
Employment Agreements or the Contractor Agreement, then, in any of such
events, the Stockholders shall have the option to (A) seek full contractual
damages in connection with any such event, in which event, they shall continue
to be bound by the terms and provisions of Article 9 of this Agreement, and/or
the comparable provisions of the Contractor Agreement, Confidentiality and
Non-competition Agreement and the Employment Agreements or (B) upon thirty
(30) days' prior written notice to the Company, waive their right to
contractual damages and their right to receive any additional amounts under
this Agreement, the Employment Agreements and the Contractor Agreement
(including such delinquent payments, if applicable), in which event, the
Stockholders may thereafter engage in any activity otherwise prohibited by
this Article 9. 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 Stockholder made in this
Article 9 shall be effective, shall be computed by excluding from such
computation any time during which any 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 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 Buyer and the
board of directors of the Company; or
<PAGE>
(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 March 15, 1999, 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.
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 except for a willful
breach.
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. Notwithstanding anything in the foregoing to the contrary,
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 or the
Stockholders; provided, however that in the event of such assignment Buyer and
such assignee, jointly and severally, shall continue to be liable to the
Stockholders 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.
<PAGE>
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. Except as set forth on Schedule 10.6, 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.
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 (collectively the
"Stockholder Expenses"); provided, however, that the Company may pay the
Stockholder Expenses on behalf of the Stockholders to the extent any such
payment does not cause the Certified Closing Net Worth to be less than the Net
Worth Target.
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:
<PAGE>
If to Buyer, the Surviving Corporation 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 any Stockholder to the Stockholders' Representative:
Wesley Cheringal
Superior Graphics Inc.
250 Hudson Street
New York, NY 10013
(Telefax: (212) 727-1370)
with a required copy to:
Ronald H. Janis, Esq.
Pitney, Hardin, Kipp & Szuch
P.O. Box 1945
Morristown, NJ 07962
(Telefax: (973) 966-1550)
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 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.
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, except the parties executing this
Agreement.
10.13 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.
10.14 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.
-------------------------------------
Thomas B. D'Agostino, Jr., President
JWC ACQUISITION CORP.
By: \s\ Michael B. Feldman
-------------------------------------
Michael B. Feldman, President
SUPERIOR GRAPHICS, INC.
By: \s\ Wesley Cheringal
-------------------------------------
Wesley Cheringal, President
STOCKHOLDERS:
\s\ Wesley Cheringal
-------------------------------------
Wesley Cheringal, individually
\s\ John Cheringal
-------------------------------------
John Cheringal, individually
EXHIBIT 10.48
STOCK PURCHASE AGREEMENT
By and Among
WORKFLOW MANAGEMENT ACQUISITION CORP.,
UNIVERSAL FOLDING BOX CO., INC.
and
The Stockholders Named Therein
Dated as of February 26, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C>
1. STOCK PURCHASE...........................................................................................1
1.1 Stock...........................................................................................1
1.2 Purchase Price..................................................................................1
1.3 Post-Closing Adjustment.........................................................................2
1.4 Pledged Assets..................................................................................3
1.5 Exchange of Certificates and Payment of Cash....................................................4
1.6 Accounting Terms................................................................................5
1.7 Post-Closing Earn-out...........................................................................5
1.8 Real Estate Distribution........................................................................8
1.9 Stockholders'Representative; Allocation of Purchase Price to Stockholders.......................8
2. CLOSING..................................................................................................9
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.......................................10
3.1 Due Organization...............................................................................10
3.2 Authorization; Validity........................................................................10
3.3 No Conflicts...................................................................................10
3.4 Capital Stock of the Company...................................................................11
3.5 Transactions in Capital Stock..................................................................12
3.6 Subsidiaries, Stock, and Notes.................................................................12
3.7 Complete Copies of Materials...................................................................12
3.8 Absence of Claims Against Company..............................................................12
3.9 Company Financial Conditions...................................................................12
3.10 Financial Statements...........................................................................13
3.11 Liabilities and Obligations....................................................................14
3.12 Books and Records..............................................................................14
3.13 Bank Accounts; Powers of Attorney..............................................................15
3.14 Accounts and Notes Receivable..................................................................15
3.15 Permits........................................................................................15
3.16 Real Property..................................................................................16
3.17 Personal Property..............................................................................19
3.18 Intellectual Property..........................................................................19
3.19 Significant Customers; Material Contracts and Commitments......................................21
3.20 Government Contracts...........................................................................23
3.21 Inventory......................................................................................23
3.22 Insurance......................................................................................24
3.23 Environmental Matters..........................................................................24
3.24 Labor and Employment Matters...................................................................26
3.25 Employee Benefit Plans.........................................................................27
3.26 Taxes..........................................................................................31
ii
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3.27 Conformity with Law; Litigation................................................................33
3.28 Relations with Governments.....................................................................34
3.29 Absence of Changes.............................................................................34
3.30 Disclosure.....................................................................................36
3.31 Predecessor Status; Etc........................................................................36
3.32 Location of Chief Executive Offices............................................................36
3.33 Location of Equipment and Inventory............................................................37
3.34 Year 2000 Compliance...........................................................................37
3.35 Acquisitions and Divestitures..................................................................37
3.36 Product Lines..................................................................................38
4. REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................39
4.1 Due Organization...............................................................................39
4.2 Authorization; Validity of Obligations.........................................................39
4.3 No Conflicts...................................................................................40
4.4 Financial Statements...........................................................................40
4.5 Disclosure.....................................................................................40
5. COVENANTS...............................................................................................41
5.1 Tax Matters....................................................................................41
5.2 Accounts Receivable............................................................................44
5.3 Title Insurance and Surveys....................................................................45
5.4 Employee Benefit Plans.........................................................................47
5.5 Related Party Agreements.......................................................................47
5.6 Cooperation....................................................................................47
5.7 Access to Information; Confidentiality; Public Disclosure......................................48
5.8 Conduct of Business Pending Closing............................................................49
5.9 Prohibited Activities..........................................................................50
5.10 Exclusivity....................................................................................51
5.11 Notification of Certain Matters................................................................52
5.12 Notice to Bargaining Agents....................................................................52
5.13 New Jersey ISRA Compliance.....................................................................52
5.14 Workflow Obligations...........................................................................55
5.15 Miscellaneous Assets...........................................................................56
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............................................................57
6.1 Representations and Warranties; Performance of Obligations.....................................57
6.2 No Litigation..................................................................................57
6.3 No Material Adverse Change.....................................................................57
6.4 Consents and Approvals.........................................................................57
6.5 Opinion of Counsel.............................................................................57
6.6 Charter Documents..............................................................................58
6.7 Financial Statements...........................................................................58
6.8 Company Deliveries.............................................................................58
6.9 Delivery of Closing Financial Certificate......................................................58
6.10 FIRPTA Compliance..............................................................................59
6.11 Employment Agreements..........................................................................59
iii
<PAGE>
6.12 Lease/Real Estate Matters......................................................................59
6.13 Consulting Agreement...........................................................................59
6.14 ISRA Clearance.................................................................................59
6.15 Other Closing Deliveries.......................................................................59
6.16 Environmental Studies..........................................................................59
6.17 Facility Engineering Studies...................................................................60
6.18 Release of Company Guarantees of Personal Debt.................................................60
6.19 Certified Resolutions..........................................................................60
6.20 Greenberg Release..............................................................................61
6.21 Payoff Documentation...........................................................................61
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY..................................61
7.1 Representations and Warranties; Performance of Obligations.....................................61
7.2 No Litigation..................................................................................61
7.3 Consents and Approvals.........................................................................61
7.4 Consulting Agreement...........................................................................62
7.5 Lease/Real Estate Matters......................................................................62
7.6 Release of Personal Guarantees.................................................................62
7.7 Opinion of Counsel.............................................................................62
7.8 Other Closing Deliveries.......................................................................62
7.9 ISRA Clearance.................................................................................62
7.10 Certified Resolutions..........................................................................62
8. INDEMNIFICATION.........................................................................................62
8.1 General Indemnification by the Stockholder.....................................................62
8.2 Limitation and Expiration......................................................................63
8.3 Indemnification Procedures.....................................................................64
8.4 Survival of Representations Warranties and Covenants...........................................66
8.5 Remedies Cumulative............................................................................66
8.6 Right to Set Off...............................................................................66
8.7 General Indemnification of Buyer...............................................................67
9. NONCOMPETITION..........................................................................................67
9.1 Prohibited Activities..........................................................................67
9.2 Confidentiality................................................................................68
9.3 Damages........................................................................................69
9.4 Reasonable Restraint...........................................................................69
9.5 Severability; Reformation......................................................................69
9.6 Independent Covenant...........................................................................69
9.7 Materiality....................................................................................69
10. GENERAL.................................................................................................70
10.1 Termination....................................................................................70
10.2 Effect of Termination..........................................................................70
10.3 Successors and Assigns.........................................................................70
10.4 Entire Agreement; Amendment; Waiver............................................................71
10.5 Counterparts...................................................................................71
iv
<PAGE>
10.6 Brokers and Agents.............................................................................71
10.7 Expenses.......................................................................................71
10.8 Specific Performance; Remedies.................................................................72
10.9 Notices........................................................................................72
10.10 Governing Law..................................................................................73
10.11 Severability...................................................................................73
10.12 Absence of Third Party Beneficiary Rights......................................................73
10.13 Mutual Drafting................................................................................73
10.14 Further Representations........................................................................74
</TABLE>
v
<PAGE>
vi
<PAGE>
LIST OF EXHIBITS
EXHIBIT A - Form of Employment Agreement (Frank Pauza)
EXHIBIT B - Form of Lease - Main Facility
EXHIBIT C - Form of Lease - Parking Lot Parcel
EXHIBIT D - Form of Consulting Agreement (Sanford L. Batkin)
EXHIBIT E - Opinion of Counsel - Stockholder/Company
EXHIBIT F - Opinion of Counsel - Buyer/Workflow
EXHIBIT G - Form of Employment Agreement (Irwin Greenberg)
EXHIBIT H - Form of Release Agreement (Irwin Greenberg)
EXHIBIT I - Form of Escrow Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 26th day of February, 1999, by and among Workflow Management
Acquisition Corp., a New Jersey corporation ("Buyer"), Workflow Management,
Inc., a Delaware corporation ("Workflow"), Universal Folding Box Co., Inc., a
New York corporation (the "Company"), Sanford L. Batkin, the principal
stockholder of the Company ("Principal Stockholder") and the Sanford L. Batkin
Annuity Trust ("Additional Stockholder") (the Principal Stockholder and
Additional Stockholder constituting all of the stockholders of the Company and
referred to herein collectively as "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 the Stockholder, the Stock for the Purchase Price (as
defined below).
1.2 Purchase Price.
(1) 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 the following manner:
(1) $6,000,000 (Six Million Dollars) 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
first be applied to satisfy the escrow obligations set forth in Section 1.4 and
the balance shall be paid to the Stockholder in cash at Closing, by wire
transfer to such account or accounts as the Stockholder may designate
(2) Certain payments shall be made to Stockholder based
upon the "Gross Profit" of the Company, as specifically set forth in Section 1.7
hereof. For purposes of the Code, 4.62% of such payments shall be treated
as interest for income tax purposes, which is equal to the Applicable
Federal Rate for Short-Term Annual obligations as published by the Internal
Revenue Service in Revenue Ruling 99-8.
(2) 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 (with inventory determined in accordance with Section
5.6(d) hereto), is equal to or greater than $3,181,528, reduced by the Real
Estate Adjustment as defined in and determined pursuant to Section 1.8 hereof
(such amount, after giving effect to the reduction for the Real Estate
Adjustment, the "Net Worth Target") as of the Closing;
(3) 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) within
five (5) days 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.
(4) If on the Closing Financial Certificate, the Certified Closing
Net Worth is greater than the Net Worth Target, the Cash Purchase Price to be
delivered to the Stockholder will be increased by the difference between the
Certified Closing Net Worth set forth on the Closing Financial Certificate and
the Net Worth Target. Such increase shall be subject to adjustment as a result
of, and shall be paid within five (5) days following completion of the final
determination of the Actual Company Net Worth pursuant to Section 1.3 hereof.
Notwithstanding the foregoing provisions of this Section 1.2(d), the maximum
increase in the Cash Purchase Price pursuant to this Section 1.2(d) shall be
$500,000 (Five Hundred Thousand Dollars). The increase in the Cash Purchase
Price pursuant to this Section 1.2(d), subject to the limitation of the $500,000
maximum increase, shall be referred to as the "Net Worth Increase."
1.3 Post-Closing Adjustment.
(1) The Cash Purchase Price shall be subject to adjustment after
the Closing Date as specified in this Section 1.3.
(2) Within one hundred twenty (120) days following the Closing
Date, Buyer shall cause PriceWaterhouseCoopers LLP ("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. Within five (5) days after
completion of the Post-Closing Audit, 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 (i.e.
total assets minus total liabilities) as of the Closing Date (the "Actual
Company Net Worth") and if the Actual Company Net Worth is in excess of the Net
Worth Target, the amount of the actual Net Worth Increase, provided that such
actual Net Worth Increase shall be limited to a maximum of $500,000(the "Actual
<PAGE>
Net Worth Increase"), (ii) the amount of the Cash Purchase Price that would have
been payable at Closing pursuant to Section 1.2(c) or that would be payable
after the Closing pursuant to Section 1.2(d) to reflect the Actual Net Worth
Increase, if any, in each case had the Actual Company Net Worth been reflected
on the Closing Financial Certificate instead of the Certified Closing Net Worth,
(iii) if there is no Actual Net Worth Increase, 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 Reduction") and (iv) if there is an Actual Net Worth Increase, the amount
thereof to be paid after the Closing. The Purchase Price Reduction shall take
account of the reduction, if any, to the Cash Purchase Price already taken
pursuant to Section 1.2(c)(i).
(3) 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 thirty(30) day period, (i) if there is no Actual Net Worth Increase,
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 Reduction, and (ii) if there is an Actual Net Worth Increase, the
Stockholder shall be entitled to receive from the Buyer, the amount of the
Actual Net Worth Increase, in each case within five (5) days after the earlier
to occur of (x) expiration of such thirty (30) day period, or (y) written notice
from Stockholder of the acceptability of the Financial Adjustment Notice. If,
however, the Stockholder has delivered notice of such a dispute to Buyer within
such thirty(30) day period, then Buyer and Stockholder shall use their good
faith efforts to resolve such dispute, but if they have been unable to do so
within twenty (20) days of receipt of Stockholder's notice of dispute, then KPMG
Peat Marwick, an independent accounting firm that has not represented any of the
parties hereto within the preceding two (2) years, shall be engaged 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 Reduction, and the amount, if any, of the Actual Net Worth Increase. The
independent accounting firm shall make its determination of the Purchase Price
Reduction, if any, and the Actual Net Worth Increase, 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
(i) if there is no Actual Net Worth Increase, the 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 Reduction and (ii)
if there is an Actual Net Worth Increase, the Stockholder shall be entitled to
receive from Buyer the amount of the Actual Net Worth Increase, in each case
within five (5) days after the final determination is reported by such
independent accounting firm. The costs of the independent accounting firm shall
be borne proportionately by Buyer and the Stockholder based on the differential
amounts of their respective determinations of the Company's net worth at Closing
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 between the Certified Closing Net Worth and the
Actual Company Net Worth.
<PAGE>
1.4 Pledged Assets.
(1) As collateral security for the payment of any Post-Closing
adjustment to the 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 hereby, transfer, pledge and assign to Buyer, for the
benefit of Buyer, a security interest in the following assets (the "Pledged
Assets"), which shall be held and distributed in accordance with the Escrow
Agreement to be entered into on the Closing (as defined in Section 2 below)
between Buyer, Stockholder and the Escrow Agent named therein in the form of
Exhibit I hereto (the "Escrow Agreement"):
(1) seven percent (7%) of the cash comprising the Cash
Purchase Price paid on the Closing Date; and
(2) all interest, earnings and other cash and non-cash
proceeds of all of the foregoing property and all rights, titles, interests,
privileges and preferences appertaining or incident to the foregoing property.
(2) The Pledged Assets shall be withheld by Buyer from
distribution to the Stockholder at the Closing and instead shall be deposited in
escrow with the Escrow Agent named in the Escrow Agreement to be held and
distributed pursuant to the Escrow Agreement.
(3) 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
One-Hundred Twenty (120) days after the Closing Date (the "Release Date").
Promptly following the Release Date, 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 payable to Buyer 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 Buyer Indemnified Party (as defined in Article 8),
and (iii) any indemnification obligations of the Stockholder pursuant to Article
8, which retained Pledged Assets shall continue to be held in accordance with
the terms and conditions of the Escrow Agreement.
1.5 Exchange of Certificates and Payment of Cash.
(1) Buyer to Provide Cash. In exchange for the Stock, Buyer shall
cause to be paid to the Stockholder by wire transfer the Cash Purchase Price, as
adjusted pursuant to Section 1.2 and Section 1.3.
(2) Certificate Delivery Requirements. At the Closing, the
Stockholder shall deliver to Buyer the certificates (the "Certificates")
<PAGE>
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.
(3) No Further Ownership Rights in Capital Stock of the Company.
All cash to be delivered (including cash that constitutes Pledged Assets or
other obligations under Section 1.2(a) above) 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.
(4) 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.
1.6 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 (with inventory determined in
accordance with Section 5.6(d) hereto).
1.7 Post-Closing Earn-out.
(1) For (i) the period commencing the date after the Closing Date
and ending April 24, 1999 ("Initial Fiscal Period"), (ii) for 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 Closing Date (such periods individually an "Annual Earn-out Period"),
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 1.7 (such
payments the "Earn-out"). Any Earn-out due shall be payable in cash within
thirty (30) days after the last day of the respective Annual Earn-out Period,
and shall be accompanied by a detailed computation of the Earn-out certified by
a financial officer of Workflow as being true, complete and correct and prepared
from the books and records of the Company. Subject to the confidentiality
requirements of Section 9.2 hereof, Stockholder or a certified public accountant
designated by him may by advance appointment during business hours inspect the
books and records of the Company relevant to computation of the Earn-out amount
to confirm the reported Earn-out amount. Such inspection shall be at
Stockholder's expense; provided, however, that if as a result of such inspection
it is finally determined that the amount of the Earn-out to be properly paid to
<PAGE>
Stockholder is at least five (5%) percent greater than that originally reported
by the Company, then such inspection shall be at the expense of the Company.
(2) 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), less actual trade discounts,
returns, artwork to the extent not paid by customers, and freight to the extent
not paid by customers and a reserve for bad debts in the amount of one and
eight/tenths percent (1.8%, referred to herein, as the "Reserve Percentage") of
the foregoing amount. In each Annual Earn-out period after the first, the Net
Sales amount, as computed in accordance with the preceding sentence, shall be
(x) adjusted upward, on a dollar for dollar basis, to the extent the actual bad
debt experience for the prior Annual Earn-out period was more favorable to the
Company than the Reserve Percentage and (y) adjusted downward, on a dollar for
dollar basis, to the extent the actual bad debt experience for the prior Annual
Earn-out period was less favorable to the Company than the Reserve Percentage.
For the final Annual Earn-out Period, in addition to the adjustment to Net Sales
for such final Annual Earn-out Period specified in the preceding sentence with
respect to the actual bad debt experience for the Annual Earn-out Period just
prior to the final Annual Earn-out Period, there will be a similar adjustment
and payment, as specified in the preceding sentence, with respect to the actual
bad debt experience for the final Annual Earn-out Period, within nine(9) months
of completion of the final Annual Earn-out Period. By way of example, if in the
first Annual Earn-out Period, the actual bad debt experience reflected 1.5% of
Net Sales(rather than 1.8%), and Net Sales for the first Annual Earn-out Period
were $10,000,000, then the differential of 0.3% times $10,000,000 (computed to
$30,000) would be added to the calculation of Net Sales for the second Annual
Earn-out Period. By way of another example, if in the first Annual Earn-out
Period, the actual bad debt experience reflected 2.0% of Net Sales(rather than
1.8%), and Net Sales for the first Annual Earn-out Period were $10,000,000, then
the differential of 0.2% times $10,000,000 (computed to $20,000) would be
subtracted from the calculation of Net Sales for the second Annual Earn-out
Period. "Earn-out Accounts" means (i) those accounts of the Company existing on
the date hereof as identified on Schedule 1.7(b) ("Existing Accounts"), (ii)
those accounts of the Company generated from and after the date hereof by the
Company's own sales staff ("New Generated Accounts"), and (iii) those other
accounts actually and specifically assigned to or referred to the Company by
Workflow or its subsidiaries from and after the Closing Date ("New Assigned
Accounts"). The Earn-out Accounts shall exclude accounts of businesses or
companies acquired by Workflow, Buyer, the Company or any of their subsidiaries
and any accounts (other than Existing Accounts or New Generated Accounts) which
in the discretion of Workflow and its subsidiaries are not actually and
specifically assigned to the Company. "Cost of Goods Sold" for any period means
the cost of goods sold which are allocable to Net Sales as determined in a
manner consistent with the Company's historical method of determining Cost of
Goods Sold; provided, however, that Cost of Goods Sold shall not be reduced by
any purchase discounts, bulk purchase discounts, special discounts or other
similar incentives, other than normal payment term discounts and normal
discounts off list price.
(3) 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.
<PAGE>
(4) 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 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 with substantially the same sales organization ("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.
(5) 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 any product
lines of the Company not referenced in Schedule 3.36 of current product lines of
the Company and developed solely by the Stockholder and approved by the Buyer
and without reference to any other entity hereafter merged into or otherwise
consolidated with the Company. The foregoing reference to the business and
operations currently conducted by the Company does not exclude the New Generated
Accounts and the New Assigned Accounts. In the event that the Buyer or Workflow
causes any entity to merge or otherwise consolidate into the Company or to be
acquired by the Company or any subsidiary thereof, 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 or acquisitions 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 referenced in Schedule 3.36 of current
product lines of the Company. During the period from the Closing Date through
the date which is five (5) years after the Closing Date, neither Company,
Workflow, Buyer or any Merger Affiliate (in the case of a transaction referred
to in Section 1.7(d) above), shall dismantle, transfer or sell the business or
assets or sales organization of the Company (or Company Division, as applicable)
relevant to the generation of Net Sales for computation of the Earn-out;
provided, however, that (i) transactions meeting the requirements of Sections
1.7(d) and 1.7(e) may be implemented, (ii) Company (or the Company Division, as
applicable) may sell inventory and other assets, and replace, improve or dispose
of obsolete or non-useable assets, in the ordinary course of business, (iii) all
or substantially all of the assets, business or capital stock of the Company or
Company Division may be sold to a bona-fide third party purchaser which assumes
in writing, in favor of Stockholder, all obligations of the Buyer under this
Section 1.7 with respect to payment of the Earn-Out from and after the date of
such sale and (iv) the Company's business operations may be discontinued and its
assets liquidated if, on a sustained and continuing basis, the Company is unable
to operate profitability and it is not economically feasible to continue such
business, or if there is a catastrophic event such that the Company is unable to
utilize its main manufacturing facility on a sustained and continuing basis.
<PAGE>
(6) 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 (i) the amount of any indemnification obligations of the Stockholder
under Article 8 and (ii) the amount of any Purchase Price Reduction which
Stockholder has failed to repay to Buyer.
(7) Notwithstanding anything in Sections 1.7(a) through 1.7(e) to
the contrary, but subject to reduction pursuant to Section 1.7(f), (i) the
Earn-out payment for each Annual Earn-out Period which is a full fiscal year
shall be not less than $300,000 and (ii) the Earn-out Payment for each Annual
Earn-out Period which is not a full fiscal year shall be not less than $300,000
multiplied by a fraction, the numerator of which is the number of calendar days
in the applicable Annual Earn-out Period and the denominator is 365. Any amount
payable under this Section 1.7(g) shall be payable within thirty (30) days after
the last day of the respective Annual Earn-out Period, and shall be payable by
the Buyer regardless of whether the Company is sold, merged or liquidated.
1.8 Real Estate Distribution.
(1) Prior to the Closing, the Company shall distribute and convey
to the Stockholder or an entity owned or controlled by Stockholder ("Fee Owner")
the Real Property (as hereinafter defined) located at Madison and Thirteenth
Streets, Hoboken, New Jersey, which serves as the Company's main facility, and
more particularly described on Schedule 1.8(a) hereto (the "Main Facility Real
Property"). Such transfer shall be "As Is" and without recourse to the Company
or the Buyer. All documentation utilized to effectuate such transaction shall be
provided to Buyer in advance of the Closing and shall be reasonably satisfactory
to Buyer.
(2) The dollar value assigned to such real estate distribution for
purposes of adjusting the net worth of the Company on the Closing Date shall be
determined as the historical cost basis of such property less accumulated
depreciation for financial accounting purposes (such amount as finally
determined referred to herein as the "Real Estate Adjustment"). The amount of
the Real Estate Adjustment shall be excluded from the computation of the
Certified Closing Net Worth and the Actual Company Net Worth. For illustrative
purposes only, the amount of the Real Estate Adjustment and method of
calculation thereof, if computed as of December 31, 1998, is set forth on
Schedule 1.8(b) hereto.
(3) All Taxes (as defined in Section 3.26) and other transaction
fees and expenses relating to the distribution and conveyance of such real
estate by the Company to the Fee Owner shall be borne exclusively by the
Stockholder (and not the Company).
1.9 Stockholders' Representative; Allocation of Purchase Price to
Stockholders.
(1) Each of the Principal Stockholder and the Additional
Stockholder, by signing this Agreement, designates the Principal Stockholder to
be the Stockholders' Representative for purposes of this Agreement. Both the
Principal Stockholder and the Additional Stockholder shall be bound by any and
all actions taken by the Stockholders' Representative on their behalf.
<PAGE>
(2) Buyer and Workflow (and from and after the Closing Date, the
Company) shall be entitled to rely upon any communication or writings given or
executed by the Principal Stockholder. All communications or writings to be sent
to the Stockholder pursuant to this Agreement may be addressed to the
Stockholders' Representative and any communication or writing so sent shall be
deemed notice to both the Principal Stockholder and the Additional Stockholder.
The Principal Stockholder and the Additional Stockholder hereby consent and
agree that the Stockholder's Representative is authorized to accept deliveries,
including any notice, on behalf of the Principal Stockholder and the Additional
Stockholder.
(3) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney in fact of each of the Principal
Stockholder and the Additional Stockholder, with full power in his name and on
his 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
in consideration of the mutual covenants and agreements made herein, and shall
be irrevocable and coupled with an interest and shall not be terminated by any
act of the Principal Stockholder or the Additional Stockholder, by operation of
law, whether by death or any other event.
(4) All payments of the Cash Purchase Price and Earn-outs,
distributions of the Pledged Assets, and adjustments to such payments including
the Purchase Price Adjustment, shall be paid or allocated among the Principal
Stockholder and the Additional Stockholder pro-rata in accordance with their
respective percentage ownership interests in the common stock of the Company
sold to the Buyer under this Agreement, which interests are hereby agreed to be
as follows:
Principal Stockholder 84.972% (Eighty-Four and Nine
Hundred Seventy Two One thousandths
Percent)
Additional Stockholder 15.028% (Fifteen and Twenty-Eight
one thousandths Percent)
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 within five (5) days
after such date that all conditions to Closing (other than the delivery by the
parties of closing certificates and similar ministerial actions) shall have been
satisfied or waived (provided however, that such closing certificates and
similar ministerial actions shall be delivered and/or taken at the Closing), 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."
<PAGE>
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
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 of the Stockholder, Frank Pauza,
President of the Company, and/or Brent Rance, Chief Financial Officer of the
Company.
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and 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, except where the failure to be so qualified
would not have a material adverse effect on the Company or its business or
assets (a "Material Adverse Effect"). 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, except where the failure to be so qualified would not
have a Material Adverse Effect. The Company has delivered to Buyer true,
complete and correct copies of the Certificate of Incorporation and Bylaws of
the Company, as amended to date. 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. Schedule 3.1
contains a complete and accurate list of the directors and officers of the
Company.
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 and to perform its obligations pursuant to the terms of this
Agreement. The Stockholder has the full legal right and authority to enter into
this Agreement and the transactions contemplated hereby and to perform his
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 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, except where such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
3.3 No Conflicts. Provided that the consents referred to in
Schedule 3.3 are obtained prior to the Closing, the execution, delivery and
performance of this Agreement, the consummation of the transactions contemplated
hereby, and the fulfillment of the terms hereof will not:
<PAGE>
(1) conflict with, or result in a breach or violation of, any of
the Charter Documents;
(2) 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;
(3) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(4) 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.
3.4 Capital Stock of the Company. The authorized capital stock of
the Company consists of 1,000 shares of common stock, no par value, of which 885
shares are issued and outstanding and 65 shares are held as treasury 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). The Principal Stockholder is the record and beneficial
owner of 752 shares of Common Stock of the Company and the Additional
Stockholder is the record and beneficial owner of 133 shares of Common Stock of
the Company. 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, right of first
offer, preemptive, conversion, put, call or other claim or right, covenant,
encroachment, easement or similar restriction, any lease to which the relevant
asset is subject, 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), or any other matter affecting title to any
of the Owned Real Property.
<PAGE>
3.5 Transactions in Capital Stock. 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 or the Stockholder to issue, transfer, or sell,
or for there to 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. Except as set forth on Schedule 3.5,
neither the Company nor the Stockholder has entered into any agreement or
promise (oral or written) whereby any employee, consultant, director, officer,
customer, supplier, broker, finder, distributor or dealer of the Company or any
other person or entity (other than the Stockholder) has any right to the
proceeds of or to participate in or to receive any payment in connection with
any sale of the capital stock, assets or business of the Company, or upon any
merger, consolidation or change in control of the Company.
3.6 Subsidiaries, Stock, and Notes.
(1) 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.
(2) 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, limited
liability company or other noncorporate entity.
(3) 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. The
aggregate amount of loans made by the Company to its employees outstanding as of
the date hereof does not exceed $25,000.
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.
3.8 Absence of Claims Against Company. The Stockholder does not
have any claims against the Company, other than debt to the Principal
Stockholder set forth on Schedule 3.8 which will be paid or extinguished at or
before the Closing.
<PAGE>
3.9 Company Financial Conditions.
(1) The Company's net worth (i) as of the end of its fiscal year
ending December 31, 1997 was not less than $3,181,528, and (ii) as of the
Closing will not be less than the Net Worth Target; provided however, if the
Company's net worth at Closing is less than the Net Worth Target, and the
Closing occurs, then the Buyer's sole remedy for violation of this clause (ii)
shall be to recover the Purchase Price Reduction pursuant to Section 1.3 hereof.
(2) The Company's sales for (i) its fiscal year ending December
31, 1997 were not less than $17,037,649, and (ii) the twelve (12) month period
ending December 31, 1998 were not less than $19,000,000;
(3) The Company's earnings before interest, taxes and depreciation
(after the addition of "add-backs" set forth on Schedule 3.9(c)) for (i) its
fiscal year ending December 31, 1997 were not less than $1,779,902 and (ii) the
twelve (12) month period ended December 31, 1998, were not less than $2,000,000
(in each case assuming an annual rental expense of $370,000).
(4) The sum of the Company's total outstanding long term and short
term indebtedness to (i) banks and (ii) 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 and excluding
debt to Stockholder and obligations or liabilities attributable to the Section
338(h)(10) Election (as defined below)) as of the Closing Date will not be more
than $2,496,337 (such maximum outstanding debt referred to herein as the
"Accepted Indebtedness"). The Company's indebtedness to Stockholder shall be
paid or extinguished at or prior to the Closing Date.
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. The Company has delivered to the Buyer
(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
income statement for the year ended December 31, 1997 (collectively, the
"Audited Financials") and (b) true, complete and correct copies of the Company's
unaudited balance sheet (the "Interim Balance Sheet") as of December 31, 1998
(the "Balance Sheet Date") and income statement, for the twelve (12) month
period then ended (collectively, the "Interim Financials," and 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, (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 in all material respects 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 in all material respects 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.
(1) The Company is not liable for or subject to any liabilities
except for:
(1) those liabilities reflected on the Interim Balance Sheet
and not previously paid or discharged;
(2) 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 is less
than the threshold set forth in any applicable provision of this Agreement
expressly permitting exemption from disclosure of the particular type of
liability;
(3) 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; and
(4) liabilities relating to occasional customer product
replacements or adjustments requested after the Balance Sheet Date for products
shipped prior to or subsequent to the Balance Sheet Date, not in excess of
historical amounts over such time period.
(2) The Company has delivered to Buyer, in the case of those
liabilities disclosed in the Schedules hereto, which are either (i) not fixed or
(ii) are being contested, a reasonable estimate of the maximum amount which may
be payable.
(3) Schedule 3.11(c) includes a summary description of all plans
or projects involving the opening of new operations, expansion of any existing
operations, the expansion or acquisition of any real property or leased
facilities, the acquisition of any business or the purchase, lease or
development of significant equipment or systems, to which management of the
Company has made any material expenditure, contract or commitment 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.
(4) 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 for borrowed money of the Company.
<PAGE>
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.
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:
(1) the name of each financial institution in which the Company
has any account or safe deposit box;
(2) the names in which the accounts or boxes are held;
(3) the type of account;
(4) the name of each person authorized to draw thereon or have
access thereto; and
(5) 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 Stockholder), which includes an aging of all accounts and notes
receivable showing amounts due in thirty (30) day aging categories
(collectively, the "Accounts Receivable"). All such Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Such Accounts Receivable
are collectible net of any reserves for bad debts, returns and allowances shown
on the Company's books and records (which reserves are adequate and calculated
consistent with past practice). 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.
<PAGE>
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, other
than Diminimus Violations (as defined below). 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.
(1) For purposes of this Agreement, "Real Property" means all of
the Company's right, title and interest in and to the following: all interests
in real property including, without limitation, fee estates, leaseholds and
subleaseholds, easements, licenses of real property, rights to access, and
rights of way, and all buildings and other improvements and fixtures (other than
removable trade fixtures) located thereon or affixed thereto (including without
limitation the Tangible Real Estate Assets relating thereto defined in Section
3.16(c)(iii) below) , owned or used by the Company, together with any additions
thereto or replacements thereof. "Real Property" and "Owned Real Property" shall
exclude the vacant land parcels owned by the Company in the Pine Barrens area of
New Jersey (the "Pine Barrens Real Property").
(2) Schedule 3.16(b) contains a complete and accurate description
of all Real Property (including street address, legal description (where known),
owner, and Company's use thereof) and, to the Company's knowledge, any Lien
affecting such Real Property ("Encumbrances"). Schedule 3.16(b) indicates
whether the Real Property is owned or leased. The Real Property listed on
Schedule 3.16 includes all interests in real property necessary to conduct the
business and operations of the Company as currently conducted.
(3) (1) The "Owned Real Property" shall be defined to include (x)
the Main Facility Real Property, and (y) the adjacent parking lot parcel owned
by the Article Third Trust under the will of Ruth L. Batkin more particularly
described on Schedule 3.16(b) hereto (the "Parking Lot Real Property"). With
respect to the Main Facility Real Property, the Fee Owner (and in the case of
the Parking Lot Real Property, the Article Third Trust under the will of Ruth L.
Batkin) at the Closing will be the sole owner of and have good fee simple and
insurable title to the Main Facility Real Property (in the case of the Fee
Owner) and the Parking Lot Real Property (in the case of said Trust), in each
case free and clear of any Encumbrances other than the following (collectively,
"Permitted Encumbrances"): (A) Liens for current taxes, assessments and water
and sewer charges not yet due and payable, and (B) Encumbrances and title
defects and other matters as set forth on Schedule 3.16(c)(i); provided,
however, notwithstanding the foregoing, any Encumbrance(s) (1) which does not
constitute a mortgage or other Lien, statutory, consensual or otherwise, where
enforcement could result in foreclosure on, or the sale or transfer of, the
Owned Real Property (other than the Liens described in the preceding clause (A)
of this Section 3.16(c)(i) or Liens created by or on behalf of Buyer), and (2)
which individually or in the aggregate do not, in any material respect,
interfere with or prohibit (x) the Company's exercise or enjoyment of any of its
rights under the leases of the Main Facility Real Property and Parking Lot Real
Property to be entered into on or prior to the Closing Date pursuant to
subsections 6.12(a) and 6.12(b) herein below (the "Closing Leases"), or (y) the
use of any such Owned Real Property for any purpose permitted by any of the
Closing Leases, shall be deemed to be Permitted Encumbrances.
<PAGE>
(2) The Company has rights of ingress and egress to and from all
parcels of Owned Real Property from and to a publicly dedicated street.
(3) Except as set forth on Schedule 3.16(c)(iii), all structures,
improvements and additions and all structural, mechanical and other physical
systems thereof that constitute part of the Owned 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 and storm water systems, and the cyclone "Vacuum System," including all
ducts, ductwork and other installations comprising said system, at the Owned
Real Property (collectively, the "Tangible Real Estate Assets"), are free of
defects (other than "Diminimus Violations" as defined herein) and in reasonably
good operating condition and repair, considering the age and use thereof and
ordinary wear and tear excepted. 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 Owned Real Property, Structures or any Tangible
Asset has been unreasonably deferred. There is no water seepage, diffusion or
other intrusion into said buildings, including any subterranean portions, that
would impair beneficial use of the Owned Real Property, Structures or any
Tangible Real Estate Asset as presently used and operated. A "Diminimus
Violation" shall be defined as a minor, insignificant defect, violation or
infraction the existence of which does not interfere with operation of the
Company's business and which can be cured or remedied at nominal expense and
without interference with the operation of the Company's business.
(4) All water, sewer, gas, electric and drainage facilities, and
all other utilities required by any applicable law or by the use and operation
of the Owned Real Property in the conduct of the Company's business are
installed to the property lines of the Owned Real Property, are connected
pursuant to valid Permits to municipal or public utility services or proper
drainage facilities, are operable and are adequate to service the Owned Real
Property in the operation of the Company's business as presently conducted and
to permit compliance with the requirements of all laws in the operation of such
business (except for Diminimus Violations of the foregoing). 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>
(5) Except as set forth on Schedule 3.16(c)(v), and except for
Diminimus Violations and Permitted Encumbrances, the Owned Real Property and all
present uses and operations of the Owned 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 Owned 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 Owned Real Property. The Company has obtained all approvals of
governmental authorities (including certificates of use and occupancy and
Permits) required in connection with the construction, ownership, use,
occupation and operation of the Owned Real Property as presently used and
operated.
(6) None of the Structures, the appurtenances thereto or the
equipment therein or the operation or maintenance thereof, or the current
conduct of the Company's business, violates any restrictive covenant or
encroaches on any property owned by others or any easement, right of way or
other Encumbrance or restriction affecting such Owned Real Property in any
respect, other than Diminimus Violations and Permitted Encumbrances. The Owned
Real Property and its current continued use, occupancy and operation does not
constitute a nonconforming use and is not the subject of a special use permit
under any applicable Law.
(7) 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 Owned Real Property which do or may adversely effect the current
use, occupancy or value thereof, nor has the Company or the Stockholder received
notice of any pending or threatened special assessment proceedings affecting any
portion of the Owned Real Property.
(8) Except as set forth on Schedule 3.16(c)(viii) hereto, no
portion of the Owned Real Property or the structures, facilities and
improvements to the Owned Real Property (the "Structures") has suffered any
damage by fire or other casualty which has not heretofore been completely
repaired and restored to its original condition.
(9) 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 other than the Company the right of use or occupancy of
any portion of the Real Property or any portion thereof, other than pursuant to
Permitted Encumbrances.
(10) There are no outstanding options or rights of first refusal
to purchase the Owned Real Property, or any portion thereof or interest therein.
The Company has not transferred any air rights or development rights relating to
the Owned Real Property.
(11) Except as set forth on Schedule 3.16(c)(xi) hereto, there are
no service contracts or other agreements relating to the use or operation of the
Real Property.
(12) Except as set forth on Schedule 3.16(c)(xii) hereto, no
portion of the Owned 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 present commercial use of
any portion of the Owned Real Property will violate any requirement of the
United States Corps of Engineers or Laws relating to wetlands areas.
(13) All real property taxes and assessments that are due and
payable with respect to the Owned Real Property have been paid or will be paid
at or prior to Closing.
<PAGE>
(14) 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, except for the Permitted
Encumbrances.
(15) Except as set forth on Schedule 3.16(c)(xv) hereto, 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.
(1) Schedule 3.17(a) sets forth a complete and accurate list of
all tangible personal property ("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 Personal Property and an
indication as to which Personal Property is currently owned, or was formerly
owned, by the Stockholder or business or personal affiliates of the Stockholder
or of the Company.
(2) 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.
(3) All of the trucks and other Personal Property consisting of
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 Personal Property 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, other than
Diminimus Violations. All Personal Property used by the Company that is material
to the operation of its business is either owned by the Company or leased under
an agreement listed on Schedule 3.17(a).
<PAGE>
3.18 Intellectual Property.
(1) 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.
(2) 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
listed (as defined below) 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 is
the owner of, or is licensed to use, as of the date of this Agreement, as well
as any application for a United States or foreign patent made by the Company;
the term "Copyright" shall mean any United States or foreign copyright owned or
licensed 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.
(3) 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.
(4) 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>
(5) 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.
(1) 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 fiscal
year ended December 31, 1998 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 fiscal year ended December 31, 1998.
<PAGE>
(2) 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, limited liability company or partnership agreements,
contracts with any labor organizations, employment agreements, consulting
agreements, franchise, distribution and dealer 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, excluding Ordinary Purchase Orders (as defined herein) (collectively
with the Related Party Agreements, the "Material Contracts"). The Company has
delivered to Buyer true, complete and correct copies of the Material Contracts.
"Ordinary Purchase Orders" shall be defined as purchase orders for inventory and
supplies and customer orders for products in the ordinary course of business
unless any such orders constitute "long-term", "blanket", "requirements",
"supply", "minimum volume" or similar contracts or commitments which shall not
be Ordinary Purchase Orders.
(3) 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 returns consistent
with past history and those returns that would not result in a reversal of any
material revenue.
(4) 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. 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"), are
listed on Schedule 3.19(d).
(5) 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.
(6) The outstanding balance on all loans or credit agreements
either (i) between the Company and the Stockholder or any person in which the
Stockholder owns a material interest, or (ii) guaranteed by the Company for the
benefit of the Stockholder or any person in which the Stockholder owns a
material interest, are set forth in Schedule 3.19(f).
<PAGE>
(7) 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.
(1) Except as set forth on Schedule 3.20, the Company is not a
party to any government contracts.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
<PAGE>
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, except (i) as set forth on Schedule 3.21
hereto and (ii) for normal, insignificant waste quantities such as the outer
sheet of paper rolls being wrinkled or similarly damaged, consistent with
historical amounts thereof, 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. The inventory set forth on the Interim Balance Sheet
excludes "billed not shipped" ("BNS") finished goods being held for customers;
such BNS amount of finished goods on the date of the Interim Balance Sheet is
set forth on Schedule 3.21.
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 (identifying the type and amount of coverage, insurance carrier and
policy number) 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 compliance with the terms of such
policies (other than Diminimus Violations which have not and will not result in
cancellation of any insurance policy). To the knowledge of the Company, there
have been no threatened terminations of, or material premium increases with
respect to, any of such policies. Schedule 3.22 also sets forth a complete and
accurate description of all self-insurance programs maintained by the Company
and any reserves, stop-loss and administrative service arrangements relating
thereto.
3.23 Environmental Matters.
(1) The Company and any other person or entity for whose conduct
the Company is responsible, have no liability under, 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 whether
existing as of the date hereof, previously enforced or subsequently enacted (the
"Environmental Laws") applicable to the Real Property and any facilities and
operations thereon, except as listed in Schedule 3.23(a) and Diminimus
Violations.
(2) There exists no condition on, at, under or affecting the Owned
Real Property, which will cause a violation of any Environmental Law or 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 Owned Real Property and/or any activity or operation formerly
conducted by any person or entity on or off the Owned Real Property, except as
set forth in Schedule 3.23(b) and Diminimus Violations.
<PAGE>
(3) 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, solid waste,
hazardous material, hazardous substance, or oil as defined in or pursuant to any
Environmental Law including, without limitation, 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. (collectively, "Hazardous Materials") at the Real Property, except in
compliance with all applicable Environmental Laws and except as listed in
Schedule 3.23(c) and for Diminimus Violations.
(4) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping of Hazardous Materials into the soil, surface
waters, ground waters, land, stream sediments, surface or subsurface strata,
ambient air, sewer system, or any environmental medium at or from the Real
Property ("Environmental Condition") in violation of any Environmental Law
except as listed in Schedule 3.23(d).
(5) No Lien has been imposed on the Owned Real Property by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Owned Real Property of any Hazardous Material, except as
listed in Schedule 3.23(e).
(6) Except as set forth in Schedule 3.23(f), the Company has not,
and any other person or entity for whose conduct the Company is 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 written notice under the citizen suit
provision of any of the Environmental Laws in connection with the Real Property
or any facilities or operations thereon which has not been dismissed, disposed
of or remediated; (iii) received any written request for information, notice,
demand letter, administrative inquiry, or formal or informal complaint 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, and the Company has no knowledge that any
of the above will be forthcoming.
(7) The Company has all Permits necessary pursuant to
Environmental Laws for its activities and operations at the Owned Real Property
and for any past or ongoing alterations or improvements at the Owned Real
Property, which permits as presently in effect are listed in Schedule 3.23(g).
(8) None of the following exists at the Owned 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).
<PAGE>
(9) The Company has provided to Buyer copies of all documents,
records and information in its possession or control concerning Environmental
Conditions affecting 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 immediately provide 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 and during the term
of the lease of the Owned Real Property to the Company.
(10) 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 (1) any and all agreements with
governmental entities, court orders, and administrative orders regarding
Environmental Conditions and (2) to the Company's knowledge, all Environmental
Laws.
3.24 Labor and Employment Matters. With respect to employees of
and service providers to the Company:
(1) 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 (except for Diminimus
Violations), and to the Company's knowledge, has not and is not engaged in any
unfair labor practice;
(2) there is not now 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 and during the
past three years there has been no such complaint which has resulted in
liability to the Company;
(3) 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 the Company;
(4) Except for the collective bargaining agreement covering
certain of the Company's employees and referred to in Section 3.24(f) below, to
the Company's knowledge, no labor representation organization effort exists with
respect to the employees of the Company nor has there been any such activity
within the past three (3) years;
(5) Except as set forth on Schedule 3.24(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;
<PAGE>
(6) Certain employees of the Company are represented by the labor
union identified on Schedule 3.24(f) pursuant to the collective bargaining
agreement identified thereon, which agreement is in full force and effect and
has a scheduled expiration date identified on Schedule 3.24(f). Except as set
forth on Schedule 3.24(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
(7) all persons classified by the Company as independent
contractors do substantially satisfy and have substantially 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.
(1) Definitions.
(1) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to provide
benefits, other than salary or wages, 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, stock incentive, "phantom stock", 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.
(2) "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.
(3) "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 (including any
Multiemployer Plan to which the Company is obligated to make payments), in each
case with respect to any present or former employees of the Company.
(4) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
<PAGE>
(5) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(6) "ERISA Affiliate" means any person that, together with
the Company, would be or was at any time after January 1, 1991 and prior to the
Closing Date 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 after January 1, 1991 a general partner.
(7) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(8) "Qualified Plan" means any Employee Benefit Plan
(other than any Multiemployer 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.
(2) Schedule 3.25(b) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements including without limitation,
Multiemployer Plans covering any employees of the Company on account of such
employees' employment by the Company. Schedule 3.25(b) specifically identifies
all Company Plans (if any) that are Qualified Plans.
(3) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(1) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement (other than Multiemployer Plans), to the extent in existence and
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 filed
with the IRS and any financial statements attached thereto and those for the
prior three (3) years; (C) the most recent Internal Revenue Service
determination letter and the most recent IRS determination letter that covered
the qualification of the entire plan (if different); (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
to the Company with respect to any such plan or arrangement 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 to the Company 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 such plan or
arrangement; and (H) employee manuals or handbooks containing personnel or
employee relations policies;
<PAGE>
(2) the Universal Folding Box Co., Inc. 401(k) Thrift
Plan (the "Company 401(k) Plan") is the only Company Plan which is a Qualified
Plan. Except as disclosed on Schedule 3.25(c), the Company has never maintained
or contributed to another Qualified Plan. The Company 401(k) Plan qualifies
under Section 401(a) of the Internal Revenue Code of 1986, as amended (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 the Company 401(k) Plan that is likely to
cause the loss of such qualification or exemption or the imposition on the
Company of any liability, lien, penalty, or tax under ERISA or the Code;
(3) except as disclosed on Schedule 3.25(c), 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). With respect to each Multiemployer Plan which is a
Company Plan, the Company will have no withdrawal or other liability ("Closing
Date Withdrawal Liability") under Sections 4201, 4063 or 4064 of ERISA to any
Multiemployer Plan by reason of the consummation the transactions provided for
in this Agreement. With respect to any Company Plans previously maintained by
the Company subject to Title IV of ERISA other than Multiemployer Plans, the
plans were terminated properly, in accordance with their terms, and with all
necessary governmental approvals, and the Company has no actual, contingent, or
potential liability with respect to such plans. Within the six years ending as
of the date hereof, the Company has had no ERISA Affiliate. The Company has
never assumed, by contract, operation of law or otherwise, the assets,
investments, contribution or withdrawal liability, or contribution history of
any other business or entity, with respect to any Employee Benefit Plan,
including any Multiemployer Plan.
(4) each Company Plan and each Company Benefit
Arrangement (other than any Multiemployer Plan) 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
(other than Diminimus Violations);
<PAGE>
(5) except as set forth on Schedule 3.25(c), there are
no pending, or to the knowledge of the Company, threatened 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 other
than routine claims for benefits, 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 (other than any
Multiemployer Plan), against the assets of any trust or other funding
arrangement under any such Company Plan (other than any Multiemployer 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 (other than any Multiemployer Plan),
with respect to such 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 (other than any
Multiemployer Plan) are not presently under audit or examination (nor has notice
been received of a potential audit or examination) by the IRS, the U.S.
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;
(6) 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;
(7) with respect to each Company Plan (other than any
Multiemployer 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 which is not exempt under Section 408 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;
(8) all reporting, disclosure, and notice requirements
of ERISA and the Code have been fully and completely satisfied (other than
Diminimus Violations) with respect to each Company Plan and each Company Benefit
Arrangement (other than any Multiemployer Plan);
(9) 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 (other than
Diminimus Violations), except to the extent such amendments or actions (A) are
not required by law to be made or taken until after the Closing Date or (B) are
disclosed on Schedule 3.25(c);
(10) all amounts that the Company is required to pay as
contributions to the Company Benefit Plans by the last day of the most recent
fiscal year of each of the plans ended before the date of this Agreement have
been paid; 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, to the extent required under applicable
law, within 30 days of such withholding;
(11) except with respect to amounts held in the
Company's accounts and used to pay benefits under the Company's flexible
spending plan, the Company has not prepaid or prefunded any Welfare Plan through
a trust, reserve, premium stabilization, or similar account, nor does the
Company provide benefits through a voluntary employee beneficiary association as
defined in Section 501(c)(9);
<PAGE>
(12) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan that is not a Company 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 was required under applicable law,
to be sponsored or maintained) by any ERISA Affiliate;
(13) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of Sections 4980B 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) that the Company knows occurred before
the Closing;
(14) except as set forth on Schedule 3.25(c), 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 in the Company, entitled to receive any benefits, including, without
limitation, death or medical benefits (whether or not insured) for periods
following retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) 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.
(4) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims of the Company and a schedule of
workers' compensation claims of the Company for the last three (3) fiscal years.
(5) Schedule 3.25(e) hereto sets forth an accurate list, as
of the date hereof, of all employees of the Company who earned more than $50,000
from the Company in 1998, all officers and all directors of the Company, 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, other than
compensation under any Company Plan or Company Benefits Arrangement, as of (a)
the Balance Sheet Date and (b) the date hereof.
(6) Except as set forth on Schedule 3.25(f), the Company has
not declared or paid any bonus compensation in contemplation of the transactions
contemplated by this Agreement.
3.26 Taxes.
(1) (1) 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 material respects.
(2) The Company has paid in full all Taxes owed by it,
whether or not shown on any Tax Return.
(3) 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, other than diminimus amounts.
<PAGE>
(4) 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.
(5) The Company has a taxable year ended on December 31,
in each year from and after the year commencing 1987.
(6) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past twenty-five (25) 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.
(7) 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.
(8) Copies of (A) any notices, assessments, reports and
audits, Tax examinations which are pending, or which have not been fully
satisfied and settled, (B) extensions of statutory limitations for the
collection or assessment of unpaid Taxes and (C) the Tax Returns of the Company
for the last fiscal year have been delivered to Buyer.
(9) 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.
(10) 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.
(11) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(12) 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)
by the Company that would not be deductible by the Company pursuant to Sections
280G, 404 or 162 of the Code.
(13) 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>
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(2) (1) The Company has, since January 1, 1987, been an S
Corporation within the meaning of Section 1361 of the Code and is currently an S
Corporation for the State of New Jersey corporate income tax purposes.
(2) The Company does not have a net recognizable
built-in gain within the meaning of Section 1374 of the Code.
(3) For purposes of this Agreement:
(1) 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, real
and personal property taxes, special assessments, water and sewer charges,
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
(2) 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.
(1) Except as set forth on Schedule 3.27(a) or any other
applicable disclosure schedule hereto and for Diminimus Violations, 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.
<PAGE>
(2) The Stockholder has not, at any time: (i) committed any
criminal act (except for minor traffic and similar 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 while Stockholder was in such position.
(3) 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 in any
court, 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:
(1) 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;
(2) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(3) 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;
(4) 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;
<PAGE>
(5) any increase in the compensation, bonus, schedule of sales
commissions or fee arrangements payable or to become payable by the Company to
any of its officers, directors, the Stockholder, 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;
(6) 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;
(7) except as contemplated by this Agreement, 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;
(8) 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;
(9) 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;
(10) 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;
(11) any waiver of any material rights or claims of the
Company;
(12) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(13) any transaction by the Company outside the ordinary
course of business;
(14) any capital commitment by the Company, either
individually or in the aggregate, exceeding $10,000;
(15) 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;
(16) any creation or assumption by the Company of any Lien 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 and Permitted
Encumbrances);
<PAGE>
(17) 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, other than those in the ordinary course of business and, even if in
the ordinary course of business, except for Ordinary Purchase Orders, are
disclosed to Buyer prior to the closing if in excess of such $10,000 threshold;
(18) 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;
(19) 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
(20) 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 lists, schedules, instruments, exhibits,
certificates and reports furnished to Buyer pursuant hereto are and will be
complete and accurate in all material respects. No representation, warranty or
confirmation by the Stockholder or the Company contained in this Agreement, in
the Schedules attached hereto (other than those provided by Buyer) or in any
certificate furnished or to be furnished by the Stockholder or the Company to
Buyer 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 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 (5) year period
immediately preceding the Closing, (i) 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 and (ii) there
has not been any sale or spin-off of material assets of either the Company, any
other person or entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company.
3.32 Location of Chief Executive Offices. Schedule 3.32 sets forth
the location of the Company's chief executive offices.
<PAGE>
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" of any nature
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, but shall exclude Tangible Real Estate Assets.
3.34 Year 2000 Compliance. The Company has implemented plans and
procedures designed to enable the Company to be Year 2000 Compliant and ready by
June 30, 1999. To the extent the Company may not be Year 2000 Compliant and
Ready (as defined below) at any time prior to June 30, 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 material
cost or the need for material 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.
3.35 Acquisitions and Divestitures
<PAGE>
(1) Schedule 3.35 lists and identifies all acquisitions or
investments in the business, assets, capital stock, partnership interests or
membership interests in any other entity or division thereof conducted at any
time during the past five (5) years by the Company, whether by purchase, merger,
consolidation, or any other form of transaction, as well as all divestitures or
sales of any business, subsidiary, or division of the Company or the assets,
capital stock, partnership interests or membership interests therein conducted
at any time by the Company, other than sales of inventory and dispositions of
Personal Property in the ordinary course of business (such transactions referred
to as "Acquisitions and Divestitures"); and for each Acquisition or Divestiture,
sets forth the date of the transaction, the interests acquired or sold, the
parties to the transaction and the consideration therefor, and identifies all
parties which have retained interests in any business acquired by the Company.
(2) Schedule 3.35 sets forth a listing of all asset purchase,
stock purchase, merger, consolidation, or other primary agreement relating to
each Acquisition and Divestiture as well as all promissory notes, guarantees,
security agreements, pledge agreements, preferred stock designations, and other
operative agreements relating to each Acquisition and Divestiture.
(3) Schedule 3.35 sets forth a listing of all agreements,
reports, audits, and documentation relating to purchase price adjustments,
post-closingaudits, post-closing amendments, revaluations or reappraisals
relating to all Acquisitions and Divestitures.
(4) Schedule 3.35 sets forth a listing of all earnout
agreements or other agreements relating to the payment of additional purchase
price or compensation, whether stock, cash or otherwise, based on post-closing
performance of businesses which are the subject of Acquisitions or Divestitures,
together with calculations, reports and statements of any amounts paid
thereunder.
(5) Except as specifically described in Schedule 3.35, there
are no claims for indemnification, adjustment, recission, disputes, arbitration,
accounting or breach or default, by the Company or any other party, under any
agreement relating to any Acquisition or Divestiture. All agreements relating to
Acquisitions or Divestitures are in full force and effect; there is no existing
default by the Company under any such agreement, and to the actual knowledge of
the Company, there is no existing default under any such agreement by any other
party thereto. The Company has made all payments required to be made to date
(whether in cash, stock or property) under all Acquisitions, and the Company has
received all payments required to be made to date (whether in cash, stock or
property) under all Divestitures.
(6) Schedule 3.35 identifies any Acquisition or Divestiture
involving a company or affiliate thereof which was the subject of any
bankruptcy, insolvency or reorganization proceedings; copies of the final court
orders approving the transaction (and the plan of reorganization if the
transaction was pursuant to such plan) have been delivered to the Buyer.
3.36 Product Lines
<PAGE>
(1) Schedule 3.36 contains a complete and correct list of all
product types and product lines comprising the businesses of the Company and its
subsidiaries, identified by the specific subsidiary or division thereof. During
the past five (5) years, the Company never been the subject of any product
liability, safety, or false, deceptive or misleading advertising claims and has
never been the subject of any product safety investigation, proceeding, warning,
citation or other claim by any federal, state, foreign or local governmental
agency. The Company has not initiated any recall of any products or taken any
similar action (and none has been initiated by any government agency), and the
Company does not know of any basis for any such action which should have been
taken or may have to be taken in the future. The Company has not engaged in any
advertising practices which are deceptive, misleading, or otherwise in violation
of any legal requirements.
(2) Each item of merchandise included in the inventory of the
Company or which has been sold or shipped by the Company is safe for its
intended uses and conforms with all legal requirements and product safety and
testing codes and standards, and contains all required labels, disclosures and
warnings (other than labels placed on product at the customer's request), except
for Diminimus Violations.
4. REPRESENTATIONS AND WARRANTIES 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 New Jersey,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except where the
failure to be so qualified does not have a material adverse affect on the Buyer
or its business or assets. Workflow is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
4.2 Authorization; Validity of Obligations. (1) 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 the transactions contemplated hereby 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, except where such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors rights generally.
<PAGE>
(2) The representative of Workflow executing this Agreement
has all requisite corporate power and authority to enter into and bind Workflow
to the obligations set forth in Section 5.14 of this Agreement. Workflow has the
full legal right, power and corporate authority to enter into this Agreement and
the transactions contemplated hereby and to perform its obligations pursuant to
the terms of this Agreement. The execution and delivery of this Agreement by
Workflow and the performance by Workflow of its obligations contemplated herein
have been duly and validly authorized by the Board of Directors of Workflow and
this Agreement has been duly and validly authorized by all necessary corporate
action of Workflow. Workflow's obligations set forth in Section 5.14 hereof are
legal, valid and binding obligations of Workflow enforceable in accordance with
their terms, except where such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors rights generally.
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:
(1) conflict with, or result in a breach or violation of the
Buyer's or Workflow's Certificate of Incorporation or By-Laws;
(2) 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 or Workflow is a party,
or result in the creation or imposition of any lien, charge or encumbrance on
any of Buyer's or Workflow's properties pursuant to (i) any law or regulation to
which Buyer or Workflow or any of its property is subject, or (ii) any judgment,
order or decree to which Buyer or Workflow is bound or any of its property is
subject;
(3) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer or
Workflow; or
(4) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer or Workflow is subject, or by which Buyer or
Workflow is bound (including, without limitation, the HSR Act, together with all
rules and regulations promulgated thereunder).
4.4 Financial Statements. Workflow's financial statements,
contained in its report on Form 10-Q as filed with the Securities and Exchange
Commission for the quarter ended October 24, 1998 (the "Workflow Financial
Statements") are, except as noted in such interim financials, prepared in
accordance with GAAP consistently applied, subject to (i) normal year-end audit
adjustments, (ii) the exceptions stated on Schedule 4.4, and (iii) to the
omission of footnote information. The balance sheet included in the Workflow
Financial Statements presents fairly, in all material respects, the financial
condition of Workflow as of the date indicated thereon, and each of the income
statements included in such Workflow Financial Statements presents fairly, in
all material respects, the results of its operations for the periods indicated
thereon. A true and correct copy of such Workflow Form 10-Q has been delivered
to Stockholder.
4.5 Disclosure. All lists , schedules, instruments, exhibits,
certificates and reports furnished by Workflow or Buyer pursuant hereto are and
will be complete and accurate in all material respects. No representation,
warranty or confirmation by Buyer or Workflow, contained in this Agreement, in
Buyer's Schedules attached hereto or in any certificate furnished or to be
furnished by Buyer or Workflow to Stockholder 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.
<PAGE>
5. COVENANTS
5.1 Tax Matters.
(1) 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:
(1) 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. Except as provided
in Section 5.1(d) (iii) hereto, 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, which approval shall not be unreasonably withheld 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.
(2) Except as set forth in Section 5.1(a)(v) with
respect to income Tax Returns for the Company for the 1999 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 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
or reflected in the Certified Closing Net Worth. 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>
(3) Buyer and the Company on one hand and 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.
(4) Except as provided in Section 5.1(d)(iii) hereto,
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.
(5) 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. 1362-3(b)(3) wherein the
1999 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 1999 calendar tax year in a manner consistent with the foregoing.
(2) 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 or
any corresponding provisions of state and local law. 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.
(3) The parties agree as follows with respect to Section
338(h)(10) of the Code:
<PAGE>
(1) 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
their 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 45 days prior to the date
the Section 338 Forms are required to be filed, subject to Section 5.1(c)(iii)
hereto, such documents and other forms as reasonably requested by Buyer to
properly complete the Section 338 Forms.
(2) 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.
(3) Buyer shall initially prepare a completed set of IRS
Forms 8023 (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 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 the Stockholder objects to the manner in which the Section 338 Forms have
been prepared, the 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 the
Stockholder shall submit such dispute to an independent accounting firm of
recognized national standing (the "Allocation Arbiter") selected by Buyer and
the Stockholder, which firm shall not be the regular accounting firm of Buyer or
the 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 the 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.
(4) 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.
(4) Buyer and Stockholder agree as follows with respect to the
allocation of Tax liabilities:
<PAGE>
(1) In the event that the Section 338(h)(10) Election is
effectively implemented at the request of Buyer, the Cash Purchase Price, as
adjusted pursuant to Sections 1.2 and 1.3, shall be increased by an amount (the
"Purchase Price Increase"), equal to the additional tax liability of the
Stockholder by reason of the gain realized by the Company as a result of the
sale of its assets deemed to have taken place by reason of the Section
338(h)(10) Election determined in accordance with the hypothetical formula of
incremental taxes set forth on Schedule 5.1(d) attached hereto, but utilizing
actual numbers as at the Closing Date determined by the Post-Closing Audit as
finally determined pursuant to Section 1.3 and reflecting an appraisal of the
fixed assets of the Company to be obtained by Buyer, and Buyer shall pay such
Purchase Price Increase to Stockholder by wire transfer to such account or
accounts as Stockholder shall designate, when Stockholder has executed and
delivered the Form 8023 as finally determined pursuant to Section 5.3(c)(iii)
above and any other necessary forms to implement the Section 338(h)(10)
Election.
(2) 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.
(3) Stockholder shall be liable for any individual or
personal state, local, or foreign Tax imposed directly on Stockholder (as
distinguished from Taxes imposed upon the Company) attributable to an election
under state, local, or foreign law similar to the election available under
Section 338(h)(10) of the Code. Stockholder will be liable for nonfederal income
Taxes of the Company (other than those imposed on the Company and attributable
to an election similar to Section 338(h)(10) of the Code) for periods 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) The Stockholder shall deliver at the Closing, a certification,
which shall constitute a representation and warranty of Stockholder, that 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 reserves are reflected on the books and records of the Company on the
Closing Date, other than diminimus amounts.
5.2 Accounts Receivable.
(1) 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 as at such date, including
an aging of such Accounts Receivable, showing amounts due in thirty(30) day
aging categories, and Stockholder shall deliver a certification, which shall
constitute a representation and warranty of Stockholder, that all such Accounts
Receivable represent valid obligations arising from sales actually made or
services actually performed in the ordinary course of business, that such
Accounts Receivable are collectible net of any reserves for bad debts, returns
and allowances shown on the Company's books and records(which reserves are
adequate and calculated consistent with past practice), and that 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.
<PAGE>
(2) 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 shall (x) during the period from one hundred twenty (120) days after
the Closing to one hundred eighty (180) days after the Closing utilize his
reasonable efforts to assist the Company in the collection of such unpaid
Accounts Receivable, and (y) on the date which one hundred ninety (190) days
after the Closing, pay the Company an amount equal to the dollar amount of all
Accounts Receivable not collected in full (net of reserves, specified in Section
3.14) as at one hundred eighty (180) days after Closing, and upon receipt of
such payment the Company shall assign to the Stockholder 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. If and when the amount
subsequently collected by Stockholder with respect to the assigned Accounts
Receivable equals (i) the payment made therefor plus (ii) 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 them. Upon the written request of the Company, the Stockholder shall
provide it with a status report concerning the collection of assigned Accounts
Receivable.
5.3 Title Insurance and Surveys.
(1) With respect to each of the Owned Real Property, the
Stockholder will obtain and deliver or cause to be delivered to Buyer (i) as
soon as practicable after the date of this Agreement, a current title commitment
by First American Title Insurance Company or other nationally recognized title
insurance company (the "Title Company"), either directly or through its agent,
disclosing the condition of title to the subject fee estate and copies of all
easements, rights of way, and restrictions of record described therein with
respect thereto (the "Title Commitment"), and (ii) at or prior to Closing, an
ALTA Owner's Policy of Title Insurance on a form customarily used in the state
in which such Owned Real Property is located, issued at ordinary premium rates
by the Title Company, insuring the leasehold interest of the Buyer or its
designee , in an amount equal to the fair market value of the leasehold estates
in the Owned Real Property as created under the Closing Leases (as reasonably
determined by Buyer), insuring title to such leasehold estates to be in the name
of the party designated by Buyer on Schedule 5.3(a), subject only to and
containing no exceptions other than the Permitted Encumbrances (each a "Title
Policy").
<PAGE>
(2) Each Title Policy obtained for the benefit of Buyer or its
designee pursuant to this Agreement shall, except to the extent that the Title
Company in the state in which the applicable property is located are not
lawfully permitted to issue such policies and subject to Section 5.3(e) below,
(i) insure title to the leasehold estate in the subject Owned Real Property
described in such Policy (subject to Permitted Encumbrances) and all recorded
easements benefitting such property, (ii) contain an endorsement insuring that
the property described in the policy is the same real estate shown in the survey
delivered pursuant to Section 5.3(c) below with respect to such property, (iii)
contain a "contiguity" endorsement with respect to any property consisting of
more than one record parcel, as well as insuring the contiguity of the Parking
Lot Real Property with the Main Facility Real Property, except for
non-contiguous portions between the Parking Lot Real Property and the Main
Facility Real Property that in the aggregate (assuming that any non-contiguous
portion would constitute a bar or prohibition to the use of or access on or over
such portion) do not and would not interfere, in any material adverse respect,
with the existing use or operation (including parking and pedestrian and
vehicular access) of the Main Facility Real Property and/or the Parking Lot Real
Property, (iv) provide coverage against mechanics' and materialmen's Liens
arising out of the construction, repair or alteration of any of the subject
Owned Real Property prior to the date of Closing, (v) contain an endorsement
insuring that no covenant, restriction or agreement affecting title to the
subject Owned Real Property is violated by the existing use thereof or
improvements located thereon and that no future violation of any such covenant,
restriction or agreement will result in a forfeiture or loss of title of the
insured's interest, (vi) contain any other special endorsements reasonably
required by Buyer, including, without limitation, an endorsement, if available
in the State of New Jersey, insuring that the improvements included in such
Owned Real Property are a permitted use under the zoning designation applicable
to such Owned Real Property, and (vii) not be subject to any survey exception
containing matters other than the Permitted Encumbrances.
(3) With respect to each Owned Real Property interest as to which
a Title Policy is to be procured pursuant to this Agreement, the Stockholder
will obtain and deliver to Buyer as soon as practicable after the date of this
Agreement and before the Closing a current survey of the relevant parcel,
prepared and certified to Buyer, the Company and Stockholder and to the Title
Company by a licensed surveyor and conforming to current ALTA Minimum Detail
Requirements for Land Title Surveys, disclosing the location of all
improvements, easements, party walls, utility lines, and other Encumbrances
affecting such Owned Real Property and showing access affirmatively to a public
street or road.
(4) It shall be conditions of Buyer's obligation to consummate the
transactions contemplated hereby that with respect to each Owned Real Property
(i) all Structures are located within the boundary lines of such Owned Real
Property except for encroachments which do not materially and adversely
interfere with the existing use or operation of any of the Owned Real Property
and which encroachments the Title Company will insure Buyer or its designee,
without additional premium or charge, may remain as long as the so encroaching
Structure remains, (ii) no structures, facilities or other improvements on any
parcel adjacent to the Real Property encroach onto any portion of the Owned Real
Property except for such encroachment(s) as do not interfere, in any material
adverse respect, with the existing use or operation of any of the Owned Real
Property, (iii) the Structures do not encroach on any easement which burdens or
benefits any portion of the Owned Real Property except for such encroachments as
do not interfere, in any material adverse respect, with any existing use,
operation or benefits of such easement, (iv) all Owned Real Property
constituting more than one parcel is contiguous, and that the Parking Lot Real
Property is contiguous with the Main Facility Real Property, such contiguity to
be without gaps or gores except for such non-contiguity between the Parking Lot
Real Property and the Main Facility Real Property that in the aggregate
(assuming that any non-contiguous portion would constitute a bar or prohibition
to the use of or access upon or over such portion) does and would not interfere,
in any material adverse respect, with the existing use and operation (including
parking and pedestrian and vehicular access) of the Main Facility Real Property
and/or the Parking Lot Real Property, and (v) the survey to be delivered to
Buyer pursuant to Section 5.3(c) above shall show that the Main Facility Real
Property and the Parking Lot Real Property to be leased pursuant to the Closing
Leases constitute, in all material respects, the same property shown outlined in
the diagram attached hereto as Schedule 5.3(d) and made a part hereof.
<PAGE>
(5) The Stockholder shall be responsible for all costs associated
with obtaining the title commitments and surveys described above, and if Buyer,
in its sole discretion, elects to purchase title insurance, Buyer shall be
responsible for the costs of purchasing the Title Policies described above and
endorsements thereto including all costs in connection with the endorsements
required under clause (vi) of Section 5.3(b) above; provided, however, that it
shall be a further condition of Buyer's obligation to consummate the
transactions contemplated hereby that all title policy endorsements referred to
in this Section 5.3 (other than the endorsements referred to in clause (vi) of
Section 5.3(b) above) be issued by the Title Company to Buyer or its designee
without additional premium or charge to Buyer or its designee.
5.4 Employee Benefit Plans. With respect to any Company Plan or
Company Benefit Arrangement that is not terminated or merged into an existing
Workflow Plan or benefit arrangement substantially contemporaneously with the
Closing, the Stockholder shall use reasonable efforts to cooperate with the
Company, Buyer and Workflow during the one (1) year period beginning on the
Closing Date to assist the Company, Buyer and Workflow in their administration
and maintenance of such Company Plan or Company Benefit Arrangement.
5.5 Related Party Agreements. Except for those leases or
arrangements set forth on Schedule 5.5, the Company and/or the Stockholder, as
the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company or Stockholder to terminate. Without limiting the
generality of the foregoing, all indebtedness for borrowed money owed by the
Company to the Stockholder shall be extinguished prior to the Closing Date by
payment of such amounts to the Stockholder, provided however, that any funds
borrowed by the Company to enable such payment, together with those used to
provide distributions to Stockholder, do not cause the maximum Accepted
Indebtedness to be exceeded.
5.6 Cooperation.
(1) 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 management representation letters and similar documentation
reasonably required by Buyer's independent public accountants (in connection
with such accountant's audit of the Company) or the Nasdaq National Market.
(2) 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.
(3) Each party hereto shall cooperate in obtaining all consents
and approvals required under this Agreement to effect the transactions
contemplated hereby
<PAGE>
(4) In order to calculate the Certified Closing Net Worth and the
Actual Company Net Worth, (i) the physical inventory taken of the Company's
inventory in December, 1998 shall be utilized as a baseline and brought forward
to the Closing Date for use in the computing the Certified Closing Net Worth and
(ii) an additional physical inventory shall be taken shortly after the Closing
Date and rolled back to the Closing Date for purposes of the Post-Closing Audit
and computation of the Actual Company Net Worth. The value of the inventory will
be calculated in accordance with GAAP (lower of cost or market on a first-in,
first-out (FIFO) basis), and will include, in all material respects, all
inventory owned by the Company, but will exclude BNS goods.
5.7 Access to Information; Confidentiality; Public Disclosure.
(1) 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.
(2) 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 use any of such information or 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 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.
(3) Buyer will give Stockholder an opportunity to review in
advance and give comments on any press releases or public announcements made by
Buyer regarding the transactions contemplated by this Agreement. From and after
such time as Buyer makes such press release or public announcement, Stockholder
and the Company may also make public disclosures consistent with those made by
Buyer.
<PAGE>
(4) Except as provided in Section 5.7(c) above, 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 which approval shall
not be unreasonably withheld; provided, however, that the Company may make such
disclosure to its professional advisors, lenders, executive officers and parties
from whom the Company must obtain consents or approvals in connection with the
transactions contemplated hereby. 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 otherwise expressly set forth
herein or as requested or agreed by Buyer):
(1) 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;
(2) 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;
(3) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights (other than Diminimus
Violations);
(4) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(5) use 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;
(6) maintain compliance with all Permits, Laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities (other than Diminimus
Violations);
(7) except as expressly contemplated hereby, maintain present debt
and lease instruments and not enter into new or amended debt or lease
instruments; and
(8) 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.
(9) provide Buyer with a copy of any Tax Returns (other than any
estimated tax returns, payroll tax returns or sales tax returns) or amendments
to a Tax Return filed on behalf of the Company on or after the date hereof.
<PAGE>
5.9 Prohibited Activities. Between the date hereof and the Closing
Date, except as expressly contemplated hereby, the Company will not, without the
prior written consent of Buyer:
(1) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(2) 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;
(3) 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; provided however,
that Stockholder shall be permitted to cause the Company to make cash
distributions to Stockholder from funds drawn down on the Company's existing
banking lines or from cash on hand, limited to an aggregate amount of
distributions and funds used in repayment of the Company's debt to Stockholder
which would not cause the maximum Accepted Indebtedness to be exceeded;
(4) except as expressly contemplated hereby, enter into any
contract or commitment or incur or agree to incur any liability or make any
capital expenditures, or guarantee any indebtedness, except (i) in the ordinary
course of business and consistent with past practice in an amount not in excess
of $10,000 and (ii) purchase orders with customers and suppliers in the ordinary
course of business.
(5) except to the extent permitted by Section 5.8(h) above,
increase the compensation payable or to become payable to the Stockholder or 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;
(6) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(7) 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;
(8) 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>
(9) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(10) 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;
(11) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(12) enter into any other transaction (i) with a party affiliated
with the Stockholder or the Company or any officer or director of the Company
that is not negotiated at arm's length or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(13) commence a lawsuit other than for routine collection of bills
(provided however, that Buyer will not unreasonably withhold its consent to such
commencement);
(14) 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;
(15) 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 or enter into
any closing agreement or settle any tax claim or assessment;
(16) 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; or
(17) lend any funds to employees of the Company such that the
aggregate amount outstanding at any one time exceeds $25,000.
<PAGE>
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) engage
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.
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 New Jersey ISRA Compliance.
(1) Stockholder, Fee Owner and the Company shall comply with the
provisions of the New Jersey Industrial Site Recovery Act ("ISRA"), N.J.S.A.
Section 13:1k-6 et seq., including, without limitation, submitting all required
filings and undertaking all required investigations and remedial actions, with
respect to the transactions provided for in this Agreement, including the sale
of the stock of the Company to Buyer and the distribution by the Company of the
Owned Real Property to the Fee Owner. All costs and expenses relating to ISRA
compliance shall be borne by the Stockholder (and not the Company), provided
however, that if for convenience any of such costs and expenses are paid by,
charged to, or advanced by the Company, such amounts will reduce the calculation
of the Certified Closing Net Worth and the Actual Company Net Worth. Buyer will
cooperate with Stockholder and the Company in seeking ISRA compliance with
respect to the purchase of shares of the Company, but all of Buyer's out of
pocket expenses relating thereto, shall be reimbursed by Stockholder at the
Closing; such reimbursement of Buyer's pre-Closing expenses shall be subject to
a maximum amount of $5,000.
<PAGE>
(2) From and after the execution and delivery of this Agreement,
Stockholder and the Company shall file (if not already filed prior to the date
hereof) and shall continue to diligently prosecute, a General Information Notice
and Preliminary Assessment Report with the New Jersey Department of
Environmental Protection ("NJDEP") and provide any additional filings, studies,
information and documentation requested by NJDEP under applicable legal
requirements. Unless it appears that an NFA(as defined below) will be readily
issued by NJDEP prior to the Outside Date(as defined in Section 10.1(b) hereof),
then Stockholder and the Company shall file and diligently prosecute an
application for a Remediation Agreement (as defined below) and prosecute the
same with the objective of having such Remediation Agreement approved by the
NJDEP prior to the Outside Date. Stockholder and the Company shall file with or
obtain from the NJDEP the items set forth on Schedule 5.13 (b) by no later than
the dates set forth on such schedule.
(3) On or prior to the Closing Date, as a condition precedent to
the obligations of Buyer to consummate the transactions under this Agreement,
either:
(1) the Stockholder and the Company shall have obtained
from the NJDEP either (i) a negative declaration, (ii) a no further action
letter ("NFA"), or (iii) a letter of non-applicability ("LNA"), with respect to
the Owned Real Property; or
(2) the Stockholder and NJDEP, shall have entered into a
Remediation Agreement meeting the requirements set forth in Section 5.13(e)
below and otherwise reasonably acceptable to Stockholder and Buyer, with respect
to the Owned Real Property("Remediation Agreement"), and the Stockholder shall
have provided all financial security required under such Remediation Agreement
to NJDEP.
Furthermore, on the Closing Date, the LNA previously obtained by the Company
from the NJDEP with respect to the warehouse leased by the Company at
1310-1322-1324 Jefferson Street, Hoboken, New Jersey, shall remain in effect and
shall not have been revoked or amended.
(4) In the event that upon the expiration of Outside Date (as
defined in Section 10.1(b) hereof) the NJDEP has failed to issue a negative
declaration, NFA or LNA with respect to the Owned Real Property and the
Stockholder and NJDEP have failed to enter into the Remediation Agreement, then,
unless the parties shall otherwise agree in writing, this Agreement may be
terminated in accordance with the terms of Section 10.1(b) hereof.
(5) The Remediation Agreement shall be substantially in the form
set forth in the regulations of the NJDEP and shall obligate the Stockholder
after the Closing to satisfy the requirements under ISRA and under such
Remediation Agreement to investigate and remediate the Owned Real Property.
Stockholder shall be responsible for all costs incurred by Stockholder, the
Company, Buyer or Workflow in complying with the Remediation Agreement.
Stockholder alone shall execute the Remediation Agreement as the only party
responsible for ISRA compliance if permitted by NJDEP. If NJDEP will not permit
Stockholder to be the only party executing the Remediation Agreement, then in
addition to Stockholder, the Company shall execute the Remediation Agreement;
provided however, that as between the Stockholder, the Company, Buyer and
Workflow, Stockholder shall remain responsible for all costs incurred by
Stockholder, the Company, Buyer or Workflow in complying with ISRA and the
Remediation Agreement. Stockholder shall be exclusively responsible for
establishing and maintaining any "remediation funding source" required by NJDEP
pursuant to ISRA, without recourse against any other party hereto, whether or
not such parties sign the Remediation Agreement. Notwithstanding the terms and
conditions of any Remediation Agreement, Stockholder shall continue to indemnify
the Buyer Indemnified Parties(as defined in Section 8.1 hereof) pursuant to
Section 8 of this Agreement for all compliance with ISRA and the Remediation
Agreement.
<PAGE>
(6) Buyer and its attorneys and environmental consultants shall be
entitled to participate with Stockholder in the review and negotiation with the
NJDEP of the Remediation Agreement and any remediation plans and programs
established pursuant to the Remediation Agreement; to review and monitor the
filing with the NJDEP of all documents, studies, plans and programs pursuant to
the Remediation Agreement; and to review and monitor the carrying out of all
remediation activities with respect to the Owned Real Property pursuant to the
Remediation Agreement or to otherwise comply with ISRA. Stockholder and the
Company shall cooperate in the exchange of necessary information to carry out
these activities. Remediation plans and programs entered into pursuant to the
Remediation Agreement with respect to the Owned Real Property, and filing of
documents, studies, plans and programs with the NJDEP pursuant to the
Remediation Agreement, shall be subject to the reasonable approval of the Buyer
on a case by case basis, in the event that any such plan, program or filing (1)
would materially interfere with the business operations of the Company, Buyer or
Workflow or (2) would impose any liability or obligation on the Company, Buyer
or Workflow (other than (A) diminimus amounts and (B) non-monetary liabilities
and obligations which do not materially interfere with the business operations
of the Company, Buyer or Workflow). Stockholder shall, and shall cause its
consultants and contractors, to provide the Buyer will copies of all
investigative reports and studies and all filings and documentation relating to
the Remediation Agreement, as well as all correspondence with the NJDEP or other
governmental agencies relating to the Remediation Agreement.
(7) Stockholder shall undertake responsibility for carrying out
all investigative and remediation activities required by the NJDEP pursuant to
the Remediation Agreement and any remediation plans and programs required by the
Remediation Agreement through and including obtaining a final NFA clearance from
NJDEP with respect to the Remediation Agreement, and Stockholder shall retain at
its own expense all necessary consultants and contractors, which shall be
subject to the reasonable approval of Buyer. The Company shall grant access to
the Owned Real Property to Stockholder and his approved consultants and
contractors in order to carry out such investigative and remediation activities
approved by Buyer pursuant to Section 5.13(f) above, upon their execution and
delivery of customary access agreements with the Company and the delivery of
customary insurance certificates naming the Company, Buyer and Workflow as
additional named insureds. In the event that Stockholder shall fail to carry out
the requirements of the Remediation Agreement or any remediation plan or program
pursuant to the Remediation Agreement to NJDEP's satisfaction, then the Company,
Buyer or Workflow may, but shall not be obligated to, cause such requirements to
be completed, at Stockholder's exclusive cost and expense. The indemnification
by Stockholder to the Buyer Indemnified Parties set forth in Section 8 of this
Agreement shall include, without limitation, all activities of Stockholder and
its consultants and contractors undertaken pursuant to the Remediation Agreement
and any remediation plan or program thereunder. All activities of Stockholder
and its consultants and contractors undertaken pursuant to the Remediation
Agreement and any remediation plan or program thereunder shall be carried out in
accordance with schedules mutually agreed between Stockholder and the Company,
with a minimum of disruption to the Company's normal business operations, and in
compliance with applicable law.
<PAGE>
(8) In the event that prior to the expiration of the Outside Date,
the NJDEP shall require that remediation be undertaken as a condition of issuing
a negative declaration or NFA, and cost of such remediation is estimated to be
less than $50,000 and such remediation can be completed on or prior to the
Outside Date such that an NFA can be obtained by the Outside Date and without
any material disruption of the Company's business operations, then Stockholder
shall cause such remediation to be performed and completed by the Outside Date.
The costs and expenses of such remediation shall be considered an ISRA
compliance expense payable in the manner set forth in Section 5.13(a). In the
event that the NFA is not obtained by the Outside Date and the estimated cost of
remediation to be undertaken pursuant to a proposed Remediation Agreement with
the NJDEP is less than $50,000, then Stockholder shall be required to enter into
a Remediation Agreement on or before the Outside Date and Stockholder shall
cause such remediation to be performed and completed in accordance with the
Remediation Agreement. Stockholder and the Company shall be permitted to
negotiate with the NJDEP and seek a less costly remediation, provided this does
not delay completing ISRA compliance activities and obtaining the NFA or
Remediation Agreement by the Outside Date.
(9) In the event that prior to the expiration of the Outside Date,
the NJDEP shall require that remediation be undertaken as a condition of issuing
a negative declaration or NFA, or of entering into a Remediation Agreement, and
the estimated cost of such remediation is in excess of $50,000, then Stockholder
shall not be required to cause such remediation to be performed or to enter into
a Remediation Agreement, and unless the parties shall otherwise agree in
writing, this Agreement may be terminated in accordance with the terms of
Section 10.1(b) hereof. Notwithstanding the foregoing, Stockholder may elect to
expend more than $50,000 to effectuate remediation if (A) such remediation and
issuance of the NFA can be completed prior to the Outside Date and will not
cause material disruption to the Company's business operations or (B) a
Remediation Agreement is entered into on or prior to the Outside Date, and in
the event Stockholder so elects, this Agreement shall not be terminated pursuant
to this Section 5.13(i), provided that in the case of an NFA, so long as such
remediation is completed and the NFA is obtained by the Outside Date; all costs
and expenses of such remediation shall be considered an ISRA compliance expense
payable in the manner set forth in Section 5.13(a).
(10) Stockholder shall cause the Fee Owner to cooperate and comply
with the requirements of this Section 5.13, including without limitation, the
granting of access, consent and permission under the lease to the Company of the
Owned Real Property.
(11) The provisions of this Section 5.13 shall survive the
execution and delivery of this Agreement and the occurrence of the Closing.
(12) The term "remediation" as used in this Section 5.13 shall
have the definition set forth in NJAC 7:26E-1.8. A termination by Stockholder or
Buyer or failure to enter into a Remediation Agreement under Section 5.13(h) or
5.13(i) due to costs of remediation being in excess of $50,000 shall not in and
of itself be considered a failure to fulfill any obligation under this Agreement
for purposes of Section 10.1(b).
<PAGE>
5.14 Workflow Obligations.
(1) Workflow, by its execution and delivery of this Agreement,
confirms and agrees for the benefit of Stockholder that (i) all of the
representations and warranties of Buyer made in Section 4 of this Agreement with
respect to Workflow are true and correct; (ii) subject to the satisfaction of
all conditions precedent set forth in Section 6 of this Agreement, Workflow
shall cause Buyer to carry out its obligations to consummate the closing of the
transactions set forth in this Agreement; and (iii) if the Closing occurs,
Workflow shall cause Buyer to carry out its obligations to pay the Purchase
Price as determined under this Agreement, and to the extent it fails to do so,
Workflow hereby guarantees and agrees to make such payment of the Purchase Price
(inclusive of the Earn-Out as determined pursuant to Section 1.7 hereto) as
determined pursuant to this Agreement.
(2) The obligations of Workflow under this Agreement shall be
subject to all set-offs, offsets, adjustments and defenses that the Buyer would
have, or is entitled to have, under this Agreement, and Workflow may enforce all
rights and remedies of Buyer under this Agreement.
(3) The obligations of Workflow under this Agreement are solely
for the benefit of the Stockholder and no provision of this Agreement is
intended, nor will any provision be interpreted, to create any obligations of
Workflow to any creditor, claimant, client, customer, or employee of Buyer or
the Company.
5.15 Miscellaneous Assets
(1) On or prior to the expiration of the term of the Consulting
Agreement between the Principal Stockholder and the Company, the Principal
Stockholder may, at his own expense, remove from the Company's premises the
artwork set forth on Schedule 5.15(a) hereto, and the Company shall have no
claim or interest in such artwork. Stockholder shall indemnify the Buyer
Indemnified Parties (as defined in Section 8 hereof) pursuant to Section 8
hereof for any claim of any third party to such artwork.
(2) Prior to the Closing, the Company shall distribute and convey
to the Fee Owner or its designee the Pine Barrens Real Property identified on
Schedule 5.15(b) hereto. Such transfer shall be "AS IS" and without recourse to
the Company or the Buyer. All documentation utilized to effectuate such
transaction shall be provided to Buyer in advance of the Closing, and shall be
reasonably satisfactory to Buyer. There shall be no reduction to the Net Worth
Target with respect to such distribution. All Taxes and other transaction fees
and expenses relating to the distribution and conveyance of such real estate by
the Company to the Fee Owner shall be borne exclusively to the Stockholder (and
not the Company). Stockholder shall indemnify the Buyer Indemnified Parties
pursuant to Section 8 hereof for any claim of any third party to such Pine
Barrens Real Property.
<PAGE>
(3) Prior to the Closing, the Company shall assign to the
Principal Stockholder all right, title and interest the Company may have in a
term life insurance policy on the life of the Principal Stockholder, and the
beneficiary of such policy shall be changed to a beneficiary designated by the
Principal Stockholder. All Taxes and other transaction fees and expenses
relating to such transfer shall be borne exclusively by the Stockholder (and not
the Company).
(4) In the event that the Company recovers actual payments in its
currently pending tax certiorari proceeding against the City of Hoboken which
are attributable to periods prior to the Closing Date, such payments shall be
transferred to Stockholder, less any expenses incurred by the Company after the
Closing in connection with such proceeding.
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 in all material
respects 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 in all
material respects; and a certificate to the foregoing effects dated the Closing
Date and signed on behalf of the Company and by 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 (other than those relating to Buyer) dated the Closing
Date and signed on behalf of the Company and the 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 other than as disclosed in the Schedules hereto; and Buyer shall have
received a certificate signed by the Stockholder 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 Buyer, Company and the Stockholder of the transactions
contemplated hereby, including without limitation, those set forth on Schedule
3.3 and Schedule 3.19(d), shall have been obtained and made.
6.5 Opinion of Counsel. Buyer shall have received an opinion from
counsel to the Company and the Stockholder, dated the Closing Date,
substantially in the form of Exhibit E attached hereto.
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.
6.7 Financial Statements. Buyer shall have received from the
Company completed financial statements for the calender quarters ended March 31,
June 30 and September 30, 1998, and for the quarter and fiscal year ended
December 31, 1998, in a form reasonably satisfactory to Buyer.
6.8 Company Deliveries. The Company shall have made such
deliveries as are called for by this Agreement.
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:
(1) the net worth of the Company as of the last day of its fiscal
year ending December 31, 1997 (the "Certified 1997 Net Worth");
(2) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(3) the sales of the Company for the fiscal year ending December
31, 1997 (the "Certified 1997 Sales");
(4) the sales of the Company for the fiscal year ending December
31, 1998 (the "Certified 1998 Sales");
(5) the earnings of the Company before interest, tax and
depreciation (after the addition of "add-backs" set forth on Schedule 3.9(c) and
assuming an annual rental expense of $370,000) for the fiscal year ending
December 31, 1997 (the "Certified 1997 Profits");
(6) the earnings of the Company before interest and taxes (after
the addition of "add-backs" set forth on Schedule 3.9(c) and assuming an annual
rental expense of $370,000) for the fiscal year ending on December 31, 1998 (the
"Certified 1998 Profits"); and
<PAGE>
(7) the sum of the Company's total outstanding long term and short
term indebtedness to (i) banks and (ii) 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
course of the Company's business consistent with past practice and excluding
debt to the Stockholder) 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, the Actual Company Net Worth and the Certified 1998 Profits
(1) the Company shall not take account of any increase in intangible assets
other than accounts receivable (including without limitation goodwill,
franchises and intellectual property) accounted for after December 31, 1997, (2)
the determination shall be calculated after giving effect to any expenses
incurred by the Company (or incurred by the Stockholder but paid by, charged to
or advanced by the Company) in connection with the transactions contemplated by
this Agreement, including, without limitation, costs of ISRA compliance pursuant
to Section 5.13 hereof and (3) inventory will be valued in accordance with GAAP
(lower of cost or market) on a First-In, First-Out (FIFO) Basis, and will
include, in all material respects, all inventory owned by the Company, but will
exclude BNS goods.
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. (a) Frank Pauza shall have entered
into an employment agreement with the Company substantially in the form of
Exhibit A hereto and (b) Irwin Greenberg shall have entered into an employment
agreement with the Company substantially in the form of Exhibit G hereto.
6.12 Lease/Real Estate Matters. (1) The Company shall have
distributed and conveyed the Company's Main Facility Real Property to the Fee
Owner in accordance with Section 1.8 hereof, and the Fee Owner and the Company
shall have entered into a lease of such Real Property in the form of Exhibit B
hereto.
(2) The Article Third Trust under the Will of Ruth L. Batkin and
the Company shall have entered into a lease of the Parking Lot Real Property, in
the form of Exhibit C hereto.
(3) With respect to any new mortgages placed on the Main Facility
Real Property or the Parking Lot Real Property, the Company shall have obtained
a non-disturbance agreement executed by the mortgagee thereof in form and
substance satisfactory to Buyer.
6.13 Consulting Agreement. The Stockholder shall have entered into
a consulting agreement with the Company in the form of Exhibit D hereto.
6.14 ISRA Clearance. The Company and the Stockholder shall have
satisfied the requirements of Section 5.13 and Buyer shall have received
satisfactory documentation proof.
<PAGE>
6.15 Other Closing Deliveries. Buyer shall have received all other
documents and instruments, duly executed and delivered by Stockholder, the
Company and/or third parties, as required by this Agreement or otherwise
necessary to effectuate the purposes of this Agreement.
6.16 Environmental Studies. (1) Buyer shall have obtained
completed PHASE I and PHASE II environmental studies performed by an
environmental consultant retained by Buyer with respect to the Company's Owned
Real Property, which studies, subject to Sections 6.16(b) and (c) below, shall
be satisfactory to Buyer. The cost of environmental studies performed by Buyer's
Consultant shall be borne by Buyer; provided however, that if the NJDEP requires
the use of information generated by such Phase II study in connection with the
ISRA clearance referred to in Section 5.13, then Buyer and Stockholder shall
share equally the cost of such Phase II study by Buyer's consultant; provided
however, that Stockholder's maximum obligation for the cost of such study shall
be $8,000.
(2) In the event that the Phase I or Phase II environmental
studies by Buyer's consultant reveal conditions that in Buyer's reasonable
opinion require that remediation be undertaken, and the cost of such remediation
is less than $50,000, such remediation can be completed within sixty (60) days
and without any material disruption of the Company's business operations, and
such conditions do not involve a material violation of Environmental Law, then
(1) such conditions shall not, in and of themselves, preclude the consummation
of the transactions contemplated hereby; (2) Stockholder shall be required to
bear the entire cost of such remediation and the securing of any necessary
Permits or approvals under applicable Environmental Laws (3) Stockholder and any
transferee of the Owned Real Property shall cooperate with Buyer, both before
and after the Closing, in carrying out such remediation and securing such
permits and approvals, and (4) Stockholder shall remain obligated to indemnify
the Buyer Indemnified Parties pursuant to Section 8 for such conditions.
(3) In the event that the Phase I or Phase II environmental
studies by Buyer's consultant reveal conditions that in Buyer's reasonable
opinion require that remediation be undertaken, and the cost of such remediation
is either in excess of $50,000, or would cause material disruption of the
Company's business operations, or would require more than sixty (60) days to
perform or such conditions involve a material violation of any Environmental
Law, then unless the parties shall otherwise agree, this Agreement may be
terminated in accordance with Section 10.1(b) hereof. Notwithstanding the
foregoing, Stockholder may elect to expend more than $50,000 (and bear such
expense) to effectuate remediation if such remediation can be completed prior to
the Outside Date and will not cause material disruption of the Company's
business and the conditions do not involve a material violation of Environmental
Law, and in the event Stockholder so elects, this Agreement shall not be
terminated pursuant to this Section 6.16(c) so long as such remediation is
completed prior to the Outside Date.
6.17 Facility Engineering Studies. Buyer shall have obtained, at
its own expense, a completed study performed by a facilities engineering
consultant retained by Buyer with respect to the Company's facility at the Owned
Real Property, which shall be reasonably satisfactory to Buyer.
<PAGE>
6.18 Release of Company Guarantees of Personal Debt.
Simultaneously with the Closing, the Company shall have been released from any
guarantees and/or obligations it may have of personal indebtedness of
Stockholder, including without limitation, mortgage indebtedness relating to the
Owned Real Property and other debt set forth on Schedule 6.18 hereto.
6.19 Certified Resolutions. Buyer shall have received resolutions
of the Board of Directors and Shareholders of the Company authorizing the
transactions contemplated by this Agreement certified by the Principal
Stockholder.
6.20 Greenberg Release. The Buyer shall have received a release,
in favor of the Company, Buyer and Workflow, executed and delivered by Irwin
Greenberg, in the form of Exhibit H hereto.
6.21 Payoff Documentation. The Buyer shall have received, with
respect to the Accepted Indebtedness and any other debt set forth on Schedule
6.18 hereto (a) payoff letters from the holders of such debt confirming the
total indebtedness to be paid to such holders as of the Closing Date in order to
extinguish such debt and (b) UCC-3 termination statements, mortgage
satisfactions and other similar documentation executed by the holders of such
debt in form for filing, such documentation to be held in escrow by counsel to
Buyer pending the Closing and receipt by such holders of Buyer's payoff of the
Accepted Indebtedness and Stockholder's payoff of the debt set forth on Schedule
6.18 hereto.
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 in all material respects 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 in all material respects; 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.
<PAGE>
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
(other than those relating to Stockholder or the Company) 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 Stockholder, Company or Buyer of the transactions contemplated
herein, shall have been obtained and made.
7.4 Consulting Agreement. The Company shall have afforded
Stockholder an opportunity to enter into a consulting agreement with the Company
in substantially the form of Exhibit D hereto.
7.5 Lease/Real Estate Matters. After distribution and conveyance
of the Company's Main Facility Real Property to the Fee Owner, the Company and
the Fee Owner shall have entered into a lease of such property substantially in
the form of Exhibit B hereto.
7.6 Release of Personal Guarantees. Simultaneous with the Closing,
the Buyer shall either (a) at its own expense, pay off and extinguish the
Accepted Indebtedness and use reasonable commercial efforts to obtain a release
of Stockholder from all personal guarantees he may have given of such Accepted
Indebtedness or (b) obtain a release of Stockholder from all personal guarantees
he may have given of such Accepted Indebtedness.
7.7 Opinion of Counsel. Stockholder shall have received an opinion
from counsel to the Buyer, dated the Closing Date, substantially in the form of
Exhibit F hereto.
7.8 Other Closing Deliveries. Stockholder shall have received all
other documents and instruments, duly executed and delivered by Buyer, Workflow
and/or third parties, as required by this Agreement or otherwise reasonably
necessary to effectuate the purposes of this Agreement.
7.9 ISRA Clearance. The Company shall have received ISRA clearance
required by Section 5.13(c) of the transactions contemplated by this Agreement.
7.10 Certified Resolutions. Stockholder shall have received
resolutions of the Board of Directors and sole shareholder of Buyer and the
Board of Directors of Workflow authorizing the transactions contemplated hereby,
certified by an officer of Workflow and Buyer.
<PAGE>
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholder. The Stockholder
covenants and agrees to indemnify, defend, protect and hold harmless Buyer,
Workflow and, from and after the Closing, the Company and their respective
officers, directors, employees, stockholders, assigns, successors and affiliates
(individually, a "Buyer Indemnified Party" and collectively, "Buyer Indemnified
Parties") from, against and in respect of:
(1) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments effectuated in accordance with Section 8.3
hereof, 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 Buyer Indemnified Parties in connection with, resulting from or arising out
of, directly or indirectly:
(1) 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
pursuant hereto; or
(2) any nonfulfillment of any covenant or agreement by
the Stockholder or, prior to the Closing Date, the Company, under this
Agreement; or
(3) 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
expressly exempted from disclosure under the terms and conditions of this
Agreement;
(4) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), and 3.27
(conformity with law; litigation);
(5) the distribution and conveyance of the Company's
Main Facility Real Property to the Stockholder pursuant to Section 1.8 hereof;
(6) the applicability of ISRA to the transactions
contemplated by this Agreement and the compliance with the requirements of ISRA
and any remediation or remediation agreement pursuant to ISRA; or
(7) any Closing Date Withdrawal Liability.
(2) 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>
(1) there shall be no liability for indemnification under Section
8.1 unless, and solely to the extent that, the aggregate amount of Damages
exceeds $50,000 (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 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), and 3.26 (taxes); (iii) Damages
described in Sections 8.1(a)(v), (vi) or (vii); and (iv) existing litigation and
other matters disclosed on Schedule 3.27.
(2) the aggregate amount of the Stockholder'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 Section 3.26 (taxes) or Damages described in Sections
8.1(a)(v), (vi) and (vii) and existing litigation and other matters disclosed on
Schedule 3.27 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);
(3) the indemnification obligations of Stockholder 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):
(1) (1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 8.2(c), thirty-six (36)
months after 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 Sections 8.1(a)(ii),
(v), (vi), or (vii) and existing litigation and other matters disclosed on
Schedule 3.27 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
(2) the final resolution of claims or demands asserted
and pending as of the relevant dates described in clause (i) of this Section
8.2(c) (such claims referred to as "Pending Claims").
(4) Notwithstanding any other provision of this Agreement, it is
not intended that there be more than one recovery of indemnification for the
same claim from Stockholder by reason of the fact that the Company, as well as
the Stockholder, has made representations, warranties and covenants to the Buyer
under this Agreement.
<PAGE>
8.3 Indemnification Procedures. All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(1) In the event that any Buyer Indemnified Party or Stockholder
Indemnified Party (as defined in Section 8.7 below) (each an "Indemnified
Party") has a Claim against any party obligated to provide indemnification
pursuant to Section 8.1 hereof (with respect to a claim by the Buyer Indemnified
Parties) or Section 8.7 hereof (with respect to a claim by the Stockholder
Indemnified Parties) (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, the Indemnified Party and the Indemnifying Party shall 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). In the event
that after such time period, the parties cannot resolve an objection to such
Claim by the Indemnified Party, then the Indemnified Party and the Indemnifying
Party shall be free to pursue their legal and contractual remedies with respect
to such Claim.
(2) (1) 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 promptly after learning of the claim 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>
(2) In the event that 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 to the extent the claim is
subject to indemnification pursuant to Section 8 hereof 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.
(3) If at any time, in the reasonable opinion of a Buyer
Indemnified Party, notice of which shall be given in writing to the Stockholder,
any Third Party Claim seeks material prospective relief which could have an
adverse effect on any Buyer Indemnified Party or the Company or any subsidiary,
the Buyer 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 Buyer 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.
(3) 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.
(4) 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.
(5) 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, if, after making commercially reasonable efforts, the
Indemnified Parties' claim or portion thereof has not been paid by the insurer.
In the event that an Indemnifying Party has actually paid an amount in respect
of a Claim and the Indemnified Party, subsequent thereto, actually receives
payment of insurance proceeds with respect to such Claim, the Indemnified Party
shall remit such proceeds to the Indemnifying Party, but not in excess of
amounts actually paid by the Indemnifying Party to the Indemnified Party in
respect of such Claim.
<PAGE>
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
for the periods referred to in Section 8.2(c). The representations of Buyer will
survive the Closing and will remain in effect until, and will expire, thirty-six
(36) months after 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 under Section 8.1 hereof.
8.7 General Indemnification of Buyer.
(1) Buyer covenants and agrees to indemnify, defend, protect and
hold harmless the Stockholder and his heirs and personal representatives (each a
"Stockholder Indemnified Party" and collectively, "Stockholder Indemnified
Parties") from and against:
(1) all Damages suffered, sustained, incurred or paid by
the Stockholder Indemnified Parties in connection with, resulting from or
arising out of, directly or indirectly;
(1) any breach of any representation or warranty of
Buyer or Workflow set forth in this Agreement or any certificate delivered by or
on behalf of Buyer or Workflow in connection herewith; or
(2) any nonfulfillment of any covenant or agreement
on the part of Buyer or Workflow in this Agreement;
(2) any and all Damages incident to any of the foregoing or
to the enforcement of this Section 8.7.
(2) There shall be no liability for indemnification under this
Section 8.7 unless, and solely to the extent that, the aggregate amount of
Damages under this Section 8.7 exceeds the Indemnification Threshold, as defined
in Section 8.2(a), provided, however, that the indemnification threshold shall
not apply to (i) payments of the Purchase Price, or (ii) Damages arising out of
any breaches of the covenants of Buyer or Workflow set forth in this Agreement.
(3) The aggregate amount of Buyer's liability under this Section
8.7 shall not exceed an amount equal to the Purchase Price.
<PAGE>
(4) The indemnification obligations under this Section 8.7 or in
any certificate or writing furnished by Buyer or Workflow in connection herewith
shall terminate thirty-six (36) months after the Closing Date.
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 five (5) 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:
(1) 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 locations 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 or her ownership of the Stock. As used in this Section
9.1, "Company" shall include any Merger Affiliate or Company Division which
carries on the business of the Company;
(2) hire or join with in a competitive business capacity, any
employee of the Company within the Territory;
(3) 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
(4) acquire or enter into any agreement to acquire any prospective
acquisition candidate that was, to the knowledge of the Stockholder, either
called upon by Workflow or its Subsidiaries as a prospective acquisition
candidate or was the subject of an acquisition analysis by Workflow or its
Subsidiaries 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 Workflow or its Subsidiaries had called upon such candidate
or made an acquisition analysis thereof.
<PAGE>
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the Stockholder 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. 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 from and after the Closing he will not at any time, except in performance
of Stockholders' obligations to the Company or with the prior written consent of
the Company directly or indirectly, disclose any secret or confidential
information that he or she may learn or has learned by reason of his ownership
of the Company or his or her 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.
<PAGE>
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. 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 consulting
and employment agreements entered into in connection with this Agreement. It is
specifically agreed that the period of five (5) 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 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:
(1) by mutual consent of the Board of Directors of Buyer and the
Stockholder; or
(2) by the Stockholder, on the one hand, or by Buyer, on the other
hand, if the Closing shall not have occurred on or before April 24, 1999 (the
"Outside Date"), 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
(3) by the Stockholder, 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>
(4) by the Stockholder, 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, including
without limitation, to the estate of Stockholder) 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. Notwithstanding anything
in the foregoing to the contrary, 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 or the Stockholder; provided, however that in the event
of such assignment Buyer shall continue to be liable to the Stockholder for the
payment of the Purchase Price and the assignee shall assume by written
instrument all obligations of Buyer under this Agreement.
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 10.5. 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. Disclosure of matters in any one schedule hereto shall be deemed
disclosure on the other schedules hereto if the applicable cross-reference is
logical and readily apparent.
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.
<PAGE>
10.6 Brokers and Agents. Except for the employment by Stockholder
of DAK Corporate Investors, Inc., Buyer and the Company and 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, commissions or expenses
of any broker or agent employed or alleged to have been employed by such party.
Stockholder (and not the Company) shall be solely and exclusively responsible
for, and shall indemnify the Buyer, Workflow and the Company, for all losses,
damages or expenses relating to or arising out of claims for fees, commissions
and expenses of DAK Corporate Investors, Inc.
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. Any 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 which are paid by, charged
to, or advanced by the Company will reduce the calculation of the Certified
Closing Net Worth and the Actual Company Net Worth.
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 when received 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, after the Closing, to the Company to:
Workflow Management Acquisition Corp.
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)
<PAGE>
with a required copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attn: Lawrence M. Levinson, Esq.
(Telefax: (212) 889-7577)
If to the Stockholder to:
Sanford L. Batkin
394 Grand Boulevard
Scarsdale, New York 10583
(Telefax: (201) 798-4126)
with a required copy to:
Baer, Marks & Upham
805 Third Avenue
New York, NY 10022
Attn: Stanley Bloch, Esq.
(Telefax: (212) 702-5797)
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 when actually received by the addressees. Attorneys
for either party may, but shall not be required, to give any notice on behalf of
their respective clients.
10.10 Governing Law. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of New Jersey.
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 State of
New Jersey 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.
<PAGE>
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 creditor, claimant, client, customer, affiliate, shareholder, employee or
partner of any party hereto or any other person or entity.
10.13 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.
10.14 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 ACQUISITION CORP.
By: /s/ Workflow Management Acquisition Corp.
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
UNIVERSAL FOLDING BOX CO., INC.
By:/s/ Sanford L. Batkin
----------------------------
Name: Sanford L. Batkin
Title: Chairman
PRINCIPAL STOCKHOLDER:
/s/ Sanford L. Batkin
------------------------------
Sanford L. Batkin
ADDITIONAL STOCKHOLDER:
THE SANFORD L. BATKIN ANNUITY TRUST
By:/s/ Sanford L. Batkin
-------------------------------
Sanford L. Batkin, Trustee
WORKFLOW MANAGEMENT, INC. (for the purpose
of confirming its obligations under
Section 5.14 hereof and approving Buyer's
obligations under Section 1.7 hereof)
By: /s/ Workflow Management, Inc.
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
EXHIBIT 10.49
STOCK PURCHASE AGREEMENT
BY AND AMONG
SFI OF DELAWARE, LLC
GRAPHIC MANAGEMENT CORPORATION
AND
THE STOCKHOLDERS NAMED THEREIN
MADE EFFECTIVE AS OF JUNE 2, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 2nd day of June, 1999, by and among SFI of Delaware, LLC, a Delaware
limited liability company ("Buyer") whose sole member is Workflow Management,
Inc., a Delaware corporation ("Workflow"), Graphic Management Corporation, a
Wisconsin corporation (the "Company"), and Roger Kimps, Starlene Kimps, Rebecca
Kaye, Rachael A. Kimps and Ryan M. Kimps (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 the 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) $9,783,000 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 first be applied 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 proportion to their respective holdings
of Stock as set forth on Schedule 1.2.
(ii) Certain payments shall be made to the Stockholders based upon
the "Gross Profit" of the Company, and independent from any employment
relationship any Stockholder may have with the Buyer or the Company, as
specifically set forth in Section 1.7 hereof. For purposes of the Code, 5.37% 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 June 1999 in Revenue Ruling 99 -
25.
<PAGE>
(iii) Buyer shall hold harmless and reimburse the Stockholders for
adverse Tax consequences (including additional Tax, interest and penalties) they
may suffer ("Incremental Taxes") in connection with the Section 338(h)(10)
Election (as defined in Section 5.1(c)(i)). The actual amount of Incremental
Taxes payable to the Stockholders with respect to the Cash Purchase Price
actually received by the Stockholders shall be determined in a manner consistent
with the allocation of Purchase Price (as provided in Section 5.1(c)(ii)) and by
applying the method set forth on Schedule 1.2(a)(iii). The actual amount of
Incremental Taxes which are so determined shall be paid by the Buyer to the
Stockholders no later than fifteen (15) days after 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), or within fifteen (15) days after Incremental
Taxes are otherwise incurred by the Stockholders. In addition, the Buyer shall
assume the corporate level Taxes with respect to the Company's Built-In Gain (as
defined in Section 5.1(a)(i)), as more specifically set forth in Section 5.1,
but in no event shall such assumption of liability be deemed to be "Purchase
Price" as such term is used in this Agreement.
(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 $325,000 (the "Net Worth
Target") as of the Closing; provided, however, that notwithstanding anything in
GAAP to the contrary (i) the Net Worth Target shall be calculated for purposes
of this Agreement after giving effect to any expenses incurred by the Company,
or the Stockholders and paid by the Company, in connection with the transactions
contemplated by this Agreement, (ii) for purposes of determining the Net Worth
Target, the Company's Accounts Receivable (as defined in Section 3.14) shall be
deemed to include $20,000 of reserves in addition to the reserves reflected on
the Company's books and records (the "Additional A/R Reserve"). In addition, the
parties acknowledge that the Net Worth Target has been calculated without giving
effect to the Company's historical accounting practice of recording at the end
of the month of May, 1999, revenues and gross profit attributable to
substantially completed work in process as reflected on Schedule 1.2(b). The
Stockholders have represented to the Buyer that the net worth of the Company as
of the Closing Date will exceed the Net Worth Target. The Buyer agrees that the
Stockholders may cause the Company to distribute to the Stockholders immediately
prior to Closing such cash as is necessary to cause the net worth of the Company
to approximate the Net Worth Target (any such distribution a "Permitted
Distribution"). If, as determined pursuant to the Post-Closing Audit (as defined
in Section 1.3(b)), an otherwise Permitted Distribution has caused the net worth
of the Company to be less than the Net Worth Target then, absent fraud, the
Buyer's sole remedy shall be a Purchase Price Adjustment (as defined in and
determined pursuant to Section 1.3). In addition, the Buyer acknowledges and
consents to a cash loan by Roger Kimps to the Company immediately prior to
Closing in the amount of $400,000, as evidenced by a promissory note delivered
by the Company to Roger Kimps dated June 1, 1999 and payable on June 15, 1999. A
copy of the Kimps Note is attached hereto as part of Schedule 1.2(b)("Kimps
Note").
<PAGE>
(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, 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, (i) 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, (ii) the Buyer's Accountant
shall give full effect to the Additional A/R Reserve. 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 Stockholders' Representative,
as defined in Section 1.6, 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).
(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 a Big Five accounting firm which has not
represented Buyer within the twelve (12) month period immediately prior to such
selection (the "Independent Accountant") 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 Accountant 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
<PAGE>
during the course of the Post-Closing Audit. The Independent Accountant shall
make its determination of the Purchase Price Adjustment, if any, within thirty
(30) days of its selection. The determination of the Independent Accountant
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. If the Buyer elects to receive the Purchase Price
Adjustment from the Pledged Assets and the Purchase Price Adjustment (as finally
determined pursuant to this Section 1.3) exceeds the Pledged Assets (any such
amount the "Pledged Asset Deficit"), the Stockholders shall immediately pay to
the Buyer in cash the amount of the Pledged Asset Deficit. The costs of the
Independent Accountant shall be borne by the party (either Buyer or the
Stockholders as a group) whose determination of the Company's net worth at
Closing ("Net Worth Determination") was further from the determination of the
Independent Accountant, or equally by Buyer and the Stockholders in the event
that the determination by the Independent Accountant is equidistant between the
Certified Closing Net Worth and the Actual Company Net Worth. For the purposes
of determining which party shall pay the costs of the Independent Accountant,
the Net Worth Determination of the Buyer shall be the Actual Net Worth and the
Net Worth Determination of the Stockholders as a group shall be the Certified
Closing Net Worth.
(d) In addition to the other adjustments provided for in this
Section 1.3, in the event that during the period commencing on June 2, 1999 and
ending June 1, 2000, Al Fluery directly or indirectly causes any business of a
customer identified on Schedule 1.3(d) attached hereto ("Al Fluery Accounts") to
be diverted from the Company to any other person, (the customers whose business
have been diverted are collectively referred to as "Lost Customers"), the
Stockholders shall reimburse Buyer a portion of the Cash Purchase Price
determined by multiplying $100,000 times the aggregate of the percentages set
opposite all of the Al Fluery Accounts which are Lost Customers (such
reimbursement obligation the "Stockholder Reimbursement Obligation").
Notwithstanding the foregoing, in the event that the Al Fluery Agreement as
defined in Section 5.15 is executed and delivered to Buyer within sixty (60)
days following the Closing Date, the Stockholders' foregoing obligation to
reimburse Buyer shall terminate.
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 Stockholders pursuant to Article 8, the Stockholders shall,
and by execution hereof do transfer to Kaufman & Canoles, a Virginia
professional corporation ("Escrow Agent") $391,320 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.
<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 Stockholders pursuant to Article 8 until
December 2, 1999 (the "Release Date"). Promptly following the Release Date, and
subject to the 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), and
(iii) any indemnification obligations of the Stockholders 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 paid to the Stockholders by wire transfer in same day available
funds the Cash Purchase Price, as adjusted pursuant to Section 1.2 and Section
1.3 and subject to Section 1.4.
(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.
<PAGE>
1.6 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of the Stock, by signing this Agreement,
designates Roger Kimps or, in the event that Roger Kimps is unable or unwilling
to serve, designates Rebecca Kaye, 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.
(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 or 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 the date after the Closing Date
and ending April 28, 2000 ("Initial Fiscal Period"), (ii) for each of Buyer's
next four (4) fiscal years following the Initial Fiscal Period, and (iii) the
period commencing April 25, 2004 and ending on the date that is five (5) years
after the Closing Date (such periods individually an "Annual Earn-out Period"),
the Stockholders shall be entitled to receive from the Buyer nineteen percent
(19%) 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 1.7 (such payments the "Earn-out"). Except as otherwise set forth below
in Section 1.7(b), any Earn-out due shall be payable in cash within thirty (30)
days after the last day of the Annual Earn-out Period and shall be payable to
the Stockholders in proportion to their ownership of Stock as set forth on
Schedule 1.2.
(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
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discounts, returns, artwork to the extent not paid by customers, and freight to
the extent not paid by customers. Notwithstanding the foregoing, with respect to
the Annual Earn-out Period ending on the date that is five (5) years after the
Closing Date ("Final Earn-out Period"), Net Sales shall include not only the
invoiced amount of goods sold during the Final Earn-out Period for which payment
has been received during the Final Earn-out Period, but also the invoiced amount
of goods sold during the Final Earn-out Period, payment for which is received in
the period ending on the day that is sixty (60) days after the Final Earn-out
Period ("Post Final Earn-out Period Collections"). Any Earn-out due with respect
to such Post Final Earn-out Period Collections shall be paid no later than
ninety (90) days after the Final Earn-out Period. "Cost of Goods Sold" for any
period means the cost of goods sold which are allocable to Net Sales; provided,
however, that Cost of Goods Sold shall not be reduced by any purchased
discounts, bulk purchase discounts, discounts for payment, special discounts
(other than freight discounts) or other similar incentives. Buyer shall prepare
a statement of Gross Profit for each Annual Earn-out Period (collectively,
"Earn-out Statements"); provided that with respect to the Initial Fiscal Period
there will be a statement for a portion of that year calculated in accordance
with the accounting system of the Company (the "Initial Period Company's
Statement") and an additional statement for the portion of that year calculated
in accordance with the accounting system of Buyer (after the conversion of the
Company's accounting system to Buyer's accounting system) (the "Initial Period
Buyer's Statement). Each Earn-out Statement shall be delivered to the
Stockholders' Representative no later than thirty (30) days after the last day
of each Annual Earn-out Period and with any cash payments made pursuant to
Section 1.7(a) of this Agreement. The Stockholders' Representative shall have
thirty (30) days from the receipt of any Earn-out Statement to notify the Buyer
if it disputes such Earn-out Statement. If the Stockholders' Representative has
delivered notice of such a dispute within such thirty (30) day period, then
Buyer and the Stockholders' Representative shall meet to discuss resolution of
such dispute. If within ten (10) business days thereafter, the Buyer and the
Stockholders' Representative are not able to resolve such dispute, then Buyer
shall designate the Independent Accountant to resolve such dispute. The
Independent Accountant shall review the Company's books and records and the
Earn-out Statements (and related information including all supporting work
papers and other work product) to determine the amount, if any, of the Earn-out.
The Independent Accountant 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 Accountant
shall make its determination of the Earn-out, if any, within thirty (30) days of
its selection. The determination of the Independent Accountant shall be final
and binding on the parties hereto. If there is a determination that the
Stockholders 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 Stockholders.
If there is a determination that the Buyer has paid an Earn-out in excess of
that which is due to the Stockholders for any particular Annual Earn-out Period,
then the Stockholders shall immediately refund such excess to the Buyer. In the
event the Independent Accountant makes a determination that the Stockholders are
owed an Earn-out in excess of that paid by Buyer for any particular Annual
Earn-out Period ("Earn-out Deficiency") and such Earn-out Deficiency, as a
percentage of the Earn-out paid by Buyer for the particular Annual Earn-out
Period, amounts to five (5) percent or more (or with respect to the Initial
Period Company's Statement amounts to ten (10) percent or more) then the costs
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of the Independent Accountant shall be borne solely by the Buyer. In the event
the Independent Accountant makes a determination that the Buyer has paid an
Earn-out in excess of that which is due the Stockholders for any particular
Annual Earn-out period or if the Earn-Out Deficiency, as a percentage of the
Earn-out paid by the Buyer for the particular Annual Earn-out Period, amounts to
less than five (5) percent (or with respect to the Initial Period Company's
Statement amounts to less than ten (10) percent) then the cost of the
Independent Account shall be borne solely by the Stockholders. After the
conversion of the Company's accounting system to Buyer's accounting system, the
Company shall prepare and distribute to the Stockholders, for information
purposes only, a monthly statement of Gross Profit for such month.
(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 as of the date of this Agreement
("Company Business") and without reference to the business and operations of the
Merger Affiliate. In such event, the Company Business shall be operated as a
unit of the Merger Affiliate and in a good faith manner so as not to materially
adversely effect its ability to achieve the projected Earn-out. 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 Gross
Profit (or Gross Profit Losses) of the Company Division.
(e) 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.
(f) If the Al Fluery Agreement as described in Section 5.15 is
executed and delivered to Buyer within sixty (60) days following the Closing
Date, Buyer shall pay to the Stockholders the additional sum of $100,000. In the
event the Al Fluery Agreement is not executed and delivered within such sixty
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(60) day period, then the following shall be applicable: within thirty days
following the end of the period commencing June 2, 2000 and ending June 1, 2001,
Buyer shall pay to the Stockholders, in addition to any Earn-out payment with
respect to such period, an amount determined by multiplying $100,000 times the
aggregate percentages set opposite those Al Fluery Accounts with respect to
which Al Fluery has directly or indirectly caused business to be diverted from
the Company to some other person.
(g) 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 (i) any indemnification obligations of the
Stockholders under Article 8, (ii) any Purchase Price Adjustment or Pledged
Asset Deficit owed by the Stockholders to the Buyer, but not paid, under the
terms and conditions of Section 1.3(c) or (iii) any Stockholder Reimbursement
Obligation owed but not paid by the Stockholders pursuant to Section 1.3(d).
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 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, 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):
3.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and 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
<PAGE>
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.
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 and to perform its obligations pursuant to the terms of this
Agreement. Each Stockholder 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 Board of Directors of the Company and 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 the Company and each
Stockholder, enforceable in accordance with its terms.
3.3 NO CONFLICTS.
(a) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby, and the fulfillment of the
terms hereof will not:
(i) conflict with, or result in a breach or violation of, any of
the Charter Documents;
(ii) 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 (as defined in Section 3.4), 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;
(iii) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(iv) 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.
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(b) With respect to the HSR Act, the Company and the Stockholders
are not an "acquired person" (as defined in the HSR Act and the rules and
regulations promulgated thereunder (the "HSR Regulations") that (i) is engaged
in manufacturing for purposes of the HSR Act or (ii) "holds" (as defined in the
HSR Regulations) "total assets" (as defined and calculated in accordance with
the HSR Regulations) of $10,000,000 or more.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company consists of 2,800 shares of common stock, no par value, of which 300
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 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 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
<PAGE>
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 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.
3.8 ABSENCE OF CLAIMS AGAINST COMPANY. No Stockholder has any
claims against the Company.
3.9 COMPANY FINANCIAL CONDITIONS.
(a) The Company's net worth 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, 1998 were not less than $30,164,120, and (ii) the four month period
ending April 30, 1999 were not less than $6,400,000 (calculated in accordance
with the Company's prior accounting practices);
(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 ending December 31, 1998 were not less than $2,461,999 and (ii) the
four-month period ended April 30, 1999, were not less than $260,000 (calculated
in accordance with the Company's prior accounting practices);.
(d) The sum of the Company's total outstanding long term and short
term indebtedness to (i) banks, (ii) the Stockholders, and (iii) 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 $400,000.
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 internally prepared balance sheets
as of December 31, 1996, 1997 and December 31, 1998 (the end of its most recent
completed fiscal year), and statements of income for the years ended December
31, 1996, 1997 and December 31, 1998 (collectively, the "Internally Prepared
Financials") and (b) true, complete and correct copies of the Company's
1
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unaudited balance sheet (the "Interim Balance Sheet") as of April 30, 1999 (the
"Balance Sheet Date") and statements of income, for the 4-month period then
ended (collectively, the "Interim Financials," and together with the Internally
Prepared Financials, the "Company Financial Statements"). The Company Financial
Statements have been prepared in accordance with GAAP consistently applied,
subject to (x) the omission of footnote information, (y) the Company's
historical accounting practice of recording at each month end period revenues
and gross profit attributable to substantially completed work in process and (z)
in the case of the Interim Financials, (i) to normal year-end 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 as of the date
indicated thereon, and each of the statements of income 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.
In addition, the Stockholders represent and warrant that Schedule 1.2(b)
accurately reflects the revenues and gross profit attributable to substantially
completed work in process for the month of May of 1999 in a manner consistent
with the Company's historical accounting practices.
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.
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(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.
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. 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.
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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, director, stockholder, 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.
(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
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<PAGE>
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.
(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 or any
of the Stockholders 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.
5
<PAGE>
(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.
(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) 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 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 $10,000 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 and
other assets necessary to conduct the business and operations of the Company as
they are currently being conducted, free and clear of all Liens except for such
Liens as are set forth on Schedule 3.17(a).
<PAGE>
(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.
(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; 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
<PAGE>
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.
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 fifteen (15) 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 fifteen
(15) 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.
<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 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. Except as set forth on Schedule 3.19(b), no
revenues, profits or business opportunities with respect to operations of the
nature historically conducted by the Company have been (or after Closing will be
through the direct or indirect actions of the Stockholders in their capacities
as officers, employees or agents of the Company) diverted, directed or otherwise
transferred to Student Success, Inc., Catalog Fulfillment, Inc. or any other
person or entity controlled by or otherwise affiliated with the Stockholders.
(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 5.5, 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).
<PAGE>
(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) 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 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.
<PAGE>
(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.
3.21 INVENTORY. The inventory of the Company consists of paper
inventory and supplies, goods in process and finished goods, all of which is
merchantable and fit for the purposes for which it was procured or manufactured,
all of which will be used by the Company within the twelve (12) month period
following the Closing Date, 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.
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).
<PAGE>
(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).
(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).
<PAGE>
(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.
(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:
(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;
<PAGE>
(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.
(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.
<PAGE>
(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;
(ii) the Graphic Management Corporation 401(k) and Profit
Sharing 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;
<PAGE>
(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 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 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
<PAGE>
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;
(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.
<PAGE>
(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
1999, 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.
(v) The Company has a taxable year ended on December 31, in
each year commencing 1990.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
within the previous five (5) 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.
<PAGE>
(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) 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) The Company has, since September 1, 1989, been an S
Corporation within the meaning of Section 1361 of the Code.
(c) For purposes of this Agreement:
<PAGE>
(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.
(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 (including without limitation as contemplated in Section 1.2(b) with
respect to a Permitted Distribution) 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 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;
(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;
<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 $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;
(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.
<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 (5) 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" of any nature
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 June 30,
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, except as disclosed
on Schedule 3.34, 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
<PAGE>
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 AND WARRANTIES 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.
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) assuming the accuracy of the representation and warranty of
the Company and Stockholders set forth in Section 3.3(b), 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).
<PAGE>
4.4 FINANCIAL INFORMATION. Schedule 4.4 contains copies of the
Buyer's unaudited balance sheets and income statements for its previous two
complete fiscal years ended April 25, 1999 (collectively, the "Buyer Financial
Statements"). Each balance sheet included in the Buyer Financial Statements
presents fairly the financial condition of the Buyer as of the date indicated
thereon, and each of the statements of income included in the Buyer Financial
Statements presents fairly the results of its operations for the periods
indicated thereon. Since the dates of the Buyer Financial Statements, there have
been no material changes in the Buyer's accounting policies.
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) The 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. The 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. Notwithstanding anything in the
foregoing to the contrary, Buyer assumes and shall be responsible to pay all
corporate level Taxes which are triggered in connection with the 338(h)(10)
Election that the Company incurs as a result of the Company's net recognizable
built in gain, if any, within the meaning of Section 1374 of the Code ("Built-In
Gain").
(ii) Except as set forth in Section 5.1(a)(v) with respect
to income Tax Returns for the Company for 1999, 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
<PAGE>
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) Buyer and the Company on one hand and the 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.
(iv) 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.
(v) The Stockholders 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. 1362-3(b)(3) wherein the
1999 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 Stockholders and the Company shall file income Tax
Returns for the 1999 calendar tax year in a manner consistent with the
foregoing.
(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 Stockholders 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 Stockholders 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:
<PAGE>
(i) At the Buyer's option, the Company and Stockholders 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"). The Stockholders will include any income, gain, loss, deduction, or
other tax item resulting from the Section 338(h)(10) Election on their Tax
Returns to the extent permitted by applicable law subject to reimbursement for
Incremental Taxes as described in Section 1.2(a)(iii); provided, however, that
Buyer shall be responsible for and shall pay the corporate level Tax
attributable to the Built-In Gain as set forth in Section 5.1(a)(i). Buyer and
Stockholders 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. The Stockholders 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 the Stockholders 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
ofdetermining 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 the Stockholders for review
no later than 45 days prior to the date the Section 338 Forms are required to be
filed. In the event the Stockholders object to the manner in which the Section
338 Forms have been prepared, the Stockholders' Representative 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 the Stockholders' Representative shall submit such dispute to
an independent accounting firm of recognized national standing (the "Allocation
Arbiter") selected by Buyer and the Stockholders' Representative, which firm
shall not be the regular accounting firm of Buyer or the Stockholders. 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
the Stockholders' Representative 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 Stockholders' Representative.
<PAGE>
(d) Buyer and the Stockholders agree as follows with respect to
the allocation of income 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 (including any Tax resulting from the Section 338(h)(10) Election
subject to the provisions of Section 1.2(a)(iii) above). Buyer shall be
responsible for all federal income Taxes of the Company for periods ending after
the Closing Date and any corporate level Tax resulting from the Company's
Built-In Gain.
(ii) The Stockholders will be liable for all nonfederal
income Taxes of the Company ending on or before the Closing Date, and the Buyer
and the Company will be liable for all nonfederal income Taxes of the Company
for periods ending after the Closing Date. The Stockholders shall be liable for
any state, local or foreign Tax on taxable income allocable to the Stockholders
and attributable to an election under state, local, or foreign law similar to
the election available under Section 338(h)(10) of the Code. The Buyer shall be
liable for any corporate level state, local or foreign Tax resulting from the
Company Built-In Gain and attributable to an election under state, local or
foreign law similar to the election available under Section 338(h)(10) of the
Code. If a state, local or foreign jurisdiction does not have provisions similar
to the election available under Section 338(h)(10) of the Code, the Stockholders
will be liable for Tax allocable to them resulting from the transaction
contemplated by this Agreement and the Buyer will be liable for Tax attributable
to the Built-In Gain.
5.2 ACCOUNTS RECEIVABLE. In the event that Accounts Receivable in
excess of an amount equal to the total of the reserves specified in Section 3.14
and $20,000 are not collected in full within one hundred twenty (120) days after
the Closing (such uncollected portion is referred to as "Uncollected Accounts
Receivable") 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) the Company an amount equal to the Uncollected Accounts
Receivable, and upon receipt of such payment the Company shall assign to the
Stockholders 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 Uncollected Accounts Receivable. If and when the amount subsequently
collected by Stockholders with respect to the assigned Uncollected 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
Uncollected Accounts Receivable, the Stockholders shall reassign to the Company
all of such assigned Uncollected 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 Uncollected Accounts Receivable.
5.3 INTENTIONALLY OMITTED.
5.4 INTENTIONALLY OMITTED.
<PAGE>
5.5 INTENTIONALLY OMITTED.
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
5.7 INTENTIONALLY OMITTED.
5.8 INTENTIONALLY OMITTED.
5.9 INTENTIONALLY OMITTED.
5.10 INTENTIONALLY OMITTED.
5.11 INTENTIONALLY OMITTED.
5.12 INTENTIONALLY OMITTED.
5.13 POST-CLOSING BALANCE SHEET. Within fifteen (15) business days
after Closing, the Stockholders' Representative shall deliver to Buyer a balance
sheet of the Company as of the Closing Date prepared in accordance with the
Company's historical accounting policies ("Post-Closing Balance Sheet"). Buyer
shall cooperate with the Stockholders' Representative in connection with the
preparation of such Post-Closing Balance Sheet.
5.14 PAY-OFF OF COMPANY DEBT. The Company has paid off or
otherwise satisfied all liabilities or the Company to the extent necessary to
cause the representation and warranty set forth in Section 3.9(d) of this
Agreement to be true in all respects as of the Closing Date.
<PAGE>
5.15 ADDITIONAL COVENANTS.
(a) The Stockholders agree to use their best efforts to cause (i)
Al Fluery to enter into a Confidentiality and Non-competition Agreement (the "Al
Fluery Agreement") with the Company as soon as is practicable after Closing on
such terms and conditions as are reasonably satisfactory to the Buyer and (ii)
Dan Loughney to enter into a Confidentiality and Non-competition Agreement with
the Company as soon as is practicable after Closing on such terms and conditions
as are reasonably satisfactory to the Buyer.
(b) The Stockholders agree to use their best efforts to cause Brad
Baker to enter into an Employment Agreement with the Company as soon as is
practicable after Closing on such terms and conditions as are reasonably
satisfactory to Buyer.
(c) The Stockholders agree to cause each of Catalog Fulfillment,
Inc. and Graphic Management Specialty Products, Inc. to enter into vendor
agreements with the Company on such terms as are reasonably satisfactory to
Buyer.
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.
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. Except as set forth on Schedule 6.2, 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
<PAGE>
prospects of the Company. A certificate to the foregoing effects dated the
Closing Date and signed on behalf of the Company and the 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 the Company
and 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.
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 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 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.
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 the Company as of the Closing Date (the
"Certified Closing Net Worth");
(b) the sales of the Company for the fiscal year ending December
31, 1998;
(c) the sales of the Company for the four-month period ending on
April 30, 1999;
<PAGE>
(d) the earnings of the Company before interest and taxes (after
the addition of "add-backs" set forth on Schedule 3.9(c)) for the fiscal year
ending December 31, 1998;
(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 four-month
period ending on April 30, 1999; and
(f) the sum of the Company's total outstanding long term and short
term indebtedness to (i) banks, (ii) the Stockholders and (iii) 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 course of the Company's business consistent with past
practice) as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth, 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 Stockholders and paid by the Company,
in connection with the transactions contemplated by this Agreement.
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 EMPLOYMENT AGREEMENTS. Roger Kimps shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to
Buyer.
6.12 ADDITIONAL EMPLOYMENT AGREEMENTS. All of the Company's sales
representatives and customer service representatives shall have entered into
employment agreements and/or non-competition agreements in such forms as are
reasonably satisfactory to Buyer.
6.13 ESCROW AGREEMENT. Buyer, the Stockholders and the Escrow
Agent shall have entered into the Escrow Agreement.
6.14 LEASE/REAL ESTATE MATTERS. The Gregory Company, LLC as
landlord ("Landlord"), and the Company, as tenant, shall have entered into a new
lease for the Company's principal operating facility at 360 AMS Court, Green
Bay, Wisconsin (the "Lease") in such form as is reasonably satisfactory to
Buyer.
<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; 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.
7.3 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.
7.4 EMPLOYMENT AGREEMENTS. Roger Kimps shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to Roger
Kimps.
7.5 ESCROW AGREEMENT. Buyer, the Stockholders and the Escrow Agent
shall have entered into the Escrow Agreement.
8. INDEMNIFICATION
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the
provisions of Section 1.2(a)(iii), each Stockholder, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless Buyer,
Workflow and the Company 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 or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder 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, 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), 3.27
(conformity with law; litigation), (B) 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 (C) any claim by any state or
locality that the Company is liable (with respect to its operations prior to
Closing) for any sales and use taxes in such jurisdiction or the failure of the
Company (prior to Closing) to pay any sales and use taxes due to any state or
locality; 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 $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 Stockholders set forth in this Agreement or
representations and warranties made in Sections 3.3(b) (certain matters
regarding the HSR Act), 3.4 (capital stock of the Company), 3.5 (transactions in
capital stock; accounting treatment), the last sentence of 3.10(financial
statements), 3.19 (significant customers; material contracts and commitments),
3.23 (environmental matters), 3.24(g) (independent contractors), 3.25 (employee
benefit plans), 3.26 (taxes), 3.27 (conformity with law; litigation), or (iii)
Damages described in Section 8.1(a)(iv);
<PAGE>
(b) the aggregate amount of the Stockholders' liability under
this Article 8 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 3.3(b) (certain matters regarding the HSR Act),
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);
(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 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).
<PAGE>
(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.
(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
<PAGE>
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.
(f) If the Stockholders are required to make any indemnification
payments to the Buyer under this Article 8, such payments shall be deemed to be
a repayment by the Stockholders to the Buyer of the Purchase Price. In such
event, the Stockholders shall also repay to the Buyer a pro rata portion
(allocable to the portion of the Purchase Price repaid) of the Incremental Taxes
paid to the Stockholders pursuant to Section 1.2(a)(iii).
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 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.
9. NONCOMPETITION
9.1 PROHIBITED ACTIVITIES. Each Stockholder acknowledges that
during the course of his or her ownership of the Stock, he or she 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
<PAGE>
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, Stockholders 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 herself 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 locations 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 Stockholder acquired proprietary or
confidential information during the course of his or her 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. Each 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 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.
9.2 CONFIDENTIALITY. Each Stockholder recognizes that by reason of
his or her ownership of the Stock and his or her employment by the Company, he
or she 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 or she will not at any time, except in performance of Stockholders'
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 or she may learn or has learned by reason of his or her ownership of the
Company or his or her employment by the Company, or any of its subsidiaries and
<PAGE>
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
each Stockholder made in this Article 9 shall be effective, shall be computed by
excluding from such computation any time during which any Stockholder is found
by a court of competent jurisdiction to have been in violation of any provision
<PAGE>
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 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.
9.8 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding anything in
the foregoing provisions of this Article 9 to the contrary, the terms and
conditions of this Article 9 shall not apply to Ryan M. Kimps, and the term
"Stockholder" as used solely in this Article 9 shall not be deemed to include
Ryan M. Kimps. Each of the Stockholders jointly and severally represents and
warrants to the Buyer that Ryan Kimps does not hold, and never has held, an
executive or management position with the Company or any other position in which
he has, or in the past has had, access to the Company's business plans, trade
secrets, customer lists or other proprietary information relating to the
Company.
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
Stockholders. Notwithstanding anything in the foregoing to the contrary, 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 or the Stockholders; provided,
however that in the event of such assignment Buyer and the assignee shall be
jointly and severally liable to the Stockholders 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
<PAGE>
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. Except as set forth on Schedule 10.6
hereto, 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.
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
the Company may pay any such expenses, on behalf of the Stockholders to the
extent such payment does not cause the Actual Company Net Worth to be less than
the Net Worth Target.
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)
<PAGE>
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 Stockholder to the Stockholders' Representative:
Roger Kimps
4645 Esther Lane
Green Bay, WI 54311
(Telefax: (920) 866-3803)
with a required copy to:
Jerome E. Smyth, Esq.
Liebmann, Conway, Olejniczak & Jerry, S.C.
P.O. Box 23200
Green Bay, WI 54305-3200
(Telefax: (920) 437-2868)
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
<PAGE>
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. 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.
10.14 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.
-------------------------------
Thomas B. D'Agostino, Jr., President
GRAPHIC MANAGEMENT CORPORATION
By: /s/ Roger Kimps
------------------------
Name: Roger Kimps
Title: President
STOCKHOLDERS:
/s/ Roger Kimps
-------------------
Roger Kimps
/s/ Starlene Kimps
--------------------
Starlene Kimps
/s/ Rebecca Kaye
---------------------
Rebecca Kaye
/s/ Rachael A. Kimps
----------------------
Rachael A. Kimps
/s/ Ryan M. Kimps
-----------------------
Ryan M. Kimps
Workflow Management, Inc. joins in the execution of this Agreement
for the sole and limited purpose of guaranteeing the obligation of the Buyer to
the Stockholders for the payment of the Earn-out as more particularly described
in Section 1.7 of this Agreement.
WORKFLOW MANAGEMENT, INC.
By: /s/ Thomas B. D'Agostino, Jr.,
-----------------------------------
Thomas B. D'Agostino, Jr.,
Chief Operating Officer
Distribution Division
EXHIBIT 10.50
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 1st day of April, 1999, is
by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company"), and THOMAS B. D'AGOSTINO ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the
benefit of his skills and services, and Employee desires to continue employment
with the Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Employee to perform
the duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
four (4) years (the "Term").
2. POSITION AND DUTIES. The Company hereby employs Employee as
President and Chief Executive Officer. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of
the President and Chief Executive Officer of the Company and assigned to
Employee by the Board of Directors of the Company (the "Board"). Employee will
report directly to the Board. Employee hereby accepts this employment upon the
terms and conditions herein contained and agrees to devote substantially all of
his professional time, attention, and efforts to promote and further the
business of the Company. Employee shall faithfully adhere to, execute, and
fulfill all policies established by the Company.
3. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) BASE SALARY. Effective on the date hereof, the base salary
payable to Employee shall be $450,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures, but not less often
than monthly. On April 1, 2000, Employee shall be eligible to receive a $50,000
increase to such base salary if, in the discretion of the Compensation Committee
or Board of Directors, any such increase is warranted after a satisfactory
performance review; provided, however, that Employee's base salary shall
automatically increase by $50,000 on April 1, 2000 in the event the composition
<PAGE>
of the Board has changed by more than two new members from the date hereof until
April 1, 2000 (excluding changes due to an increased Board size).
Notwithstanding anything to the contrary herein, on at least an annual basis,
the Board or Compensation Committee will review Employee's performance and may
make any further increases to such base salary if, in its sole discretion, any
such increase is warranted.
(b) INCENTIVE BONUS. During the Term, Employee shall be eligible
to receive an incentive bonus up to the amount, based upon the criteria, and
payable in such amount, at such times as are specified in Exhibit A attached
hereto. The manner of payment, and form of consideration, if any, shall be
determined by the Compensation Committee of the Board, in its sole and absolute
discretion, and such determination shall be binding and final. To the extent
that such bonus is to be determined in light of financial performance during a
specified fiscal period and this Agreement commences on a date after the start
of such fiscal period, any bonus payable in respect of such fiscal period's
results may be prorated. In addition, if the period of Employee's employment
hereunder expires before the end of a fiscal period, and if Employee is eligible
to receive a bonus at such time (such eligibility being subject to the
restrictions set forth in Section 6 below), any bonus payable in respect of such
fiscal period's results may be prorated.
(c) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, Employee shall be entitled to receive such perquisites and benefits as are
customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Compensation Committee of the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for
(or, at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. PLACE OF PERFORMANCE. Employee understands that the Company may
request that he relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, the Company will provide Employee with a
relocation allowance, in an amount determined by the Company, to assist Employee
in covering the costs of moving himself, his immediate family, and their
personal property and effects. The total amount and type of costs to be covered
shall be determined by the Company, in light of prevailing Company policy at the
time.
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the following ways, prior to the expiration of the
Term:
(a) DEATH. The death of Employee shall immediately terminate the
Term, and no severance compensation shall be owed to Employee's estate.
<PAGE>
(b) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume his
full-time duties at the conclusion of such notice period. Subject to Section
6(f) below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee his base salary at the
then-current rate for the lesser of (i) six (6) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Employee's employment hereunder ten (10) days after written notice to
Employee "for cause," which shall be: (i) Employee's material breach of this
Agreement, which breach is not cured within ten (10) days of receipt by Employee
of written notice from the Company specifying the breach; (ii) Employee's gross
negligence in the performance of his material duties hereunder, intentional
nonperformance or mis-performance of such duties, or refusal to abide by or
comply with the directives of the Board, his superior officers, or the Company's
policies and procedures, which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty, fraud, or misconduct with respect to
the business or affairs of the Company, and that in the reasonable judgment of
the Company materially and adversely affects the operations or reputation of the
Company; (iv) Employee's conviction of a felony or other crime involving moral
turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal) that,
in the Company's reasonable judgment, substantially impairs Employee's ability
to perform his duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) At any time after the commencement of employment, the
Company may, without cause, terminate Employee's employment, effective thirty
(30) days after written notice is provided to the Employee. Should Employee be
terminated by the Company without cause, Employee shall receive from the Company
the base salary at the rate then in effect for the longer of (i) six (6) months
from the date of termination, or (ii) whatever time period is remaining under
the Term. Such payments shall be made in accordance with the Company's regular
payroll cycle.
(ii) At any time after the commencement of employment, the
Employee may terminate this Agreement for Good Reason upon giving the Company
thirty (30) days prior written notice. If Employee terminates this Agreement for
Good Reason, Employee shall receive from the Company the base salary at the rate
then in effect for the lesser of (i) six (6) months from the date of
termination, or (ii) whatever time period is remaining under the Term. Such
<PAGE>
payments shall be made in accordance with the Company's regular payroll cycle.
For purposes of this Agreement, Good Reason shall mean:
(A) a breach by the Company of any material obligation to
Employee hereunder, which breach is not cured within thirty (30) days after
written notice thereof is given to the Company by Employee; or
(B) Employee's refusal to be relocated from his present
residence to any other geographic location pursuant to a request by the Company.
(iii) If Employee resigns or otherwise terminates his
employment for any reason other than Good Reason as defined herein, Employee
shall receive no severance compensation.
(e) PAYMENT THROUGH TERMINATION. Upon termination of Employee's
employment for any reason provided above, Employee shall be entitled to receive
all compensation earned and all benefits and reimbursements (including payments
for accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. Notwithstanding the foregoing, in the event of a termination by the
Company under Section 6(b) or 6(d), Employee shall be entitled to receive
incentive bonus compensation through the end of the Company's fiscal year in
which termination occurs, calculated as if Employee had remained employed by the
Company through the end of such fiscal year, and paid in such amounts, at such
times, and in such forms as are determined pursuant to Section 3(b) above and
Exhibit A attached hereto. Except as specified in the preceding two sentences,
Employee shall not be entitled to receive any incentive bonus compensation after
the effective date of termination of his employment. All other rights and
obligations of the Company and Employee under this Agreement shall cease as of
the effective date of termination, except that the Company's obligations under
this Section 6(e) and Section 12 below and Employee's obligations under Sections
7, 8, 9 and 10 below shall survive such termination in accordance with their
terms.
7. RESTRICTION ON COMPETITION.
(a) During the Term, and thereafter, if Employee continues to be
employed by the Company and/or any other entity owned by or affiliated with the
Company on an "at will" basis, for the duration of such period, and thereafter
for a period equal to the longer of (x) one (1) year, or (y) the period during
which Employee is receiving any severance pay from the Company, Employee shall
not, directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation, business, group, or other
entity (each, a "Person"):
<PAGE>
(i) engage, in a competitive capacity, whether as an owner,
officer, director, partner, shareholder, joint venturer, employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services which were sold by the Company on the date of
the termination of Employee's employment, within 50 miles of any location where
the Company both has an office and conducts business on the date of the
termination of Employee's employment;
(ii) call upon any Person who is, at that time, a sales,
supervisory, or management employee of the Company for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or
has been, within one year prior to that time, a customer of the Company for the
purpose of soliciting or selling products or services in direct competition with
the Company; or
(iv) on Employee's own behalf or on behalf of any competitor,
call upon any Person who or that, during Employee's employment by the Company
was either called upon by the Company as a prospective acquisition candidate
with respect to which Employee had actual knowledge or was the subject of an
acquisition analysis conducted by the Company with respect to which Employee had
actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Employee 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 through the automated quotation system of a registered
securities association.
(c) It is further agreed that, in the event that Employee shall
cease to be employed by the Company and enters into a business or pursues other
activities that, on the date of termination of Employee's employment, are not in
competition with the Company, Employee shall not be chargeable with a violation
of this Section 7 if the Company subsequently enters the same (or a similar)
competitive business or activity or commences competitive operations within 50
miles of the Employee's new business or activities. In addition, if Employee has
no actual knowledge that his actions violate the terms of this Section 7,
Employee shall not be deemed to have breached the restrictive covenants
contained herein if, promptly after being notified by the Company of such
breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "Company" shall
mean Workflow Management, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
<PAGE>
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Employee made in
this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Employee shall be entitled to receive from the Company his base
salary at the rate in effect on the date of termination of Employee's employment
solely for the longer of (i) the time period during which the provisions of this
Section 7 shall be enforceable under the provisions of such applicable law, or
(ii) the time period during which Employee is not engaging in any competitive
activity, but in no event longer than the applicable period provided in Section
6 above. To the extent Employee is subject to a restriction on competitive
activity as a party to that certain Agreement and Plan of Reorganization, dated
as of January 24, 1997, by and among U.S. Office Products Company ("USOP"), SFI
Acquisition (Delaware) Corp., SFI Corp. (an affiliate of the Company) and
Employee or that certain Agreement and Plan of Reorganization, dated as of
January 24, 1997, by and among USOP, HBF Acquisition Corp., Hano Document
Printers, Inc.(a wholly owned subsidiary of the Company) and the Stockholders
Named Therein (the "Merger Agreements"), the Employee shall abide by, and in all
cases be subject to, the restrictive covenants (whether in this Section 7 or in
the Merger Agreements) that, in the aggregate, impose restrictions on Employee
for the longest duration and the broadest geographic scope (taking into account
the effect of any applicable court decisions limiting the scope or duration of
such restrictions), it being agreed that all such restrictive covenants are
supported by separate and distinct consideration. This Section 7(g) shall be
construed and interpreted in light of the duration of the applicable restrictive
covenants.
(h) Employee has carefully read and considered the provisions of
this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Employee and are
reasonably required to protect the interests of the Company, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company throughout the term of these covenants.
<PAGE>
(i) Notwithstanding any of the foregoing, if the Company
terminates Employee's employment pursuant to Section 6(b) or Section 6(d), then
the restrictions on Employee described in this Section 7 shall only apply for
the period during which Employee is receiving any severance pay from the
Company. The parties expressly agree that Employee shall have the right to
receive, but not the obligation to accept, severance compensation for a
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. INVENTIONS. Employee shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, that are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one year thereafter, and that are directly related to the business or
activities of the Company and that Employee conceives as a result of his
employment by the Company, regardless of whether or not such ideas, inventions,
or improvements qualify as "works for hire." Employee hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of
Employee's employment by the Company for any reason or no reason, Employee or
Employee's personal representative shall return to the Company (a) all
Confidential Information; (b) all other records, designs, patents, business
plans, financial statements, manuals, memoranda, lists, correspondence, reports,
records, charts, advertising materials, and other data or property delivered to
or compiled by Employee by or on behalf of the Company or its representatives,
<PAGE>
vendors, or customers that pertain to the business of the Company, whether in
paper, electronic, or other form; and (c) all keys, credit cards, vehicles, and
other property of the Company. Employee shall not retain or cause to be retained
any copies of the foregoing. Employee hereby agrees that all of the foregoing
shall be and remain the property of the Company, as the case may be, and be
subject at all times to their discretion and control.
11. CONSULTING AGREEMENT. Upon the expiration of this Agreement, the
termination of Employee's employment without cause during the term of this
Agreement or Employee's termination for Good Reason, Employee shall have the
option to enter into a Consulting Agreement with the Company, in the form of
Exhibit B attached hereto (the "Consulting Agreement"), pursuant to which
Employee shall continue to be an employee of the Company. Upon the execution of
the Consulting Agreement, this Agreement shall automatically terminate (to the
extent same has not expired) and the terms and conditions of the Consulting
Agreement shall supersede this Agreement; provided, however, that the Company's
obligations under Sections 6(d)(i), 6d(ii), 6(e) and 12 shall survive
termination in accordance with their terms.
12. INDEMNIFICATION. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that he is or was performing services under this Agreement or as an
officer or director of the Company, then, to the fullest extent permitted by
applicable law, the Company shall indemnify Employee against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. Such indemnification shall continue as to Employee even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Employee all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Employee to the Company, provided, that such request shall include a written
undertaking by Employee, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Employee is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Employee agrees to use the same
representation; provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 12 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws. The foregoing indemnification also shall be applicable to
Employee in his capacity as an officer, director, or representative of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board.
13. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
the Company that the execution of this Agreement by Employee, his employment by
<PAGE>
the Company, and the performance of his duties hereunder will not violate or be
a breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
14. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another entity and the successor company is engaged in
substantially the same business as the Company, such action shall not be
considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other Person shall be a third-party beneficiary under this
Agreement.
15. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
16. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
<PAGE>
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
with a copy to: Gus J. James, II, Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax. (757) 624-3169
To Employee: Thomas B. D'Agostino
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 16.
17. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
18. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
19. ARBITRATION. Any unresolved dispute or controversy arising under
or in connection with this Agreement or Employee's employment, including, but
not limited to claims under Title VII of the Civil Rights Act of 1964, The Age
Discrimination in Employment Act, The Americans With Disabilities Act, or any
other local, state or federal law related to employment discrimination, shall be
<PAGE>
settled exclusively by arbitration conducted in accordance with the rules of the
American Arbitration Association then in effect. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. A decision by a majority of the
arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company. Each party shall bear its
own counsel fees. The arbitration proceeding shall be held in the city where the
Company is located. Notwithstanding the foregoing, the Company shall be entitled
to seek injunctive or other equitable relief, as contemplated by Section 18
above, from any court of competent jurisdiction, without the need to resort to
arbitration.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to
be duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
EMPLOYEE
/s/ Thomas B. D'Agostino
--------------------------
Thomas B. D'Agostino
<PAGE>
EXHIBIT A
Under the Company's Incentive Bonus Plan, Employee will be eligible to earn up
to 100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of the Company or a compensation committee thereof,
depending upon the achievement of specified criteria and payable in the form of
cash, stock options, or other non-cash awards, in such proportions, and in such
forms, as are determined by the Board of the Company or the Compensation
Committee thereof. Bonuses under the Incentive Bonus Plan will be determined by
measuring Employee's performance and the Company's performance based on the
following criteria, weighted as indicated, and measured against target
performance levels established by the Board of the Company or such compensation
committee: (i) the growth of the Company's earnings per share - 50%; (ii) the
growth of the Company's revenues due to acquisitions - 30%; and (iii) the
internal growth of the Company's revenues - 20%. For purposes of this Exhibit A,
the "Company" shall mean Workflow Management, Inc., together with its
subsidiaries and affiliates.
<PAGE>
EXHIBIT B
FORM OF CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of this ____ day of ____________,
____ is by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company") and THOMAS B. D'AGOSTINO ("Consultant").
RECITALS
Consultant was previously employed by the Company under that certain
Employment Agreement, dated April 1, 1999, pursuant to which Consultant served
as President and Chief Executive Officer of the Company (the "Employment
Agreement").
The Employment Agreement has expired, Consultant was terminated
without cause under such Employment Agreement or Consultant terminated the
Employment Agreement for Good Reason (as such term is defined in the Employment
Agreement).
The Company desires to employ Consultant and to have the benefit of
his skills and services, and Consultant desires to be employed by the Company,
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Consultant to perform
the duties described herein, and Consultant hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
(a) five (5) years, if the Employment Agreement expired, or (b) nine (9) years
less the amount of time Consultant was employed by the Company under the
Employment Agreement, if Consultant was terminated without cause or for Good
Reason under such Employment Agreement (the "Term").
2. POSITION AND DUTIES. The Company hereby employs Consultant as a
consultant to provide high level, strategic business advice to the Chairman of
the Board and Chief Executive Officer of the Company. As such, Consultant shall
have such specific responsibilities, duties and authority as are agreed upon by
the Consultant, Chairman of the Board and Chief Executive Officer of the
Company. As an employee of the Company, Consultant shall faithfully adhere to,
execute, and fulfill all policies established by the Company. Consultant shall
be required to provide not more than fifteen (15) hours per month of service to
the Company under this Agreement.
<PAGE>
3. COMPENSATION. For all services rendered by Consultant, the Company
shall compensate Consultant as follows:
(a) BASE SALARY. Effective on the date hereof, the base salary
payable to Consultant shall be $40,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures, but not less often
than monthly. On at least an annual basis, the Chairman of the Board will review
Consultant's performance and may make increases to such base salary if, in its
sole discretion, any such increase is warranted.
(b) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, Consultant shall be entitled to receive such perquisites and benefits as
are customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board of Directors of the Company ("Board").
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Consultant
for (or, at the Company's option, pay) all business travel and other
out-of-pocket expenses reasonably incurred by Consultant in the performance of
his services hereunder during the Term. All reimbursable expenses shall be
appropriately documented in reasonable detail by Consultant upon submission of
any request for reimbursement, and in a format and manner consistent with the
Company's expense reporting policy, as well as applicable federal and state tax
record keeping requirements.
5. PLACE OF PERFORMANCE. Consultant shall perform services under
this Agreement at the Company's place of business in either New York, New York
or Palm Beach, Florida. Consultant shall be provided with an office and
secretary to assist in the performance of Consultant's duties.
6. TERMINATION; RIGHTS ON TERMINATION. Consultant's employment
may be terminated in any one of the following ways, prior to the expiration of
the Term:
(a) DEATH. The death of Consultant shall immediately terminate
the Term, and no severance compensation shall be owed to Consultant's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Consultant shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Consultant (which notice may be
given before or after the end of the aforementioned periods, but which shall not
be effective earlier than the last day of the applicable period), the Company
may terminate Consultant's employment hereunder if Consultant is unable to
resume his duties at the conclusion of such notice period. Subject to Section
6(e) below, if Consultant's employment is terminated as a result of Consultant's
disability, the Company shall continue to pay Consultant his base salary at the
then-current rate for the lesser of (i) six (6) months from the effective date
<PAGE>
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Consultant's employment hereunder ten (10) days after written notice
to Consultant "for cause," which shall be: (i) Consultant's material breach of
this Agreement, which breach is not cured within ten (10) days of receipt by
Consultant of written notice from the Company specifying the breach; (ii)
Consultant's gross negligence in the performance of his material duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least ten (10) days after receipt by Consultant of written notice
of the need to cure or cease; (iii) Consultant's willful dishonesty, fraud, or
misconduct with respect to the business or affairs of the Company, and that in
the reasonable judgment of the Company materially and adversely affects the
operations or reputation of the Company; (iv) Consultant's conviction of a
felony or other crime involving moral turpitude; or (v) Consultant's abuse of
alcohol or drugs (legal or illegal) that, in the Company's reasonable judgment,
substantially impairs Consultant's ability to perform his duties hereunder. In
the event of a termination "for cause," as enumerated above, Consultant shall
have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) The Company may not terminate Consultant's employment
without cause.
(ii) At any time after the commencement of employment, the
Consultant may terminate this Agreement for Good Reason upon giving the Company
thirty (30) days prior written notice. If Consultant terminates this Agreement
for Good Reason, Consultant shall receive from the Company the base salary at
the rate then in effect for the longer of (i) six (6) months from the date of
termination, or (ii) whatever time period is remaining under the Term. For
purposes of this Agreement, Good Reason shall mean a breach by the Company of
any material obligation to Consultant hereunder, which breach is not cured
within thirty (30) days after written notice thereof is given to the Company by
Consultant.
(iii) If Consultant resigns or otherwise terminates his
employment for any reason other than Good Reason as defined herein, Consultant
shall receive no severance compensation.
(e) PAYMENT THROUGH TERMINATION. Upon termination of
Consultant's employment for any reason provided above, Consultant shall be
entitled to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Consultant only to the extent and in the manner
expressly provided above in this Section 6. All other rights and obligations of
<PAGE>
the Company and Consultant under this Agreement shall cease as of the effective
date of termination, except that the Company's obligations under this Section
6(e) and Section 11 below and Consultant's obligations under Sections 7, 8, 9
and 10 below shall survive such termination in accordance with their terms.
7. RESTRICTION ON COMPETITION.
(a) During the Term, and thereafter, if Consultant continues
to be employed by the Company and/or any other entity owned by or affiliated
with the Company on an "at will" basis, for the duration of such period, and
thereafter for a period equal to the longer of (x) one (1) year, or (y) the
period during which Consultant is receiving any severance pay from the Company,
Consultant shall not, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation, business,
group, or other entity (each, a "Person"):
(i) engage, in a competitive capacity, whether as an
owner, officer, director, partner, shareholder, joint venturer, employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services which were sold by the Company on the
date of the termination of Consultant's employment, within 50 miles of any
location where the Company both has an office and conducts business on the date
of the termination of Consultant's employment;
(ii) call upon any Person who is, at that time, a sales,
supervisory, or management employee of the Company for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time,
or has been, within one year prior to that time, a customer of the Company for
the purpose of soliciting or selling products or services in direct competition
with the Company; or
(iv) on Consultant's own behalf or on behalf of any
competitor, call upon any Person who or that, during Consultant's employment by
the Company, was either called upon by the Company as a prospective acquisition
candidate with respect to which Consultant had actual knowledge or was the
subject of an acquisition analysis conducted by the Company with respect to
which Consultant had actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Consultant 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 through the automated quotation system of a registered
securities association.
(c) It is further agreed that, in the event that Consultant shall
cease to be employed by the Company and enters into a business or pursues other
activities that, on the date of termination of Consultant's employment, are not
in competition with the Company, Consultant shall not be chargeable with a
violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
<PAGE>
within 50 miles of the Consultant's new business or activities. In addition, if
Consultant has no actual knowledge that his actions violate the terms of this
Section 7, Consultant shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Consultant ceases the prohibited actions.
(d) For purposes of this Section 7, references to "Company" shall
mean Workflow Management, Inc., together with its subsidiaries and affiliates.
For the purposes of this Agreement, "affiliate" shall mean any entity 25% or
more of the stock or voting interests of which is owned or controlled directly
or indirectly, by the Company or any subsidiary of the Company. The Company and
Consultant agree that for purposes of this Section 7, the Company's business
shall be deemed to include those businesses of the Company described in the
Company's Annual Report on Form 10-K as filed by the Company with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
(e) The covenants in this Section 7 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Consultant against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Consultant may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Consultant made
in this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Consultant is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Consultant shall be entitled to receive from the Company his
base salary at the rate in effect on the date of termination of Consultant's
employment solely for the longer of (i) the time period during which the
provisions of this Section 7 shall be enforceable under the provisions of such
applicable law, or (ii) the time period during which Consultant is not engaging
in any competitive activity, but in no event longer than the applicable period
provided in Section 6 above.
<PAGE>
(h) Consultant has carefully read and considered the provisions
of this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Consultant and are
reasonably required to protect the interests of the Company, and its respective
officers, directors, employees, and stockholders. It is further agreed that the
Company and Consultant intend that such covenants be construed and enforced in
accordance with the changing activities, business, and locations of the Company
throughout the term of these covenants.
(i) Notwithstanding any of the foregoing, if the Company
terminates Consultant's employment pursuant to Section 6(b) or Section 6(d),
then the restrictions on Consultant described in this Section 7 shall only apply
for the period during which Consultant is receiving any severance pay from the
Company. The parties expressly agree that Consultant shall have the right to
receive, but not the obligation to accept, severance compensation for a
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Consultant hereby agrees to hold in
strict confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Consultant
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Consultant; (b) is
required by applicable law, legal process, or any order or mandate of a court or
other governmental authority to be disclosed; or (c) is reasonably believed by
Consultant, based upon the advice of legal counsel, to be required to be
disclosed in defense of a lawsuit or other legal or administrative action
brought against Consultant; provided, that in the case of clauses (b) or (c),
Consultant shall give the Company reasonable advance written notice of the
Confidential Information intended to be disclosed and the reasons and
circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
9. INVENTIONS. Consultant shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, that are conceived or made by
Consultant, solely or jointly with another, during the period of employment or
within one year thereafter, and that are directly related to the business or
activities of the Company and that Consultant conceives as a result of his
<PAGE>
employment by the Company, regardless of whether or not such ideas, inventions,
or improvements qualify as "works for hire." Consultant hereby assigns and
agrees to assign all his interests therein to the Company or its nominee.
Whenever requested to do so by the Company, Consultant shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of
Consultant's employment by the Company for any reason or no reason, Consultant
or Consultant's personal representative shall return to the Company (a) all
Confidential Information; (b) all other records, designs, patents, business
plans, financial statements, manuals, memoranda, lists, correspondence, reports,
records, charts, advertising materials, and other data or property delivered to
or compiled by Consultant by or on behalf of the Company or its representatives,
vendors, or customers that pertain to the business of the Company, whether in
paper, electronic, or other form; and (c) all keys, credit cards, vehicles, and
other property of the Company. Consultant shall not retain or cause to be
retained any copies of the foregoing. Consultant hereby agrees that all of the
foregoing shall be and remain the property of the Company, as the case may be,
and be subject at all times to their discretion and control.
11. INDEMNIFICATION. In the event Consultant is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Consultant, and excluding any action by Consultant against the Company), by
reason of the fact that he is or was performing services under this Agreement or
as an officer or director of the Company, then, to the fullest extent permitted
by applicable law, the Company shall indemnify Consultant against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Consultant in connection
therewith. Such indemnification shall continue as to Consultant even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Consultant all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Consultant to the Company, provided, that such request shall include a written
undertaking by Consultant, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Consultant is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Consultant and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Consultant agrees to use the same
representation; provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Consultant,
Consultant may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 11 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's Certificate of Incorporation and By-laws. The foregoing
indemnification also shall be applicable to Consultant in his capacity as an
officer, director, or representative of any subsidiary of the Company, or any
other entity, but in each case only to the extent that Consultant is serving at
the request of the Board.
12. NO PRIOR AGREEMENTS. Consultant hereby represents and warrants to
the Company that the execution of this Agreement by Consultant, his employment
by the Company, and the performance of his duties hereunder will not violate or
<PAGE>
be a breach of any agreement with a former employer, client, or any other
Person. Further, Consultant agrees to indemnify and hold harmless the Company
and its officers, directors, and representatives for any claim, including, but
not limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Consultant and such third party that was in existence as of the date of this
Agreement. To the extent that Consultant had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Consultant and the Company, such prior agreement or understanding
automatically shall be deemed to have been terminated and shall be null and
void.
13. ASSIGNMENT; BINDING EFFECT. Consultant understands that he has
been selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Consultant agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Consultant. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Consultant accepts
employment with a subsidiary or affiliate of the Company, unless Consultant and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Consultant, such assignment shall be
considered a condition of employment by such new employer, and references to the
"Company" in this Agreement shall be deemed to refer to such new employer. If
the Company is merged with or into another entity and the successor company is
engaged in substantially the same business as the Company, such action shall not
be considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other Person shall be a third-party beneficiary under this
Agreement.
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Consultant has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Consultant with respect to
the subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Consultant, and
no term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
<PAGE>
15. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attention: Claudia S. Amlie,
Vice President and General Counsel
Fax: (561) 659-7793
with a copy to: Gus J. James, II, Esq. and T. Richard Litton, Jr., Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax: (757) 624-3169
To Consultant: Thomas B. D'Agostino
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 15.
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. ARBITRATION. Except for actions initiated by the Company to
enjoin a breach by, and/or recover damages from, Consultant related to violation
of any of the provisions of Section 7 though 10, which the Company may bring in
an appropriate court of law or equity, any other unresolved dispute or
<PAGE>
controversy arising under or in connection with this Agreement or Consultant's
employment, including, but not limited to claims under Title VII of the Civil
Rights Act of 1964, The Age Discrimination in Employment Act, The Americans With
Disabilities Act, or any other local, state or federal law related to employment
discrimination, shall be settled exclusively by arbitration conducted in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
A decision by a majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
the Company. Each party shall bear its own counsel fees. The arbitration
proceeding shall be held, at the option of the Company, in either Palm Beach,
Florida or New York, New York.
19. EQUITABLE RELIEF; JURISDICTION AND VENUE. Upon due consideration
of any effects created hereby, Consultant hereby irrevocably submits to the
jurisdiction and venue of a court of competent civil jurisdiction sitting in
Palm Beach, Florida in any action or proceeding brought by the Company arising
out of, or relating to, the provisions in Sections 7 through 10 of this
Agreement. Consultant hereby irrevocably agrees that any such action or
proceeding may, at the Company's option, be heard and determined in such court.
Consultant agrees that a final order or judgment in any such action or
proceeding shall, to the extent permitted by applicable law, be conclusive and
may be enforced in other jurisdictions by suit on the order or judgment, or in
any other manner provided by applicable law related to the enforcement of
judgments.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
[Execution Page Following]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to
be duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
By:
----------------------------
Name:
-------------------------
Title:
------------------------
CONSULTANT
----------------------------
Thomas B. D'Agostino
EXHIBIT 10.51
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 1st day of April, 1999, is
by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company"), and STEVE R. GIBSON ("Employee").
RECITALS
The Company desires to employ Employee and to have the benefit of his
skills and services, and Employee desires to be employed with the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Employee to perform the
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two (2) years (the "Initial Term"). The Initial Term shall be renewed for
additional periods of one (1) year each (the "Renewal Periods" and together with
the Initial Term, the "Term") unless the Company provides written notice to
Employee, or Employee provides written notice to the Company, in either case no
less than ninety (90) days prior to the expiration of the Initial Term or of a
Renewal Period, whichever is applicable, that such renewal will not be made.
2. POSITION AND DUTIES. The Company hereby employs Employee as
Executive Vice President and Chief Financial Officer. As such, Employee shall
have responsibilities, duties and authority reasonably accorded to and expected
of an Executive Vice President and the Chief Financial Officer of the Company
and assigned to Employee by the Board of Directors of the Company (the "Board").
Employee will report directly to the Chief Executive Officer of the Company.
Employee hereby accepts this employment upon the terms and conditions herein
contained and agrees to devote substantially all of his professional time,
attention, and efforts to promote and further the business of the Company.
Employee shall faithfully adhere to, execute, and fulfill all policies
established by the Company.
3. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be
$205,000 per year, payable on a regular basis in accordance with the Company's
<PAGE>
standard payroll procedures, but not less often than monthly. On April 1, 2000,
Employee shall be eligible to receive a $30,000 increase to such base salary if,
in the discretion of the Compensation Committee or Board of Directors, such
increase is warranted after a satisfactory performance review; provided,
however, that Employee's base salary shall automatically increase by $30,000 on
April 1, 2000 in the event Thomas B. D'Agostino, Sr. is no longer serving as
Chairman and Chief Executive Officer of the Company on such date.
Notwithstanding anything to the contrary herein, on at least an annual basis,
the Board or Compensation Committee will review Employee's performance and may
make any further increases to such base salary if, in its sole discretion, any
such increase is warranted.
(b) INCENTIVE BONUS. During the Term, Employee shall be
eligible to receive an incentive bonus up to the amount, based upon the
criteria, and payable in such amount, at such times as are specified in Exhibit
A attached hereto. The manner of payment, and form of consideration, if any,
shall be determined by the Compensation Committee of the Board, in its sole and
absolute discretion, and such determination shall be binding and final. To the
extent that such bonus is to be determined in light of financial performance
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, in addition to the benefits specifically set forth on Exhibit B, Employee
shall be entitled to receive such perquisites and benefits as are customarily
provided to the Company's executive officers, subject to such changes,
additions, or deletions as the Company may make from time to time, as well as
such other perquisites or benefits as may be specified from time to time by the
Compensation Committee of the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for (or,
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. The Company acknowledges that Employee may, for all
or a portion of the Term, reside away from the Company's headquarters in Palm
Beach, Florida, and thus, all travel to and from Employee's principal residence
for business purposes shall be reimbursed. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of any
request for reimbursement, and in a format and manner consistent with the
Company's expense reporting policy, as well as applicable federal and state tax
record keeping requirements.
5. PLACE OF PERFORMANCE. Employee understands that the Company may
request that he relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, the Company will provide Employee with a
relocation allowance, in an amount determined by the Company, to assist Employee
in covering the costs of moving himself, his immediate family, and their
personal property and effects. The total amount and type of costs to be covered
shall be determined by the Company, in light of prevailing Company policy at the
time.
<PAGE>
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the followings ways, prior to the expiration or
non-renewal of the Term:
(a) DEATH. The death of Employee shall immediately terminate
the employment and Term, and no severance compensation shall be owed to
Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume his
full-time duties at the conclusion of such notice period. Subject to Section
6(f) below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee his base salary at the
then-current rate for the lesser of (i) five (5) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Employee's employment hereunder ten (10) days after written notice to
Employee "for cause," which shall be: (i) Employee's material breach of this
Agreement, which breach is not cured within ten (10) days of receipt by Employee
of written notice from the Company specifying the breach; (ii) Employee's gross
negligence in the performance of his material duties hereunder, intentional
nonperformance or mis-performance of such duties, or refusal to abide by or
comply with the directives of the Board, his superior officers, or the Company's
policies and procedures, which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty, fraud, or misconduct with respect to
the business or affairs of the Company, and that in the reasonable judgment of
the Company materially and adversely affects the operations or reputation of the
Company; (iv) Employee's conviction of a felony or other crime involving moral
turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal) that,
in the Company's reasonable judgment, substantially impairs Employee's ability
to perform his duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) At any time after the commencement of employment,
the Company may, without cause, terminate Employee's employment, effective
thirty (30) days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, Employee shall receive from
the Company the base salary at the rate then in effect for the longer of (i)
five (5) months from the date of termination, or (ii) whatever time period is
remaining under the Term. Such payments shall be made in accordance with the
Company's regular payroll cycle.
<PAGE>
(ii) At any time after the commencement of
employment, the Employee may terminate this Agreement for Good Reason upon
giving the Company thirty (30) days prior written notice. If Employee terminates
this Agreement for Good Reason, Employee shall receive from the Company the base
salary at the rate then in effect for the lesser of (i) six (6) months from the
date of termination, or (ii) whatever time period is remaining under the Term.
Such payments shall be made in accordance with the Company's regular payroll
cycle. For purposes of this Agreement, Good Reason shall mean:
(A) a breach by the Company of any material
obligation to Employee hereunder, which breach is not cured within thirty (30)
days after written notice thereof is given to the Company by Employee; or
(B) Employee's refusal to be relocated from
his present residence to any other geographic location pursuant to a request by
the Company.
(iii) If Employee resigns or otherwise terminates his
employment for any reason, Employee shall receive no severance compensation.
(e) PAYMENT THROUGH TERMINATION. Upon termination of
Employee's employment for any reason provided above, Employee shall be entitled
to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above in this Section 6. With respect to incentive bonus
compensation, Employee shall be entitled to receive any bonus declared but not
paid prior to termination. Notwithstanding the foregoing, in the event of a
termination by the Company under Section 6(b) or 6(e), Employee shall be
entitled to receive incentive bonus compensation through the end of the
Company's fiscal year in which termination occurs, calculated as if Employee had
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of his employment.
All other rights and obligations of the Company and Employee under this
Agreement shall cease as of the effective date of termination, except that the
Company's obligations under this Section 6(f) and Section 12 below and
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
<PAGE>
7. RESTRICTION ON COMPETITION.
(a) During the Term and for such period after the Term that
Employee continues to be employed by the Company and/or any other entity owned
by or affiliated with the Company on an "at will" basis and, thereafter, for a
period equal to the longer of (x) one year, or (y) the period during which
Employee is receiving any severance pay or other compensation from the Company
in accordance with the terms of this Agreement, Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, in a competitive capacity, whether as an
owner, officer, director, partner, shareholder, joint venturer, employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services which were sold by the Company on the
date of the termination of Employee's employment, within 50 miles of any
location where the Company both has an office and conducts business on the date
of the termination of Employee's employment;
(ii) call upon any person who is, at that time, a
sales, supervisory, or management employee of the Company for the purpose or
with the intent of enticing such employee away from or out of the employ of the
Company;
(iii) call upon any person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
for the purpose of soliciting or selling products or services in direct
competition with the Company; or
(iv) on Employee's own behalf or on behalf of any
competitor, call upon any person who or that, during Employee's employment by
the Company was either called upon by the Company as a prospective acquisition
candidate with respect to which Employee had actual knowledge or was the subject
of an acquisition analysis conducted by the Company with respect to which
Employee had actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Employee 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 through the automated quotation system of a registered
securities association.
(c) It is further agreed that, in the event that Employee
shall cease to be employed by the Company and enters into a business or pursues
other activities that, on the date of termination of Employee's employment, are
not in competition with the Company, Employee shall not be chargeable with a
violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
within 50 miles of the Employee's new business or activities. In addition, if
Employee has no actual knowledge that his actions violate the terms of this
Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Employee ceases the prohibited actions.
<PAGE>
(d) For purposes of this Section 7, references to "Company"
shall mean Workflow Management, Inc., together with its subsidiaries and
affiliates. For the purposes of this Agreement, "affiliate" shall mean any
entity twenty-five percent or more of the stock of which is owned or controlled,
directly or indirectly, by the Company or any subsidiary of the Company.
(e) The covenants in this Section 7 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Employee made in
this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Employee shall be entitled to receive from the Company his base
salary at the rate in effect on the date of termination of Employee's employment
solely for the longer of (i) the time period during which the provisions of this
Section 7 shall be enforceable under the provisions of such applicable law, or
(ii) the time period during which Employee is not engaging in any competitive
activity, but in no event longer than the applicable period provided in Section
6 above. This Section 7(g) shall be construed and interpreted in light of the
duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions
of this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Employee and are
reasonably required to protect the interests of the Company, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company throughout the term of these covenants.
<PAGE>
(i) Notwithstanding any of the foregoing, if the Company
terminates Employee's employment pursuant to Section 6(b) or Section 6(d), then
the restrictions on Employee described in this Section 7 shall only apply for
the period during which Employee is receiving any severance pay from the
Company. The parties expressly agree that Employee shall have the right to
receive, but not the obligation to accept, severance compensation for
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of his employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
his interests therein to the Company or its nominee. Whenever requested to do so
by the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
<PAGE>
Employee by or on behalf of the Company or its representatives, vendors, or
customers that pertain to the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit cards, vehicles, and other
property of the Company. Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that all of the foregoing shall
be and remain the property of the Company, as the case may be, and be subject at
all times to their discretion and control.
11. CONSULTING AGREEMENT. Upon the expiration of this Agreement
(notwithstanding Employee's or the Company's notice of renewal), the termination
of Employee's employment without cause during the term of this Agreement or
Employee's termination for Good Reason, Employee shall have the option to enter
into a Consulting Agreement with the Company, in the form of Exhibit C attached
hereto (the "Consulting Agreement"), pursuant to which Employee shall continue
to be an employee of the Company. Upon the execution of the Consulting
Agreement, this Agreement shall automatically terminate (to the extent same has
not expired) and the terms and conditions of the Consulting Agreement shall
supersede this Agreement; provided, however, that the Company's obligations
under Sections 6(d)(i), 6d(ii), 6(e) and 12 shall survive termination in
accordance with their terms.
12. INDEMNIFICATION. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that he is or was performing services under this Agreement or as an
officer or director of the Company, then, to the fullest extent permitted by
applicable law, the Company shall indemnify Employee against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. Such indemnification shall continue as to Employee even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Employee all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Employee to the Company, provided, that such request shall include a written
undertaking by Employee, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Employee is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Employee agrees to use the same
representation; provided, that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 12 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws. The foregoing indemnification also shall be applicable to
Employee in his capacity as an officer, director, or representative of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board.
13. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, his employment by the
<PAGE>
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
14. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another entity and the successor company is engaged in
substantially the same business as the Company, such action shall not be
considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other person shall be a third-party beneficiary under this
Agreement.
15. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
16. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
<PAGE>
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
Attn: President
with a copy to: Gus J. James, II, Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax: (757) 624-3169
To Employee: Steve R. Gibson
1540 Pathway Drive
Carrboro, NC 27510
Fax: (919)-942-5935
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 16.
17. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
18. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
19. ARBITRATION. Except for actions initiated by the Company to enjoin
a breach by, and/or recover damages from, Employee related to violation of any
of the provisions in paragraphs 7 through 10, which the Company may bring in an
appropriate court of law or equity, any other unresolved dispute or controversy
arising under or in connection with Employee's employment and/or this Agreement
shall be settled or resolved exclusively by arbitration conducted in accordance
<PAGE>
with the rules of the American Arbitration Association then in effect. This
includes any and all federal, state and/or local claims based upon statute,
common law and/or local ordinance, including, but not limited to claims under
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, the Family and Medical Leave Act, and the Americans with
Disabilities Act. The arbitrator(s) shall not have the authority to add to,
detract from or modify this Agreement except as permitted by the Agreement. The
arbitrator's decision shall be final and binding, and judgment may be entered on
the decision in any court having competent jurisdiction. The direct expense of
the arbitration shall be borne by the Company but each party will bear its own
expenses and legal fees. The arbitration shall be held in any of the following
locations (individually, the "Arbitration Location"): (a) Palm Beach County,
Florida; (b) the City of Norfolk, Virginia; or (c) the city where Employee is or
was last employed by Company. The selection of an Arbitration Location shall be
at the sole and absolute discretion of the Company.
20. EQUITABLE RELIEF: JURISDICTION AND VENUE. Employee acknowledges
that the Company's principal corporate office is in the City of Palm Beach,
Florida. Upon due consideration of any effects created hereby, Employee hereby
irrevocably submits to the jurisdiction and venue of a court of competent civil
jurisdiction sitting in Palm Beach County, Florida, in any action or proceeding
brought by the Company arising out of, or relating to, the provisions in
paragraphs 7 through 10 of this Agreement. Employee hereby irrevocably agrees
that any such action or proceeding may, at the Company's option, be heard and
determined in such court. Employee agrees that a final order or judgment in any
such action or proceeding shall, to the extent permitted by applicable law, be
conclusive and may be enforced in other jurisdictions by suit on the order or
judgment, or in any other manner provided by applicable law related to the
enforcement of judgments.
21. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
/s/ Thomas B. D'Agostino
----------------------------------
Thomas B. D'Agostino
President
EMPLOYEE
/s/ Steve R. Gibson
----------------------------------
Steve R. Gibson
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
Under the Company's Incentive Bonus Plan, Employee will be eligible to earn up
to 100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of the Company or a compensation committee thereof,
depending upon the achievement of specified criteria and payable in the form of
cash, stock options, or other non-cash awards, in such proportions, and in such
forms, as are determined by the Board of the Company or a compensation committee
thereof. Bonuses under the Incentive Bonus Plan will be determined by measuring
Employee's performance and the Company's performance based on the following
criteria, weighted as indicated, and measured against target performance levels
established by the Board of Company or such compensation committee: (i) quality
and timeliness of the Company's financial reporting -- 50%; (ii) the growth of
net earnings per share of the Company -- 25%; and (iii) improvement in the
Company's operating margin -- 25%.
<PAGE>
EXHIBIT B
Employee shall receive a monthly expense reimbursement to cover living expenses
while Employee lives in Palm Beach, Florida. Such reimbursement shall be an
amount equal to $3000 per month after the payment of taxes by Employee for such
reimbursement.
<PAGE>
EXHIBIT C
FORM OF CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of this ____ day of ____________,
____ is by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company") and STEVE R. GIBSON ("Consultant").
RECITALS
Consultant was previously employed by the Company under that certain
Employment Agreement, dated April 1, 1999, pursuant to which Consultant served
as Executive Vice President and Chief Financial Officer of the Company (the
"Employment Agreement").
The Employment Agreement has expired, Consultant was terminated without
cause under such Employment Agreement or Consultant terminated the Employment
Agreement for Good Reason (as such term is defined in the Employment Agreement).
The Company desires to employ Consultant and to have the benefit of his
skills and services, and Consultant desires to be employed by the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Consultant to perform
the duties described herein, and Consultant hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
(a) five (5) years, if the Employment Agreement expired, or (b) five (5) years
plus the period of time remaining under the Employment Agreement, if Consultant
was terminated without cause or for Good Reason under such Employment Agreement
(the "Term").
2. POSITION AND DUTIES. The Company hereby employs Consultant as a
consultant to provide high level, strategic business advice to the Chief
Executive Officer and Chief Financial Officer of the Company. As such,
Consultant shall have such specific responsibilities, duties and authority as
are agreed upon by the Consultant, Chief Executive Officer and Chief Financial
Officer of the Company. As an employee of the Company, Consultant shall
faithfully adhere to, execute, and fulfill all policies established by the
Company.
3. COMPENSATION. For all services rendered by Consultant, the Company
shall compensate Consultant as follows:
<PAGE>
(a) BASE SALARY. Effective on the date hereof, the base salary
payable to Consultant shall be $25,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures, but not less often
than monthly. On at least an annual basis, the Chief Executive Officer and Chief
Financial Officer of the Company will review Consultant's performance and may
make increases to such base salary if, in their sole discretion, any such
increase is warranted.
(b) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, Consultant shall be entitled to receive such perquisites and benefits as
are customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board of Directors of the Company ("Board").
(c) TRANSACTION FEES.The Company shall pay to Consultant a
bonus ("Transaction Bonus") equal to (i) 1% of the Gross Sales (as defined
below) of an Acquisition Target (as defined below), and (ii) 1% of the aggregate
consideration paid by a buyer for the sale of any direct or indirect subsidiary,
division or affiliate of the Company (a "Company Sale"), payable in either case
for Consultant's material assistance and transaction analysis at the request of
the Company. "Gross Sales" shall mean the gross sales of an Acquisition Target
as determined in accordance with generally accepted accounting principles
consistently applied for the twelve (12) month period ending on the date that an
Acquisition Target is acquired. The Transaction Bonus shall be payable to
Consultant in cash upon the closing of a Company Sale or the purchase of an
Acquisition Target by the Company or one of its direct or indirect subsidiaries.
The Company shall control all discussions and negotiations with any third party
buyer or Acquisition Target and reserves the right, exercisable in its sole
discretion, to reject any Acquisition Target or any offer from a third party
buyer presented to it, and to terminate discussions, negotiations, letters of
intent or contracts with any such parties, for any reason or no reason.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Consultant for
(or, at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Consultant in the performance of his services
hereunder during the Term. The Company acknowledges that Consultant may, for all
or a portion of the Term, reside away from the Company's headquarters in Palm
Beach, Florida, and thus, all travel to and from Consultant's principal
residence for business purposes shall be reimbursed. All reimbursable expenses
shall be appropriately documented in reasonable detail by Consultant upon
submission of any request for reimbursement, and in a format and manner
consistent with the Company's expense reporting policy, as well as applicable
federal and state tax record keeping requirements.
5. PLACE OF PERFORMANCE. Consultant shall perform services under this
Agreement at the Company's place of business in either New York, New York or
Palm Beach, Florida.
6. TERMINATION; RIGHTS ON TERMINATION. Consultant's employment may be
terminated in any one of the following ways, prior to the expiration of the
Term:
<PAGE>
(a) DEATH. The death of Consultant shall immediately terminate
the Term, and no severance compensation shall be owed to Consultant's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Consultant shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Consultant (which notice may be
given before or after the end of the aforementioned periods, but which shall not
be effective earlier than the last day of the applicable period), the Company
may terminate Consultant's employment hereunder if Consultant is unable to
resume his duties at the conclusion of such notice period. Subject to Section
6(e) below, if Consultant's employment is terminated as a result of Consultant's
disability, the Company shall continue to pay Consultant his base salary at the
then-current rate for the lesser of (i) six (6) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Consultant's employment hereunder ten (10) days after written notice
to Consultant "for cause," which shall be: (i) Consultant's material breach of
this Agreement, which breach is not cured within ten (10) days of receipt by
Consultant of written notice from the Company specifying the breach; (ii)
Consultant's gross negligence in the performance of his material duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least ten (10) days after receipt by Consultant of written notice
of the need to cure or cease; (iii) Consultant's willful dishonesty, fraud, or
misconduct with respect to the business or affairs of the Company, and that in
the reasonable judgment of the Company materially and adversely affects the
operations or reputation of the Company; (iv) Consultant's conviction of a
felony or other crime involving moral turpitude; or (v) Consultant's abuse of
alcohol or drugs (legal or illegal) that, in the Company's reasonable judgment,
substantially impairs Consultant's ability to perform his duties hereunder. In
the event of a termination "for cause," as enumerated above, Consultant shall
have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) The Company may not terminate Consultant's
employment without cause.
(ii) At any time after the commencement of
employment, the Consultant may terminate this Agreement for Good Reason upon
giving the Company thirty (30) days prior written notice. If Consultant
terminates this Agreement for Good Reason, Consultant shall receive from the
Company (A) the base salary at the rate then in effect for the longer of (i) six
(6) months from the date of termination, or (ii) whatever time period is
remaining under the Term, and (B) family health benefits as previously provided
to Consultant for the remainder of the Term. For purposes of this Agreement,
Good Reason shall mean a breach by the Company of any material obligation to
Consultant hereunder, which breach is not cured within thirty (30) days after
written notice thereof is given to the Company by Consultant.
<PAGE>
(iii) If Consultant resigns or otherwise terminates
his employment for any reason other than Good Reason as defined herein,
Consultant shall receive no severance compensation.
(e) PAYMENT THROUGH TERMINATION. Upon termination of
Consultant's employment for any reason provided above, Consultant shall be
entitled to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Consultant only to the extent and in the manner
expressly provided above in this Section 6. All other rights and obligations of
the Company and Consultant under this Agreement shall cease as of the effective
date of termination, except that the Company's obligations under this Section
6(e) and Section 11 below and Consultant's obligations under Sections 7, 8, 9
and 10 below shall survive such termination in accordance with their terms.
7. RESTRICTION ON COMPETITION.
(a) During the Term, and thereafter, if Consultant continues
to be employed by the Company and/or any other entity owned by or affiliated
with the Company on an "at will" basis, for the duration of such period, and
thereafter for a period equal to the longer of (x) one (1) year, or (y) the
period during which Consultant is receiving any severance pay from the Company,
Consultant shall not, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation, business,
group, or other entity (each, a "Person"):
(i) engage, in a competitive capacity, whether as an
owner, officer, director, partner, shareholder, joint venturer, employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services which were sold by the Company on the
date of the termination of Consultant's employment, within 50 miles of any
location where the Company both has an office and conducts business on the date
of the termination of Consultant's employment;
(ii) call upon any Person who is, at that time, a
sales, supervisory, or management employee of the Company for the purpose or
with the intent of enticing such employee away from or out of the employ of the
Company;
(iii) call upon any Person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
for the purpose of soliciting or selling products or services in direct
competition with the Company; or
(iv) on Consultant's own behalf or on behalf of any
competitor, call upon any Person who or that, during Consultant's employment by
the Company, was either called upon by the Company as a prospective acquisition
candidate with respect to which Consultant had actual knowledge or was the
subject of an acquisition analysis conducted by the Company with respect to
which Consultant had actual knowledge.
<PAGE>
(b) The foregoing covenants shall not be deemed to prohibit
Consultant 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 through the automated quotation system of a registered
securities association.
(c) It is further agreed that, in the event that Consultant
shall cease to be employed by the Company and enters into a business or pursues
other activities that, on the date of termination of Consultant's employment,
are not in competition with the Company, Consultant shall not be chargeable with
a violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
within 50 miles of the Consultant's new business or activities. In addition, if
Consultant has no actual knowledge that his actions violate the terms of this
Section 7, Consultant shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Consultant ceases the prohibited actions.
(d) For purposes of this Section 7, references to "Company"
shall mean Workflow Management, Inc., together with its subsidiaries and
affiliates. For the purposes of this Agreement, "affiliate" shall mean any
entity 25% or more of the stock or voting interests of which is owned or
controlled directly or indirectly, by the Company or any subsidiary of the
Company. The Company and Consultant agree that for purposes of this Section 7,
the Company's business shall be deemed to include those businesses of the
Company described in the Company's Annual Report on Form 10-K as filed by the
Company with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
(e) The covenants in this Section 7 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Consultant against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Consultant may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Consultant made
in this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Consultant is in violation of any provision of
this Section 7.
<PAGE>
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Consultant shall be entitled to receive from the Company his
base salary at the rate in effect on the date of termination of Consultant's
employment solely for the longer of (i) the time period during which the
provisions of this Section 7 shall be enforceable under the provisions of such
applicable law, or (ii) the time period during which Consultant is not engaging
in any competitive activity, but in no event longer than the applicable period
provided in Section 6 above.
(h) Consultant has carefully read and considered the
provisions of this Section 7 and, having done so, agrees that the restrictive
covenants in this Section 7 impose a fair and reasonable restraint on Consultant
and are reasonably required to protect the interests of the Company, and its
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Consultant intend that such covenants be construed
and enforced in accordance with the changing activities, business, and locations
of the Company throughout the term of these covenants.
(i) Notwithstanding any of the foregoing, if the Company
terminates Consultant's employment pursuant to Section 6(b) or Section 6(d),
then the restrictions on Consultant described in this Section 7 shall only apply
for the period during which Consultant is receiving any severance pay from the
Company. The parties expressly agree that Consultant shall have the right to
receive, but not the obligation to accept, severance compensation for a
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Consultant hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Consultant
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Consultant; (b) is
required by applicable law, legal process, or any order or mandate of a court or
other governmental authority to be disclosed; or (c) is reasonably believed by
Consultant, based upon the advice of legal counsel, to be required to be
disclosed in defense of a lawsuit or other legal or administrative action
brought against Consultant; provided, that in the case of clauses (b) or (c),
Consultant shall give the Company reasonable advance written notice of the
<PAGE>
Confidential Information intended to be disclosed and the reasons and
circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
9. INVENTIONS. Consultant shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, that are conceived or made by
Consultant, solely or jointly with another, during the period of employment or
within one year thereafter, and that are directly related to the business or
activities of the Company and that Consultant conceives as a result of his
employment by the Company, regardless of whether or not such ideas, inventions,
or improvements qualify as "works for hire." Consultant hereby assigns and
agrees to assign all his interests therein to the Company or its nominee.
Whenever requested to do so by the Company, Consultant shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of
Consultant's employment by the Company for any reason or no reason, Consultant
or Consultant's personal representative shall return to the Company (a) all
Confidential Information; (b) all other records, designs, patents, business
plans, financial statements, manuals, memoranda, lists, correspondence, reports,
records, charts, advertising materials, and other data or property delivered to
or compiled by Consultant by or on behalf of the Company or its representatives,
vendors, or customers that pertain to the business of the Company, whether in
paper, electronic, or other form; and (c) all keys, credit cards, vehicles, and
other property of the Company. Consultant shall not retain or cause to be
retained any copies of the foregoing. Consultant hereby agrees that all of the
foregoing shall be and remain the property of the Company, as the case may be,
and be subject at all times to their discretion and control.
11. INDEMNIFICATION. In the event Consultant is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Consultant, and excluding any action by Consultant against the Company), by
reason of the fact that he is or was performing services under this Agreement or
as an officer or director of the Company, then, to the fullest extent permitted
by applicable law, the Company shall indemnify Consultant against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Consultant in connection
therewith. Such indemnification shall continue as to Consultant even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Consultant all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Consultant to the Company, provided, that such request shall include a written
undertaking by Consultant, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Consultant is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Consultant and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
<PAGE>
competent legal representation, and Consultant agrees to use the same
representation; provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Consultant,
Consultant may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 11 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's Certificate of Incorporation and By-laws. The foregoing
indemnification also shall be applicable to Consultant in his capacity as an
officer, director, or representative of any subsidiary of the Company, or any
other entity, but in each case only to the extent that Consultant is serving at
the request of the Board.
12. NO PRIOR AGREEMENTS. Consultant hereby represents and warrants to
the Company that the execution of this Agreement by Consultant, his employment
by the Company, and the performance of his duties hereunder will not violate or
be a breach of any agreement with a former employer, client, or any other
Person. Further, Consultant agrees to indemnify and hold harmless the Company
and its officers, directors, and representatives for any claim, including, but
not limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Consultant and such third party that was in existence as of the date of this
Agreement. To the extent that Consultant had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Consultant and the Company, such prior agreement or understanding
automatically shall be deemed to have been terminated and shall be null and
void.
13. ASSIGNMENT; BINDING EFFECT. Consultant understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Consultant agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Consultant. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Consultant accepts
employment with a subsidiary or affiliate of the Company, unless Consultant and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Consultant, such assignment shall be
considered a condition of employment by such new employer, and references to the
"Company" in this Agreement shall be deemed to refer to such new employer. If
the Company is merged with or into another entity and the successor company is
engaged in substantially the same business as the Company, such action shall not
be considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other Person shall be a third-party beneficiary under this
Agreement.
<PAGE>
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Consultant has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Consultant with respect to
the subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Consultant, and
no term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
15. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attention: Claudia S. Amlie,
Vice President and General Counsel
Fax: (561) 659-7793
with a copy to: Gus J. James, II, Esq. and
T. Richard Litton, Jr., Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax: (757) 624-3169
To Consultant: Steve R. Gibson
1540 Pathway Drive
Carrboro, NC 27510
Fax: (919)-942-5935
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 15.
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
<PAGE>
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. ARBITRATION. Except for actions initiated by the Company to enjoin
a breach by, and/or recover damages from, Consultant related to violation of any
of the provisions of Section 7 though 10, which the Company may bring in an
appropriate court of law or equity, any other unresolved dispute or controversy
arising under or in connection with this Agreement or Consultant's employment,
including, but not limited to claims under Title VII of the Civil Rights Act of
1964, The Age Discrimination in Employment Act, The Americans With Disabilities
Act, or any other local, state or federal law related to employment
discrimination, shall be settled exclusively by arbitration conducted in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
A decision by a majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
the Company. Each party shall bear its own counsel fees. The arbitration
proceeding shall be held, at the option of the Company, in either Palm Beach,
Florida or New York, New York.
19. EQUITABLE RELIEF; JURISDICTION AND VENUE. Upon due consideration of
any effects created hereby, Consultant hereby irrevocably submits to the
jurisdiction and venue of a court of competent civil jurisdiction sitting in
Palm Beach, Florida in any action or proceeding brought by the Company arising
out of, or relating to, the provisions in Sections 7 through 10 of this
Agreement. Consultant hereby irrevocably agrees that any such action or
proceeding may, at the Company's option, be heard and determined in such court.
Consultant agrees that a final order or judgment in any such action or
proceeding shall, to the extent permitted by applicable law, be conclusive and
may be enforced in other jurisdictions by suit on the order or judgment, or in
any other manner provided by applicable law related to the enforcement of
judgments.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
<PAGE>
WORKFLOW MANAGEMENT, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
CONSULTANT
_________________________________
Steve R. Gibson
EXHIBIT 10.52
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 1st day of April, 1999, is
by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company"), and CLAUDIA SAENZ AMLIE ("Employee").
RECITALS
The Company desires to employ Employee and to have the benefit of her
skills and services, and Employee desires to be employed with the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Employee to perform the
duties described herein, and Employee hereby accepts employment with the
Company, beginning on the date hereof and continuing for a period of two (2)
years (the "Initial Term"). The Initial Term shall be renewed for additional
periods of one (1) year each (the "Renewal Periods" and together with the
Initial Term, the "Term") unless the Company provides written notice to
Employee, or Employee provides written notice to the Company, in either case no
less than ninety (90) days prior to the expiration of the Initial Term or of a
Renewal Period, whichever is applicable, that such renewal will not be made.
2. POSITION AND DUTIES. The Company hereby employs Employee as
Executive Vice President, Chief Administrative Officer and General Counsel. As
such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of an Executive Vice President, Chief Administrative
Officer and the General Counsel of the Company and assigned to Employee by the
Board of Directors of the Company (the "Board"). Employee will report directly
to the Chief Executive Officer of the Company. Employee hereby accepts this
employment upon the terms and conditions herein contained and agrees to devote
substantially all of her professional time, attention, and efforts to promote
and further the business of the Company. Employee shall faithfully adhere to,
execute, and fulfill all policies established by the Company.
3. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
<PAGE>
(a) BASE SALARY. The base salary payable to Employee shall be
$140,000 per year, payable on a regular basis in accordance with the Company's
standard payroll procedures, but not less often than monthly. On April 1, 2000,
Employee shall be eligible to receive a $30,000 increase to such base salary if,
in the discretion of the Compensation Committee or Board of Directors, such
increase is warranted after a satisfactory performance review; provided,
however, that Employee's base salary shall automatically increase by $30,000 on
April 1, 2000 in the event Thomas B. D'Agostino, Sr. is no longer serving as
Chairman and Chief Executive Officer of the Company on such date.
Notwithstanding anything to the contrary herein, on at least an annual basis,
the Board or Compensation Committee will review Employee's performance and may
make any further increases to such base salary if, in its sole discretion, any
such increase is warranted.
(b) INCENTIVE BONUS. During the Term, Employee shall be
eligible to receive an incentive bonus up to the amount, based upon the
criteria, and payable in such amount, at such times as are specified in Exhibit
A attached hereto. The manner of payment, and form of consideration, if any,
shall be determined by the Compensation Committee of the Board, in its sole and
absolute discretion, and such determination shall be binding and final. To the
extent that such bonus is to be determined in light of financial performance
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, Employee shall be entitled to receive such perquisites and benefits as are
customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for (or,
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of her services
hereunder during the Term. The Company shall also reimburse (or, at the
Company's option, pay) Employee for all reasonable continuing legal education
expenses, bar fees or other amounts incurred by Employee that are necessary for
Employee to maintain a license to practice law in the State of Florida. All
reimbursable expenses shall be appropriately documented in reasonable detail by
Employee upon submission of any request for reimbursement, and in a format and
manner consistent with the Company's expense reporting policy, as well as
applicable federal and state tax record keeping requirements.
5. PLACE OF PERFORMANCE. Employee understands that the Company may
request that she relocate from her present residence to another geographic
location in order to more efficiently carry out her duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, the Company will provide Employee with a
relocation allowance, in an amount determined by the Company, to assist Employee
in covering the costs of moving herself, her immediate family, and their
personal property and effects. The total amount and type of costs to be covered
shall be determined by the Company, in light of prevailing Company policy at the
time.
<PAGE>
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the following ways, prior to the expiration or
non-renewal of the Term:
(a) DEATH. The death of Employee shall immediately terminate
the employment and Term, and no severance compensation shall be owed to
Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been unable to perform the
material duties of her position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume her
full-time duties at the conclusion of such notice period. Subject to Section
6(f) below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee her base salary at the
then-current rate for the lesser of (i) five (5) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Employee's employment hereunder ten (10) days after written notice to
Employee "for cause," which shall be: (i) Employee's material breach of this
Agreement, which breach is not cured within ten (10) days of receipt by Employee
of written notice from the Company specifying the breach; (ii) Employee's gross
negligence in the performance of her material duties hereunder, intentional
nonperformance or mis-performance of such duties, or refusal to abide by or
comply with the directives of the Board, her superior officers, or the Company's
policies and procedures, which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty, fraud, or misconduct with respect to
the business or affairs of the Company, that in the reasonable judgment of the
Company materially and adversely affects the operations or reputation of the
Company; (iv) Employee's conviction of a felony or other crime involving moral
turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal) that,
in the Company's reasonable judgment, substantially impairs Employee's ability
to perform her duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) At any time after the commencement of employment,
the Company may, without cause, terminate Employee's employment, effective
thirty (30) days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, Employee shall receive from
the Company the base salary at the rate then in effect for the longer of (i)
five (5) months from the date of termination, or (ii) whatever time period is
remaining under the Term. Such payments shall be made in accordance with the
Company's regular payroll cycle.
<PAGE>
(ii) At any time after the commencement of
employment, the Employee may terminate this Agreement for Good Reason upon
giving the Company thirty (30) days prior written notice. If Employee terminates
this Agreement for Good Reason, Employee shall receive from the Company the base
salary at the rate then in effect for the lesser of (i) six (6) months from the
date of termination, or (ii) whatever time period is remaining under the Term.
Such payments shall be made in accordance with the Company's regular payroll
cycle. For purposes of this Agreement, Good Reason shall mean:
(A) a breach by the Company of any material
obligation to Employee hereunder, which breach is not cured within thirty (30)
days after written notice thereof is given to the Company by Employee; or
(B) Employee's refusal to be relocated from
her present residence to any other geographic location pursuant to a request by
the Company.
(ii) If Employee resigns or otherwise terminates her
employment for any reason, Employee shall receive no severance compensation.
(f) PAYMENT THROUGH TERMINATION. Upon termination of
Employee's employment for any reason provided above, Employee shall be entitled
to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above in this Section 6. With respect to incentive bonus
compensation, Employee shall be entitled to receive any bonus declared but not
paid prior to termination. Notwithstanding the foregoing, in the event of a
termination by the Company under Section 6(b) or 6(e), Employee shall be
entitled to receive incentive bonus compensation through the end of the
Company's fiscal year in which termination occurs, calculated as if Employee had
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of her employment.
All other rights and obligations of the Company and Employee under this
Agreement shall cease as of the effective date of termination, except that the
Company's obligations under this Section 6(f) and Section 11 below and
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
7. RESTRICTION ON COMPETITION.
(a) During the Term and for such period after the Term that
Employee continues to be employed by the Company and/or any other entity owned
by or affiliated with the Company on an "at will" basis and, thereafter, for a
<PAGE>
period equal to the longer of (x) one year, or (y) the period during which
Employee is receiving any severance pay or other compensation from the Company
in accordance with the terms of this Agreement, Employee shall not, directly or
indirectly, for herself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, in a competitive capacity, whether as an
owner, officer, director, partner, shareholder, joint venturer, employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services which were sold by the Company on the
date of the termination of Employee's employment, within 50 miles of any
location where the Company both has an office and conducts business on the date
of the termination of Employee's employment;
(ii) call upon any person who is, at that time, a
sales, supervisory, or management employee of the Company for the purpose or
with the intent of enticing such employee away from or out of the employ of the
Company;
(iii) call upon any person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
for the purpose of soliciting or selling products or services in direct
competition with the Company; or
(iv) on Employee's own behalf or on behalf of any
competitor, call upon any person who or that, during Employee's employment by
the Company was either called upon by the Company as a prospective acquisition
candidate with respect to which Employee had actual knowledge or was the subject
of an acquisition analysis conducted by the Company with respect to which
Employee had actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Employee from (i) 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 through the automated quotation system of a registered
securities association; or (ii) engaging in the practice of law.
(c) It is further agreed that, in the event that Employee
shall cease to be employed by the Company and enters into a business or pursues
other activities that, on the date of termination of Employee's employment, are
not in competition with the Company, Employee shall not be chargeable with a
violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
within 50 miles of the Employee's new business or activities. In addition, if
Employee has no actual knowledge that her actions violate the terms of this
Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "Company"
shall mean Workflow Management, Inc., together with its subsidiaries and
affiliates. For the purposes of this Agreement, "affiliate" shall mean any
entity twenty-five percent or more of the stock of which is owned or controlled,
directly or indirectly, by the Company or any subsidiary of the Company.
<PAGE>
(e) The covenants in this Section 7 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon thirty (30) days' prior written notice to the Company,
waive her right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Employee made in
this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Employee shall be entitled to receive from the Company her base
salary at the rate in effect on the date of termination of Employee's employment
solely for the longer of (i) the time period during which the provisions of this
Section 7 shall be enforceable under the provisions of such applicable law, or
(ii) the time period during which Employee is not engaging in any competitive
activity, but in no event longer than the applicable period provided in Section
6 above. This Section 7(g) shall be construed and interpreted in light of the
duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions
of this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Employee and are
reasonably required to protect the interests of the Company, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company throughout the term of these covenants.
(i) Notwithstanding any of the foregoing, if the Company
terminates Employee's employment pursuant to Section 6(b) or Section 6(d), then
the restrictions on Employee described in this Section 7 shall only apply for
the period during which Employee is receiving any severance pay from the
Company. The parties expressly agree that Employee shall have the right to
receive, but not the obligation to accept, severance compensation for
termination under either Section 6(b) or Section 6(d).
<PAGE>
8. CONFIDENTIAL INFORMATION. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of her
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of her employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
her interests therein to the Company or its nominee. Whenever requested to do so
by the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company or its representatives, vendors, or
customers that pertain to the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit cards, vehicles, and other
property of the Company. Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that all of the foregoing shall
be and remain the property of the Company, as the case may be, and be subject at
all times to their discretion and control.
<PAGE>
11. INDEMNIFICATION. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that she is or was performing services under this Agreement or as an
officer or director of the Company, then, to the fullest extent permitted by
applicable law, the Company shall indemnify Employee against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. Such indemnification shall continue as to Employee even if she has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of her heirs and estate. The Company shall advance to Employee all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Employee to the Company, provided, that such request shall include a written
undertaking by Employee, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Employee is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Employee agrees to use the same
representation; provided, that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 11 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws. The foregoing indemnification also shall be applicable to
Employee in her capacity as an officer, director, or representative of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board.
12. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, her employment by the
Company, and the performance of her duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
<PAGE>
13. ASSIGNMENT; BINDING EFFECT. Employee understands that she has been
selected for employment by the Company on the basis of her personal
qualifications, experience, and skills. Employee agrees, therefore, that she
cannot assign all or any portion of her performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
her new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another entity and the successor company is engaged in
substantially the same business as the Company, such action shall not be
considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other person shall be a third-party beneficiary under this
Agreement.
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
15. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
Attn: President
with a copy to: Gus J. James, II, Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax. (757) 624-3169
<PAGE>
To Employee: Claudia S. Amlie
13036 Coastal Circle
Palm Beach Gardens, FL 33410
Fax: (561) 776-4924
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 15.
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. ARBITRATION. Except for actions initiated by the Company to enjoin
a breach by, and/or recover damages from, Employee related to violation of any
of the provisions in paragraphs 7 through 10, which the Company may bring in an
appropriate court of law or equity, any other unresolved dispute or controversy
arising under or in connection with Employee's employment and/or this Agreement
shall be settled or resolved exclusively by arbitration conducted in accordance
with the rules of the American Arbitration Association then in effect. This
includes any and all federal, state and/or local claims based upon statute,
common law and/or local ordinance, including, but not limited to claims under
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, the Family and Medical Leave Act, and the Americans with
Disabilities Act. The arbitrator(s) shall not have the authority to add to,
detract from or modify this Agreement except as permitted by the Agreement. The
arbitrator's decision shall be final and binding, and judgment may be entered on
the decision in any court having competent jurisdiction. The direct expense of
the arbitration shall be borne by the Company but each party will bear its own
expenses and legal fees. The arbitration shall be held in any of the following
locations (individually, the "Arbitration Location"): (a) Palm Beach County,
Florida; (b) the City of Norfolk, Virginia; or (c) the city where Employee is or
was last employed by Company. The selection of an Arbitration Location shall be
at the sole and absolute discretion of the Company.
<PAGE>
19. EQUITABLE RELIEF: JURISDICTION AND VENUE. Employee acknowledges
that the Company's principal corporate office is in the City of Palm Beach,
Florida. Upon due consideration of any effects created hereby, Employee hereby
irrevocably submits to the jurisdiction and venue of a court of competent civil
jurisdiction sitting in Palm Beach County, Florida, in any action or proceeding
brought by the Company arising out of, or relating to, the provisions in
paragraphs 7 through 10 of this Agreement. Employee hereby irrevocably agrees
that any such action or proceeding may, at the Company's option, be heard and
determined in such court. Employee agrees that a final order or judgment in any
such action or proceeding shall, to the extent permitted by applicable law, be
conclusive and may be enforced in other jurisdictions by suit on the order or
judgment, or in any other manner provided by applicable law related to the
enforcement of judgments.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
/s/ Thomas B. D'Agostino
--------------------------------------
Thomas B. D'Agostino
President
EMPLOYEE
/s/ Claudia Saenz Amlie
--------------------------------------
Claudia Saenz Amlie
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
Under the Company's Incentive Bonus Plan, Employee will be eligible to earn up
to 100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of the Company or a compensation committee thereof,
depending upon the achievement of specified criteria and payable in the form of
cash, stock options, or other non-cash awards, in such proportions, and in such
forms, as are determined by the Board of the Company or a compensation committee
thereof. Bonuses under the Incentive Bonus Plan will be determined by measuring
Employee's performance and the Company's performance based on the following
criteria, weighted as indicated, and measured against target performance levels
established by the Board of Company or such compensation committee: (i) complete
and timely compliance of the Company's reporting requirements to the SEC, the
shareholders and any other required reporting in connection with the Company's
stock -- 50%; (ii) the growth of net earnings per share of the Company -- 25%;
and (iii) improvement in the Company's operating margin -- 25%.
EXHIBIT 10.53
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 1st day of April, 1999, is
by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company"), SFI OF DELAWARE, LLC, a Delaware limited liability company and
wholly owned subsidiary of the Company ("SFI"), and THOMAS B. D'AGOSTINO, JR.
("Employee").
RECITALS
The Company desires to employ Employee and to have the benefit of his
skills and services, and Employee desires to be employed with the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Employee to perform the
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two (2) years (the "Initial Term"). The Initial Term shall be renewed for
additional periods of one (1) year each (the "Renewal Periods" and together with
the Initial Term, the "Term") unless the Company provides written notice to
Employee, or Employee provides written notice to the Company, in either case no
less than ninety (90) days prior to the expiration of the Initial Term or of a
Renewal Period, whichever is applicable, that such renewal will not be made.
2. POSITION AND DUTIES. The Company hereby employs Employee as Division
President and Chief Operating Officer of Integrated Business
Services/Distribution of the Company and as President of SFI. As such, Employee
shall have responsibilities, duties and authority reasonably accorded to and
expected of a Division President, the Chief Operating Officer of Integrated
Business Services/Distribution and President of SFI and assigned to Employee by
the Board of Directors of the Company (the "Board"). Employee will report
directly to the Chief Executive Officer of the Company unless otherwise directed
by the Board. Employee hereby accepts this employment upon the terms and
conditions herein contained and agrees to devote substantially all of his
professional time, attention, and efforts to promote and further the business of
the Company. Employee shall faithfully adhere to, execute, and fulfill all
policies established by the Company.
<PAGE>
3. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be
$250,000 per year, payable on a regular basis in accordance with the Company's
standard payroll procedures, but not less often than monthly. On April 1, 2000,
Employee shall be eligible to receive a $35,000 increase to such base salary if,
in the discretion of the Compensation Committee or Board of Directors, any such
increase is warranted after a satisfactory performance review; provided,
however, that Employee's base salary shall automatically increase by $35,000 on
April 1, 2000 in the event Thomas B. D'Agostino, Sr. is no longer serving as
Chairman and Chief Executive Officer of the Company on such date.
Notwithstanding anything to the contrary herein, on at least an annual basis,
the Board or Compensation Committee will review Employee's performance and may
make any further increases to such base salary if, in its sole discretion, any
such increase is warranted.
(b) INCENTIVE BONUS. During the Term, Employee shall be
eligible to receive an incentive bonus up to the amount, based upon the
criteria, and payable in such amount, at such times as are specified in Exhibit
A attached hereto. The manner of payment, and form of consideration, if any,
shall be determined by the Compensation Committee of the Board, in its sole and
absolute discretion, and such determination shall be binding and final. To the
extent that such bonus is to be determined in light of financial performance
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, Employee shall be entitled to receive such perquisites and benefits as are
customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Compensation Committee of the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for (or,
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. PLACE OF PERFORMANCE. Employee understands that the Company may
request that he relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, the Company will provide Employee with a
relocation allowance, in an amount determined by the Company, to assist Employee
in covering the costs of moving himself, his immediate family, and their
personal property and effects. The total amount and type of costs to be covered
shall be determined by the Company, in light of prevailing Company policy at the
time.
<PAGE>
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the following ways, prior to the expiration or
non-renewal of the Term:
(a) DEATH. The death of Employee shall immediately terminate
the employment and Term, and no severance compensation shall be owed to
Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume his
full-time duties at the conclusion of such notice period. Subject to Section
6(f) below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee his base salary at the
then-current rate for the lesser of (i) five (5) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Employee's employment hereunder ten (10) days after written notice to
Employee "for cause," which shall be: (i) Employee's material breach of this
Agreement, which breach is not cured within ten (10) days of receipt by Employee
of written notice from the Company specifying the breach; (ii) Employee's gross
negligence in the performance of his material duties hereunder, intentional
nonperformance or mis-performance of such duties, or refusal to abide by or
comply with the directives of the Board, his superior officers, or the Company's
policies and procedures, which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty, fraud, or misconduct with respect to
the business or affairs of the Company, and that in the reasonable judgment of
the Company materially and adversely affects the operations or reputation of the
Company; (iv) Employee's conviction of a felony or other crime involving moral
turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal) that,
in the Company's reasonable judgment, substantially impairs Employee's ability
to perform his duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) At any time after the commencement of employment,
the Company may, without cause, terminate Employee's employment, effective
thirty (30) days after written notice is provided to the Employee. Should
<PAGE>
Employee be terminated by the Company without cause, Employee shall receive from
the Company the base salary at the rate then in effect for the longer of (i)
five (5) months from the date of termination, or (ii) whatever time period is
remaining under the Term. Such payments shall be made in accordance with the
Company's regular payroll cycle.
(ii) At any time after the commencement of
employment, the Employee may terminate this Agreement for Good Reason upon
giving the Company thirty (30) days prior written notice. If Employee terminates
this Agreement for Good Reason, Employee shall receive from the Company the base
salary at the rate then in effect for the lesser of (i) six (6) months from the
date of termination, or (ii) whatever time period is remaining under the Term.
Such payments shall be made in accordance with the Company's regular payroll
cycle. For purposes of this Agreement, Good Reason shall mean:
(A) a breach by the Company of any material
obligation to Employee hereunder, which breach is not cured within thirty (30)
days after written notice thereof is given to the Company by Employee; or
(B) Employee's refusal to be relocated from
his present residence to any other geographic location pursuant to a request by
the Company.
(iii) If Employee resigns or otherwise terminates his
employment for any reason, Employee shall receive no severance compensation.
(e) PAYMENT THROUGH TERMINATION. Upon termination of
Employee's employment for any reason provided above, Employee shall be entitled
to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above in this Section 6. With respect to incentive bonus
compensation, Employee shall be entitled to receive any bonus declared but not
paid prior to termination. Notwithstanding the foregoing, in the event of a
termination by the Company under Section 6(b) or 6(e), Employee shall be
entitled to receive incentive bonus compensation through the end of the
Company's fiscal year in which termination occurs, calculated as if Employee had
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of his employment.
All other rights and obligations of the Company and Employee under this
Agreement shall cease as of the effective date of termination, except that the
Company's obligations under this Section 6(f) and Section 11 below and
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
<PAGE>
7. RESTRICTION ON COMPETITION.
(a) During the Term and for such period after the Term that
Employee continues to be employed by the Company and/or any other entity owned
by or affiliated with the Company on an "at will" basis and, thereafter, for a
period equal to the longer of (x) one year, or (y) the period during which
Employee is receiving any severance pay or other compensation from the Company
in accordance with the terms of this Agreement, Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, in a competitive capacity, whether as an
owner, officer, director, partner, shareholder, joint venturer, employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services which were sold by the Company on the
date of the termination of Employee's employment, within 50 miles of any
location where the Company both has an office and conducts business on the date
of the termination of Employee's employment;
(ii) call upon any person who is, at that time, a
sales, supervisory, or management employee of the Company for the purpose or
with the intent of enticing such employee away from or out of the employ of the
Company;
(iii) call upon any person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
for the purpose of soliciting or selling products or services in direct
competition with the Company; or
(iv) on Employee's own behalf or on behalf of any
competitor, call upon any person who or that, during Employee's employment by
the Company was either called upon by the Company as a prospective acquisition
candidate with respect to which Employee had actual knowledge or was the subject
of an acquisition analysis conducted by the Company with respect to which
Employee had actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Employee 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 through the automated quotation system of a registered
securities association.
(c) It is further agreed that, in the event that Employee
shall cease to be employed by the Company and enters into a business or pursues
other activities that, on the date of termination of Employee's employment, are
not in competition with the Company, Employee shall not be chargeable with a
violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
within 50 miles of the Employee's new business or activities. In addition, if
Employee has no actual knowledge that his actions violate the terms of this
Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Employee ceases the prohibited actions.
<PAGE>
(d) For purposes of this Section 7, references to "Company"
shall mean Workflow Management, Inc., together with its subsidiaries and
affiliates. For the purposes of this Agreement, "affiliate" shall mean any
entity twenty-five percent or more of the stock of which is owned or controlled,
directly or indirectly, by the Company or any subsidiary of the Company.
(e) The covenants in this Section 7 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Employee made in
this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Employee shall be entitled to receive from the Company his base
salary at the rate in effect on the date of termination of Employee's employment
solely for the longer of (i) the time period during which the provisions of this
Section 7 shall be enforceable under the provisions of such applicable law, or
(ii) the time period during which Employee is not engaging in any competitive
activity, but in no event longer than the applicable period provided in Section
6 above. This Section 7(g) shall be construed and interpreted in light of the
duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions
of this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Employee and are
reasonably required to protect the interests of the Company, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company throughout the term of these covenants.
<PAGE>
(i) Notwithstanding any of the foregoing, if the Company
terminates Employee's employment pursuant to Section 6(b) or Section 6(d), then
the restrictions on Employee described in this Section 7 shall only apply for
the period during which Employee is receiving any severance pay from the
Company. The parties expressly agree that Employee shall have the right to
receive, but not the obligation to accept, severance compensation for
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of his employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
his interests therein to the Company or its nominee. Whenever requested to do so
by the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
<PAGE>
Employee by or on behalf of the Company or its representatives, vendors, or
customers that pertain to the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit cards, vehicles, and other
property of the Company. Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that all of the foregoing shall
be and remain the property of the Company, as the case may be, and be subject at
all times to their discretion and control.
11. INDEMNIFICATION. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that he is or was performing services under this Agreement or as an
officer or director of the Company, then, to the fullest extent permitted by
applicable law, the Company shall indemnify Employee against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. Such indemnification shall continue as to Employee even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Employee all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Employee to the Company, provided, that such request shall include a written
undertaking by Employee, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Employee is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Employee agrees to use the same
representation; provided, that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 11 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws. The foregoing indemnification also shall be applicable to
Employee in his capacity as an officer, director, or representative of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board.
12. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
<PAGE>
13. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another entity and the successor company is engaged in
substantially the same business as the Company, such action shall not be
considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No person other than SFI shall be a third-party beneficiary
under this Agreement.
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
15. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
Attn: President
<PAGE>
with a copy to: Gus J. James, II, Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax: (757) 624-3169
To Employee: Thomas B. D'Agostino, Jr.
301 E. 64th Street, Apt 18A
New York, NY 10021
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 15.
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. ARBITRATION. Except for actions initiated by the Company to enjoin
a breach by, and/or recover damages from, Employee related to violation of any
of the provisions in paragraphs 7 through 10, which the Company may bring in an
appropriate court of law or equity, any other unresolved dispute or controversy
arising under or in connection with Employee's employment and/or this Agreement
shall be settled or resolved exclusively by arbitration conducted in accordance
with the rules of the American Arbitration Association then in effect. This
includes any and all federal, state and/or local claims based upon statute,
common law and/or local ordinance, including, but not limited to claims under
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, the Family and Medical Leave Act, and the Americans with
Disabilities Act. The arbitrator(s) shall not have the authority to add to,
detract from or modify this Agreement except as permitted by the Agreement. The
arbitrator's decision shall be final and binding, and judgment may be entered on
the decision in any court having competent jurisdiction. The direct expense of
the arbitration shall be borne by the Company but each party will bear its own
expenses and legal fees. The arbitration shall be held in any of the following
locations (individually, the "Arbitration Location"): (a) Palm Beach County,
Florida; (b) New York, New York; or (c) the city where Employee is or was last
employed by Company. The selection of an Arbitration Location shall be at the
sole and absolute discretion of the Company.
<PAGE>
19. EQUITABLE RELIEF: JURISDICTION AND VENUE. Employee acknowledges
that the Company's principal corporate office is in the City of Palm Beach,
Florida. Upon due consideration of any effects created hereby, Employee hereby
irrevocably submits to the jurisdiction and venue of a court of competent civil
jurisdiction sitting in Palm Beach County, Florida, in any action or proceeding
brought by the Company arising out of, or relating to, the provisions in
paragraphs 7 through 10 of this Agreement. Employee hereby irrevocably agrees
that any such action or proceeding may, at the Company's option, be heard and
determined in such court. Employee agrees that a final order or judgment in any
such action or proceeding shall, to the extent permitted by applicable law, be
conclusive and may be enforced in other jurisdictions by suit on the order or
judgment, or in any other manner provided by applicable law related to the
enforcement of judgments.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
/s/ Thomas B. D'Agostino
---------------------------------------
Thomas B. D'Agostino
President
EMPLOYEE
/s/ Thomas B. D'Agostino, Jr.
---------------------------------------
Thomas B. D'Agostino, Jr.
SFI OF DELAWARE, LLC, as a third
party beneficiary
/s/ Steve R. Gibson
---------------------------------------
Steve R. Gibson
Vice President
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
Under the Company's Incentive Bonus Plan, Employee will be eligible to earn up
to 100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of the Company or a compensation committee thereof,
depending upon the achievement of specified criteria and payable in the form of
cash, stock options, or other non-cash awards, in such proportions, and in such
forms, as are determined by the Board of the Company or a compensation committee
thereof. Bonuses under the Incentive Bonus Plan will be determined by measuring
Employee's performance and the Company's performance based on the following
criteria, weighted as indicated, and measured against target performance levels
established by the Board of Company or such compensation committee: (i) the
growth of net earnings per share of the Company -- 20%; (ii) the growth of the
Integrated Business Services/Distribution Division's revenues due to internal
growth and acquisitions - 40%; and (iii) improvement in the Integrated Business
Services/Distribution Division's operating margin -- 40%.
EXHIBIT 10.54
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 1st day of April, 1999, is
by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company"), and RICHARD M. SCHLANGER ("Employee").
RECITALS
The Company desires to employ Employee and to have the benefit of his
skills and services, and Employee desires to be employed with the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Employee to perform the
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two (2) years (the "Initial Term"). The Initial Term shall be renewed for
additional periods of one (1) year each (the "Renewal Periods" and together with
the Initial Term, the "Term") unless the Company provides written notice to
Employee, or Employee provides written notice to the Company, in either case no
less than ninety (90) days prior to the expiration of the Initial Term or of a
Renewal Period, whichever is applicable, that such renewal will not be made.
2. POSITION AND DUTIES. The Company hereby employs Employee as Division
President and Chief Operating Officer of Fulfillment/Manufacturing. As such,
Employee shall have responsibilities, duties and authority reasonably accorded
to and expected of a Division President and the Chief Operating Officer of
Fulfillment/Manufacturing and assigned to Employee by the Board of Directors of
the Company (the "Board"). Employee will report directly to the Chief Executive
Officer of the Company unless otherwise directed by the Board. Employee hereby
accepts this employment upon the terms and conditions herein contained and
agrees to devote substantially all of his professional time, attention, and
efforts to promote and further the business of the Company. Employee shall
faithfully adhere to, execute, and fulfill all policies established by the
Company.
3. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
<PAGE>
(a) BASE SALARY. The base salary payable to Employee shall be
$250,000 per year, payable on a regular basis in accordance with the Company's
standard payroll procedures, but not less often than monthly. On April 1, 2000,
Employee shall be eligible to receive a $35,000 increase to such base salary if,
in the discretion of the Compensation Committee or Board of Directors, such
increase is warranted after a satisfactory performance review; provided,
however, that Employee's base salary shall automatically increase by $35,000 on
April 1, 2000 in the event Thomas B. D'Agostino, Sr. is no longer serving as
Chairman and Chief Executive Officer of the Company on such date.
Notwithstanding anything to the contrary herein, on at least an annual basis,
the Board or Compensation Committee will review Employee's performance and may
make any further increases to such base salary if, in its sole discretion, any
such increase is warranted.
(b) INCENTIVE BONUS. During the Term, Employee shall be
eligible to receive an incentive bonus up to the amount, based upon the
criteria, and payable in such amount, at such times as are specified in Exhibit
A attached hereto. The manner of payment, and form of consideration, if any,
shall be determined by the Compensation Committee of the Board, in its sole and
absolute discretion, and such determination shall be binding and final. To the
extent that such bonus is to be determined in light of financial performance
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, in addition to the benefits specifically set forth on Exhibit B attached
hereto, Employee shall be entitled to receive such perquisites and benefits as
are customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Compensation Committee of the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for (or,
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. PLACE OF PERFORMANCE. Employee understands that the Company may
request that he relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, the Company will provide Employee with a
relocation allowance, in an amount determined by the Company, to assist Employee
in covering the costs of moving himself, his immediate family, and their
personal property and effects. The total amount and type of costs to be covered
shall be determined by the Company, in light of prevailing Company policy at the
time.
<PAGE>
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the followings ways, prior to the expiration or
non-renewal of the Term:
(a) DEATH. The death of Employee shall immediately terminate
the employment and Term, and no severance compensation shall be owed to
Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume his
full-time duties at the conclusion of such notice period. Subject to Section
6(f) below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee his base salary at the
then-current rate for the lesser of (i) five (5) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Employee's employment hereunder ten (10) days after written notice to
Employee "for cause," which shall be: (i) Employee's material breach of this
Agreement, which breach is not cured within ten (10) days of receipt by Employee
of written notice from the Company specifying the breach; (ii) Employee's gross
negligence in the performance of his material duties hereunder, intentional
nonperformance or mis-performance of such duties, or refusal to abide by or
comply with the directives of the Board, his superior officers, or the Company's
policies and procedures, which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty, fraud, or misconduct with respect to
the business or affairs of the Company, and that in the reasonable judgment of
the Company materially and adversely affects the operations or reputation of the
Company; (iv) Employee's conviction of a felony or other crime involving moral
turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal) that,
in the Company's reasonable judgment, substantially impairs Employee's ability
to perform his duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) WITHOUT CAUSE.
(i) At any time after the commencement of employment,
the Company may, without cause, terminate Employee's employment, effective
thirty (30) days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, Employee shall receive from
the Company the base salary at the rate then in effect for the longer of (i)
five (5) months from the date of termination, or (ii) whatever time period is
remaining under the Term. Such payments shall be made in accordance with the
Company's regular payroll cycle.
<PAGE>
(ii) At any time after the commencement of
employment, the Employee may terminate this Agreement for Good Reason upon
giving the Company thirty (30) days prior written notice. If Employee terminates
this Agreement for Good Reason, Employee shall receive from the Company the base
salary at the rate then in effect for the lesser of (i) six (6) months from the
date of termination, or (ii) whatever time period is remaining under the Term.
Such payments shall be made in accordance with the Company's regular payroll
cycle. For purposes of this Agreement, Good Reason shall mean:
(A) a breach by the Company of any material
obligation to Employee hereunder, which breach is not cured within thirty (30)
days after written notice thereof is given to the Company by Employee; or
(B) Employee's refusal to be relocated from
his present residence to any other geographic location pursuant to a request by
the Company.
(iii) If Employee resigns or otherwise terminates his
employment for any reason, Employee shall receive no severance compensation.
(e) PAYMENT THROUGH TERMINATION. Upon termination of
Employee's employment for any reason provided above, Employee shall be entitled
to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above in this Section 6. With respect to incentive bonus
compensation, Employee shall be entitled to receive any bonus declared but not
paid prior to termination. Notwithstanding the foregoing, in the event of a
termination by the Company under Section 6(b) or 6(e), Employee shall be
entitled to receive incentive bonus compensation through the end of the
Company's fiscal year in which termination occurs, calculated as if Employee had
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of his employment.
All other rights and obligations of the Company and Employee under this
Agreement shall cease as of the effective date of termination, except that the
Company's obligations under this Section 6(f) and Section 11 below and
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
7. RESTRICTION ON COMPETITION.
(a) During the Term and for such period after the Term that
Employee continues to be employed by the Company and/or any other entity owned
by or affiliated with the Company on an "at will" basis and, thereafter, for a
period equal to the longer of (x) one year, or (y) the period during which
<PAGE>
Employee is receiving any severance pay or other compensation from the Company
in accordance with the terms of this Agreement, Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, in a competitive capacity, whether as an
owner, officer, director, partner, shareholder, joint venturer, employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services which were sold by the Company on the
date of the termination of Employee's employment, within 50 miles of any
location where the Company both has an office and conducts business on the date
of the termination of Employee's employment;
(ii) call upon any person who is, at that time, a
sales, supervisory, or management employee of the Company for the purpose or
with the intent of enticing such employee away from or out of the employ of the
Company;
(iii) call upon any person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
for the purpose of soliciting or selling products or services in direct
competition with the Company; or
(iv) on Employee's own behalf or on behalf of any
competitor, call upon any person who or that, during Employee's employment by
the Company was either called upon by the Company as a prospective acquisition
candidate with respect to which Employee had actual knowledge or was the subject
of an acquisition analysis conducted by the Company with respect to which
Employee had actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Employee from (i) 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 through the automated quotation system of a registered
securities association or (ii) owning an interest in a business known as
Webvelope and Rolls Offset.
(c) It is further agreed that, in the event that Employee
shall cease to be employed by the Company and enters into a business or pursues
other activities that, on the date of termination of Employee's employment, are
not in competition with the Company, Employee shall not be chargeable with a
violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
within 50 miles of the Employee's new business or activities. In addition, if
Employee has no actual knowledge that his actions violate the terms of this
Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "Company"
shall mean Workflow Management, Inc., together with its subsidiaries and
affiliates. For the purposes of this Agreement, "affiliate" shall mean any
entity twenty-five percent or more of the stock of which is owned or controlled,
directly or indirectly, by the Company or any subsidiary of the Company.
<PAGE>
(e) The covenants in this Section 7 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Employee made in
this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7. It is further agreed that the Company shall not have the right
to set off and apply amounts due to Employee hereunder against amounts due U.S.
Office Products Company or Company, as successor, from Employee under the Merger
Agreement.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Employee shall be entitled to receive from the Company his base
salary at the rate in effect on the date of termination of Employee's employment
solely for the longer of (i) the time period during which the provisions of this
Section 7 shall be enforceable under the provisions of such applicable law, or
(ii) the time period during which Employee is not engaging in any competitive
activity, but in no event longer than the applicable period provided in Section
6 above. To the extent Employee is subject to a restriction on competitive
activity as a party to that certain Agreement and Plan of Reorganization, dated
as of April 24, 1997, by and among INTER ALIA, U.S. Office Products Company,
United Envelope Co., Inc. and Employee (the "Merger Agreement"), Employee shall
abide by, and in all cases be subject to, the restrictive covenants (whether in
this Section 7 or the Merger Agreement) that, in the aggregate, impose
restrictions on Employee for the longest duration and broadest geographic scope
(taking into account the effect of any applicable court decisions limiting the
scope or duration of such restrictions), it being agreed that all such
restrictive covenants are supported by separate and distinct consideration. This
Section 7(g) shall be construed and interpreted in light of the duration of the
applicable restrictive covenants.
<PAGE>
(h) Employee has carefully read and considered the provisions
of this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Employee and are
reasonably required to protect the interests of the Company, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company throughout the term of these covenants.
(i) Notwithstanding any of the foregoing, if the Company
terminates Employee's employment pursuant to Section 6(b) or Section 6(d), then
the restrictions on Employee described in this Section 7 shall only apply for
the period during which Employee is receiving any severance pay from the
Company. The parties expressly agree that Employee shall have the right to
receive, but not the obligation to accept, severance compensation for
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of his employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
his interests therein to the Company or its nominee. Whenever requested to do so
by the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
<PAGE>
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company or its representatives, vendors, or
customers that pertain to the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit cards, vehicles, and other
property of the Company. Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that all of the foregoing shall
be and remain the property of the Company, as the case may be, and be subject at
all times to their discretion and control.
11. INDEMNIFICATION. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that he is or was performing services under this Agreement or as an
officer or director of the Company, then, to the fullest extent permitted by
applicable law, the Company shall indemnify Employee against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. Such indemnification shall continue as to Employee even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Employee all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Employee to the Company, provided, that such request shall include a written
undertaking by Employee, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Employee is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Employee agrees to use the same
representation; provided, that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 11 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws. The foregoing indemnification also shall be applicable to
Employee in his capacity as an officer, director, or representative of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board.
12. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
<PAGE>
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
13. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another entity and the successor company is engaged in
substantially the same business as the Company, such action shall not be
considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other person shall be a third-party beneficiary under this
Agreement.
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
15. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
<PAGE>
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-7793
Attn: President
with a copy to: Gus J. James, II, Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax. (757) 624-3169
To Employee: Richard M. Schlanger
47 Cowneck Road
Sands Point, NY 11050
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 15.
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. ARBITRATION. Except for actions initiated by the Company to enjoin
a breach by, and/or recover damages from, Employee related to violation of any
of the provisions in paragraphs 7 through 10, which the Company may bring in an
appropriate court of law or equity, any other unresolved dispute or controversy
arising under or in connection with Employee's employment and/or this Agreement
shall be settled or resolved exclusively by arbitration conducted in accordance
with the rules of the American Arbitration Association then in effect. This
includes any and all federal, state and/or local claims based upon statute,
<PAGE>
common law and/or local ordinance, including, but not limited to claims under
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, the Family and Medical Leave Act, and the Americans with
Disabilities Act. The arbitrator(s) shall not have the authority to add to,
detract from or modify this Agreement except as permitted by the Agreement. The
arbitrator's decision shall be final and binding, and judgment may be entered on
the decision in any court having competent jurisdiction. The direct expense of
the arbitration shall be borne by the Company but each party will bear its own
expenses and legal fees. The arbitration shall be held in any of the following
locations (individually, the "Arbitration Location"): (a) Palm Beach County,
Florida; (b) New York, New York; or (c) the city where Employee is or was last
employed by Company. The selection of an Arbitration Location shall be at the
sole and absolute discretion of the Company.
19. EQUITABLE RELIEF: JURISDICTION AND VENUE. Employee acknowledges
that the Company's principal corporate office is in the City of Palm Beach,
Florida. Upon due consideration of any effects created hereby, Employee hereby
irrevocably submits to the jurisdiction and venue of a court of competent civil
jurisdiction sitting in Palm Beach County, Florida, in any action or proceeding
brought by the Company arising out of, or relating to, the provisions in
paragraphs 7 through 10 of this Agreement. Employee hereby irrevocably agrees
that any such action or proceeding may, at the Company's option, be heard and
determined in such court. Employee agrees that a final order or judgment in any
such action or proceeding shall, to the extent permitted by applicable law, be
conclusive and may be enforced in other jurisdictions by suit on the order or
judgment, or in any other manner provided by applicable law related to the
enforcement of judgments.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
/s/ Thomas B. D'Agostino
------------------------------------
Thomas B. D'Agostino
President
EMPLOYEE
/s/ Richard M. Schlanger
------------------------------------
Richard M. Schlanger
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
Under the Company's Incentive Bonus Plan, Employee will be eligible to earn up
to 100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of the Company or a compensation committee thereof,
depending upon the achievement of specified criteria and payable in the form of
cash, stock options, or other non-cash awards, in such proportions, and in such
forms, as are determined by the Board of the Company or a compensation committee
thereof. Bonuses under the Incentive Bonus Plan will be determined by measuring
Employee's performance and the Company's performance based on the following
criteria, weighted as indicated, and measured against target performance levels
established by the Board of Company or such compensation committee: (i) the
growth of net earnings per share of the Company -- 20%; (ii) the growth of the
Fulfillment/Manufacturing Division's revenues due to internal growth and
acquisitions - 40%; and (iii) improvement in the Fulfillment/ Manufacturing
Division's operating margin -- 40%.
<PAGE>
EXHIBIT B
The Company shall provide Employee with a Fifty Thousand Dollar ($50,000) annual
expense account to be used for Employee's expenses that are deductible as
business expenses by the Company. All such expenses shall be documented by
Employee in accordance with Section 4 of the Employment Agreement.
EXHIBIT 10.55
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of April 1, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and THOMAS B.
D'AGOSTINO, JR. (the "Executive").
BACKGROUND STATEMENT
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 2) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection with or
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
<PAGE>
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of such date,
or such later date as the Board of Directors of the Company and the Executives
shall agree.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity (other than the
Company, any Company subsidiary, any Company benefit plan or any underwriter
temporarily holding securities for an offering of such securities) or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of more than 50% the undiluted total voting power of the then outstanding
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities") or;
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, no less than 50% of the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
we re the beneficial owners of the Outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Voting
Securities; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company, and (ii)
the subsequent consummation of such liquidation, dissolution, sale or
disposition.
3. Employment Period; Other Agreements.
(a) The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company,
in accordance with the terms and provisions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
<PAGE>
(b) The rights and obligations of the Company and the
Executive hereunder are separate from and independent of the rights and
obligations of such parties under that certain Employment Agreement between the
Company and the Executive, dated as of April 1, 1999, as may be amended or
supplemented from time to time (in either case, the "Existing Employment
Agreement"), provided that all base salary, bonus compensation, severance
payments, employee benefits and other amounts paid or benefits provided under
the Existing Employment Agreement shall be credited against amounts due to
Executive hereunder.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office which is the headquarters of the Company and is less than 35
miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees; (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions; or (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the highest annual bonus paid or payable, including by reason of any
deferral, to the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs (the "Recent Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus. In the event that, at the
Effective Date, the Executive has not been awarded a bonus for a full fiscal
year, then the Recent Bonus shall be deemed to be 50% of the Annual Base Salary.
The Annual Bonus for the Company's 1999 fiscal year shall be deemed to include
all business earned and paid through July, 1999.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 90-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
<PAGE>
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
<PAGE>
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death or Disability during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Employer shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company, due to physical or mental illness or injury, on a full-time
basis for a period of four consecutive months, or for a total of four months in
any six-month period. Incapacity due to mental or physical illness which is
determined to be total and permanent shall be by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) (other than as a result of incapacity
due to physical or mental illness) which is demonstrably willful and deliberate
on the Executive's part, which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the Company and which is not
remedied within ten (10) days after receipt of written notice from the Company
specifying such breach; (ii) Executive's gross negligence in the performance of
his material duties hereunder, intentional nonperformance or mis-performance of
such duties, or refusal to abide by or comply with the directives of the Board,
his superior officers, or the Company's policies and procedures, which actions
continue for a period of at least ten (10) days after receipt by Executive of
written notice of the need to cure or cease; (iii) Executive's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company, and that in the reasonable judgment of the Company materially and
adversely affects the operations or reputation of the Company; (iv) Executive's
conviction of a felony or other crime involving moral turpitude; or (v)
Executive's abuse of alcohol or drugs (legal or illegal) that, in the Company's
reasonable judgment, substantially impairs Executive's ability to perform his
duties hereunder.
(c) Good Reason; Window Period. The Executive's employment may
be terminated (i) during the Employment Period by the Executive for Good Reason
or (ii) during the Window Period by the Executive without any reason. For
purposes of this Agreement, the "Window Period" shall mean the 30-day period
immediately following the one year anniversary of the Effective Date. For
purposes of this Agreement, "Good Reason" shall mean:
<PAGE>
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of written notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of written notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section 4 (a) (i)
(B);
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c), provided that such successor has received at least ten
days prior written notice from the Company or the Executive of the requirements
of Section 11(c).
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive without any reason during the Window Period or for
Good Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(b). For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
<PAGE>
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause, Disability or death, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligation of the Company upon Termination
(a) Good Reason or during the Window Period; Other Than for
Cause, Death or Disability. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause, Disability or death
or the Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) a pro-rated portion of the Annual Bonus, due to
the Executive pursuant to Section 4(b)(ii), for the then current fiscal
year, based upon the portion of such fiscal year elapsed through the
Date of Termination and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Base Severance Amount"); and
B. an amount equal to 300% of the aggregate
of Executive's Annual Base Salary determined as of the Date of
Termination plus the Annual Bonus (the "Additional Severance Amount").
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section 4(b)(iv)
if the Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
<PAGE>
(iii) to the extent not theretofore paid or provided
the Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally within 180 days thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of the Base
Severance Amount (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Base Severance Amount (which shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination) and the timely
payment or provision of the Welfare Benefit Continuation and Other Benefits.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason or without any reason during the Window Period, this
Agreement shall terminate without further obligations to the Executive, other
than for the Base Severance Amount and the timely payment or provision of Other
Benefits. In such case, the Base Severance Amount shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
<PAGE>
7. Non-exclusivity of Rights. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Resolution of Disputes.
(a) In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The prevailing party of any dispute
shall be entitled to receive prompt payment from the other party, to the full
extent permitted by law, for all legal fees and expenses which the prevailing
party may reasonably incur as a result of any contest by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final determination in arbitration, as provided in
Section 13 hereof, as to which all appeal rights have lapsed, declaring that
such termination was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) as though such termination
were by the Company without Cause or by the Executive with Good Reason;
provided, however, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
<PAGE>
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Pricewaterhouse Coopers, L.L.P. (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
<PAGE>
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
<PAGE>
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9 (c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 9(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
<PAGE>
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by personal delivery, express delivery service or facsimile
transmission, or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Thomas B. D'Agostino, Jr.
__________________________
__________________________
__________________________
If to the Company:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Attention: President
Fax: (561) 659-7793
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
<PAGE>
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, including the Existing Employment Agreement, the
employment of the Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or the Company at any
time. Moreover, if prior to the Effective Date, the Executive's employment with
the Company terminates, then the Executive shall have no further rights under
this Agreement.
13. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the prevailing party in any such proceeding. The arbitration proceeding
shall be held in the county where the Company's principal office is located.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Company:
WORKFLOW MANAGEMENT, INC.
By: /s/ Workflow Management, Inc.
----------------------------------
Name:__________________________
Title:_________________________
Executive:
/s/ Thomas B. D'Agostino, Jr.
----------------------------------------
Name: Thomas B. D'Agostino, Jr.
EXHIBIT 10.56
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of April 1, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and RICHARD
M. SCHLANGER (the "Executive").
BACKGROUND STATEMENT
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 2) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with or anticipation of
the Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
<PAGE>
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of such date, or such later
date as the Board of Directors of the Company and the Executives shall agree.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity (other than the
Company, any Company subsidiary, any Company benefit plan or any underwriter
temporarily holding securities for an offering of such securities) or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of more than 50% the undiluted total voting power of the then outstanding
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities") or;
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, no less than 50% of the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Voting
Securities; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company, and (ii)
the subsequent consummation of such liquidation, dissolution, sale or
disposition.
3. Employment Period; Other Agreements.
(a) The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company,
in accordance with the terms and provisions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
<PAGE>
(b) The rights and obligations of the Company and the
Executive hereunder are separate from and independent of the rights and
obligations of such parties under that certain Employment Agreement between the
Company and the Executive, dated as of April 1, 1999, as may be amended or
supplemented from time to time (in either case, the "Existing Employment
Agreement"), provided that all base salary, bonus compensation, severance
payments, employee benefits and other amounts paid or benefits provided under
the Existing Employment Agreement shall be credited against amounts due to
Executive hereunder.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office which is the headquarters of the Company and is less than 35
miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees; (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions; or (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the highest annual bonus paid or payable, including by reason of any
deferral, to the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs (the "Recent Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus. In the event that, at the
Effective Date, the Executive has not been awarded a bonus for a full fiscal
year, then the Recent Bonus shall be deemed to be 50% of the Annual Base Salary.
The Annual Bonus for the Company's 1999 fiscal year shall be deemed to include
all business earned and paid through July, 1999.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 90-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
<PAGE>
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
<PAGE>
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death or Disability during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Employer shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company, due to physical or mental illness or injury, on a full-time
basis for a period of four consecutive months, or for a total of four months in
any six-month period. Incapacity due to mental or physical illness which is
determined to be total and permanent shall be by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) (other than as a result of incapacity
due to physical or mental illness) which is demonstrably willful and deliberate
on the Executive's part, which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the Company and which is not
remedied within ten (10) days after receipt of written notice from the Company
specifying such breach; (ii) Executive's gross negligence in the performance of
his material duties hereunder, intentional nonperformance or mis-performance of
such duties, or refusal to abide by or comply with the directives of the Board,
his superior officers, or the Company's policies and procedures, which actions
continue for a period of at least ten (10) days after receipt by Executive of
written notice of the need to cure or cease; (iii) Executive's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company, and that in the reasonable judgment of the Company materially and
adversely affects the operations or reputation of the Company; (iv) Executive's
conviction of a felony or other crime involving moral turpitude; or (v)
Executive's abuse of alcohol or drugs (legal or illegal) that, in the Company's
reasonable judgment, substantially impairs Executive's ability to perform his
duties hereunder.
(c) Good Reason; Window Period. The Executive's employment may
be terminated (i) during the Employment Period by the Executive for Good Reason
or (ii) during the Window Period by the Executive without any reason. For
purposes of this Agreement, the "Window Period" shall mean the 30-day period
immediately following the one year anniversary of the Effective Date. For
purposes of this Agreement, "Good Reason" shall mean:
<PAGE>
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of written notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of written notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section 4 (a) (i)
(B);
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c), provided that such successor has received at least ten
days prior written notice from the Company or the Executive of the requirements
of Section 11(c).
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive without any reason during the Window Period or for
Good Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(b). For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
<PAGE>
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause, Disability or death, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligation of the Company upon Termination
(a) Good Reason or during the Window Period; Other Than for
Cause, Death or Disability. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause, Disability or death
or the Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) a pro-rated portion of the Annual Bonus, due to
the Executive pursuant to Section 4(b)(ii), for the then current fiscal
year, based upon the portion of such fiscal year elapsed through the
Date of Termination and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Base Severance Amount"); and
B. an amount equal to 300% of the aggregate
of Executive's Annual Base Salary determined as of the Date of
Termination plus the Annual Bonus (the "Additional Severance Amount").
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section 4(b)(iv)
if the Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
<PAGE>
(iii) to the extent not theretofore paid or provided
the Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally within 180 days thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of the Base
Severance Amount (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Base Severance Amount (which shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination) and the timely
payment or provision of the Welfare Benefit Continuation and Other Benefits.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason or without any reason during the Window Period, this
Agreement shall terminate without further obligations to the Executive, other
than for the Base Severance Amount and the timely payment or provision of Other
Benefits. In such case, the Base Severance Amount shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
<PAGE>
7. Non-exclusivity of Rights. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Resolution of Disputes.
(a) In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The prevailing party of any dispute
shall be entitled to receive prompt payment from the other party, to the full
extent permitted by law, for all legal fees and expenses which the prevailing
party may reasonably incur as a result of any contest by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final determination in arbitration, as provided in
Section 13 hereof, as to which all appeal rights have lapsed, declaring that
such termination was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) as though such termination
were by the Company without Cause or by the Executive with Good Reason;
provided, however, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
<PAGE>
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Pricewaterhouse Coopers, L.L.P. (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
<PAGE>
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
<PAGE>
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9 (c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 9(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
<PAGE>
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by personal delivery, express delivery service or
facsimile transmission, or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Richard M. Schlanger
47 Cow Neck Road
Sands Point, New York 11050
Fax: (212) 974-8315
If to the Company:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Attention: President
Fax: (561) 659-7793
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
<PAGE>
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, including the Existing Employment Agreement, the
employment of the Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or the Company at any
time. Moreover, if prior to the Effective Date, the Executive's employment with
the Company terminates, then the Executive shall have no further rights under
this Agreement.
13. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the prevailing party in any such proceeding. The arbitration proceeding
shall be held in the county where the Company's principal office is located.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Company:
WORKFLOW MANAGEMENT, INC.
By: /s/ Workflow Management, Inc.
-----------------------------------
Name:__________________________
Title:_________________________
Executive:
/s/ Richard M. Schlanger
----------------------------------------
Name: Richard M. Schlanger
EXHIBIT 10.57
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 1st day of June, 1999, is
by and between WORKFLOW MANAGEMENT, INC., a Delaware corporation (the
"Company"), and FREDERICK SHAW ("Employee").
RECITALS
The Company desires to employ Employee and to have the benefit of his
skills and services, and Employee desires to be employed with the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The Company hereby employs Employee to perform the
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two (2) years (the "Initial Term"). The Initial Term shall be renewed for
additional periods of one (1) year each (the "Renewal Periods" and together with
the Initial Term, the "Term") unless the Company provides written notice to
Employee, or Employee provides written notice to the Company, in either case no
less than ninety (90) days prior to the expiration of the Initial Term or of a
Renewal Period, whichever is applicable, that such renewal will not be made.
2. POSITION AND DUTIES. The Company hereby employs Employee as Chief
Financial Officer of Fulfillment/Manufacturing. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of
the Chief Financial Officer of Fulfillment/Manufacturing and assigned to
Employee by the Board of Directors of the Company (the "Board"). Employee will
report directly to the Chief Financial Officer of the Company unless otherwise
directed by the Board. Employee hereby accepts this employment upon the terms
and conditions herein contained and agrees to devote substantially all of his
professional time, attention, and efforts to promote and further the business of
the Company. Employee shall faithfully adhere to, execute, and fulfill all
policies established by the Company.
3. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be
$150,000 per year, payable on a regular basis in accordance with the Company's
standard payroll procedures, but not less often than monthly. On June 1, 2000,
Employee shall be eligible to receive a $20,000 increase to such base salary if,
in the discretion of the Compensation Committee or Board of Directors, any such
increase is warranted after a satisfactory performance review; provided,
however, that Employee's base salary shall automatically increase by $20,000 on
June 1, 2000 in the event Steve R. Gibson is no longer serving as Chief
Financial Officer of the Company on such date. Notwithstanding anything to the
contrary herein, on at least an annual basis, the Board or Compensation
Committee will review Employee's performance and may make any further increases
to such base salary if, in its sole discretion, any such increase is warranted.
(b) INCENTIVE BONUS. During the Term, Employee shall be
eligible to receive an incentive bonus up to the amount, based upon the
criteria, and payable in such amount, at such times as are specified in Exhibit
A attached hereto. The manner of payment, and form of consideration, if any,
shall be determined by the Compensation Committee of the Board, in its sole and
absolute discretion, and such determination shall be binding and final. To the
extent that such bonus is to be determined in light of financial performance
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) PERQUISITES, BENEFITS, AND OTHER COMPENSATION. During the
Term, in addition to the benefits specifically set forth on Exhibit B attached
hereto, Employee shall be entitled to receive such perquisites and benefits as
are customarily provided to the Company's executive officers, subject to such
changes, additions, or deletions as the Company may make from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Employee for (or,
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. The Company acknowledges that Employee may, for all
or a portion of the Term, reside away from the Company's headquarters in Palm
Beach, Florida, and thus, all travel between Employee's principal residence and
Palm Beach, Florida shall be reimbursed. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of any
request for reimbursement, and in a format and manner consistent with the
Company's expense reporting policy, as well as applicable federal and state tax
record keeping requirements.
5. PLACE OF PERFORMANCE. Employee understands that the Company may
request that he permanently relocate from the Company's executive offices in
Baltimore, Maryland to the Company's headquarters in Palm Beach, Florida or to
another geographic location in order to more efficiently carry out his duties
and responsibilities under this Agreement or as part of a promotion or a change
in duties and responsibilities. In such event, the Company will provide Employee
with a relocation allowance, in an amount determined by the Company, to assist
Employee in covering the costs of moving himself, his immediate family, and
their personal property and effects, including, but not limited to,
reimbursement of closing costs on the sale of Employee's principal residence.
The total amount and type of costs to be covered shall be determined by the
Company, in light of prevailing Company policy at the time.
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the following ways, prior to the expiration or
non-renewal of the Term:
(a) DEATH. The death of Employee shall immediately terminate
the employment and Term, and no severance compensation shall be owed to
Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four
consecutive months, or for a total of four months in any six-month period, then
thirty (30) days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume his
full-time duties at the conclusion of such notice period. Subject to Section
6(f) below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee his base salary at the
then-current rate for the lesser of (i) three (3) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) TERMINATION BY THE COMPANY "FOR CAUSE." The Company may
terminate Employee's employment hereunder ten (10) days after written notice to
Employee "for cause," which shall be: (i) Employee's material breach of this
Agreement, which breach is not cured within ten (10) days of receipt by Employee
of written notice from the Company specifying the breach; (ii) Employee's gross
negligence in the performance of his material duties hereunder, intentional
nonperformance or mis-performance of such duties, or refusal to abide by or
comply with the directives of the Board, his superior officers, or the Company's
policies and procedures, which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty, fraud, or misconduct with respect to
the business or affairs of the Company, and that in the reasonable judgment of
the Company materially and adversely affects the operations or reputation of the
Company; (iv) Employee's conviction of a felony or other crime involving moral
turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal) that,
in the Company's reasonable judgment, substantially impairs Employee's ability
to perform his duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) TERMINATION BY THE COMPANY FOR EMPLOYEE'S FAILURE TO
RELOCATE. The Company may terminate Employee's employment hereunder at any time
after Employee's failure or refusal to relocate to another geographic location
pursuant to a request of the Company in accordance with Section 5 hereof. In the
event of any such termination by the Company, the Company shall continue to pay
Employee his base salary at the then current rate for the lesser of (i) three
(3) months from the effective date of termination, or (ii) whatever time period
is remaining under the Term; provided, that Employee's refusal to relocate to
Palm Beach, Florida shall not entitle Employee to such payments. Such payments
shall be made in accordance with the Company's regular payroll cycle.
(e) WITHOUT CAUSE.
(i) At any time after the commencement of employment, the
Company may, without cause, terminate Employee's employment, effective thirty
(30) days after written notice is provided to the Employee. Should Employee be
terminated by the Company without cause, Employee shall receive from the Company
the base salary at the rate then in effect for the longer of (i) three (3)
months from the date of termination, or (ii) whatever time period is remaining
under the Term. Such payments shall be made in accordance with the Company's
regular payroll cycle.
(ii) If Employee resigns or otherwise terminates his employment for any
reason, Employee shall receive no severance compensation.
(f) PAYMENT THROUGH TERMINATION. Upon termination of
Employee's employment for any reason provided above, Employee shall be entitled
to receive all compensation earned and all benefits and reimbursements
(including payments for accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due through the effective
date of termination. Additional compensation subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above in this Section 6. With respect to incentive bonus
compensation, Employee shall be entitled to receive any bonus declared but not
paid prior to termination. Notwithstanding the foregoing, in the event of a
termination by the Company under Section 6(b) or 6(e), Employee shall be
entitled to receive incentive bonus compensation through the end of the
Company's fiscal year in which termination occurs, calculated as if Employee had
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of his employment.
All other rights and obligations of the Company and Employee under this
Agreement shall cease as of the effective date of termination, except that the
Company's obligations under this Section 6(f) and Section 11 below and
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
7. RESTRICTION ON COMPETITION.
(a) During the Term and for such period after the Term that
Employee continues to be employed by the Company and/or any other entity owned
by or affiliated with the Company on an "at will" basis and, thereafter, for a
period equal to the longer of (x) one year, or (y) the period during which
Employee is receiving any severance pay or other compensation from the Company
in accordance with the terms of this Agreement, Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, in a competitive capacity, whether as an owner,
officer, director, partner, shareholder, joint venturer, employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services which were sold by the Company on the date of
the termination of Employee's employment, within 50 miles of any location where
the Company both has an office and conducts business on the date of the
termination of Employee's employment;
(ii) call upon any person who is, at that time, a sales,
supervisory, or management employee of the Company for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company;
(iii) call upon any person who or that is, at that
time, or has been, within one year prior to that time, a customer of the
Company for the purpose of soliciting or selling products or services in
direct competition with the Company; or
(iv) on Employee's own behalf or on behalf of any competitor,
call upon any person who or that, during Employee's employment by the Company
was either called upon by the Company as a prospective acquisition candidate
with respect to which Employee had actual knowledge or was the subject of an
acquisition analysis conducted by the Company with respect to which Employee had
actual knowledge.
(b) The foregoing covenants shall not be deemed to prohibit
Employee 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 through the automated quotation system of a registered
securities association.
(c) It is further agreed that, in the event that Employee
shall cease to be employed by the Company and enters into a business or pursues
other activities that, on the date of termination of Employee's employment, are
not in competition with the Company, Employee shall not be chargeable with a
violation of this Section 7 if the Company subsequently enters the same (or a
similar) competitive business or activity or commences competitive operations
within 50 miles of the Employee's new business or activities. In addition, if
Employee has no actual knowledge that his actions violate the terms of this
Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "Company"
shall mean Workflow Management, Inc., together with its subsidiaries and
affiliates. For the purposes of this Agreement, "affiliate" shall mean any
entity twenty-five percent or more of the stock of which is owned or controlled,
directly or indirectly, by the Company or any subsidiary of the Company.
(e) The covenants in this Section 7 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 7 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 7 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 Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon thirty (30) days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of one year stated at the beginning
of this Section 7, during which the agreements and covenants of Employee made in
this Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be
reduced by law or court decision, then, notwithstanding the provisions of
Section 6 above, Employee shall be entitled to receive from the Company his base
salary at the rate in effect on the date of termination of Employee's employment
solely for the longer of (i) the time period during which the provisions of this
Section 7 shall be enforceable under the provisions of such applicable law, or
(ii) the time period during which Employee is not engaging in any competitive
activity, but in no event longer than the applicable period provided in Section
6 above. This Section 7(g) shall be construed and interpreted in light of the
duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions
of this Section 7 and, having done so, agrees that the restrictive covenants in
this Section 7 impose a fair and reasonable restraint on Employee and are
reasonably required to protect the interests of the Company, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company throughout the term of these covenants.
(i) Notwithstanding any of the foregoing, if the Company
terminates Employee's employment pursuant to Section 6(b) or Section 6(d), then
the restrictions on Employee described in this Section 7 shall only apply for
the period during which Employee is receiving any severance pay from the
Company. The parties expressly agree that Employee shall have the right to
receive, but not the obligation to accept, severance compensation for
termination under either Section 6(b) or Section 6(d).
8. CONFIDENTIAL INFORMATION. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of his employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
his interests therein to the Company or its nominee. Whenever requested to do so
by the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company or its representatives, vendors, or
customers that pertain to the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit cards, vehicles, and other
property of the Company. Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that all of the foregoing shall
be and remain the property of the Company, as the case may be, and be subject at
all times to their discretion and control.
11. INDEMNIFICATION. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that he is or was performing services under this Agreement or as an
officer or director of the Company, then, to the fullest extent permitted by
applicable law, the Company shall indemnify Employee against all expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. Such indemnification shall continue as to Employee even if he has
ceased to be an employee, officer, or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Employee all
reasonable costs and expenses directly related to the defense of such action,
suit, or proceeding within twenty (20) days after written request therefore by
Employee to the Company, provided, that such request shall include a written
undertaking by Employee, in a form acceptable to the Company, to repay such
advances if it shall ultimately be determined that Employee is or was not
entitled to be indemnified by the Company against such costs and expenses. In
the event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company will engage
competent legal representation, and Employee agrees to use the same
representation; provided, that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The provisions of this Section 11 are
in addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws. The foregoing indemnification also shall be applicable to
Employee in his capacity as an officer, director, or representative of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board.
12. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
13. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another entity and the successor company is engaged in
substantially the same business as the Company, such action shall not be
considered to cause an assignment of this Agreement and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. No other person shall be a third-party beneficiary under this
Agreement.
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a writing signed by the party
waiving the benefit of such term.
15. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Fax: (561) 659-6551
Attn: President
with a copy to: Gus J. James, II, Esq.
Kaufman & Canoles
P. O. Box 3037
Norfolk, VA 23514
Fax: (757) 624-3169
To Employee: Frederick Shaw
9716 Old Annapolis Rd.
Ellicott City, MD 21042
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notice to the other party of such change in accordance with this
Section 15.
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. ARBITRATION. Except for actions initiated by the Company to enjoin
a breach by, and/or recover damages from, Employee related to violation of any
of the provisions in paragraphs 7 through 10, which the Company may bring in an
appropriate court of law or equity, any other unresolved dispute or controversy
arising under or in connection with Employee's employment and/or this Agreement
shall be settled or resolved exclusively by arbitration conducted in accordance
with the rules of the American Arbitration Association then in effect. This
includes any and all federal, state and/or local claims based upon statute,
common law and/or local ordinance, including, but not limited to claims under
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, the Family and Medical Leave Act, and the Americans with
Disabilities Act. The arbitrator(s) shall not have the authority to add to,
detract from or modify this Agreement except as permitted by the Agreement. The
arbitrator's decision shall be final and binding, and judgment may be entered on
the decision in any court having competent jurisdiction. The direct expense of
the arbitration shall be borne by the Company but each party will bear its own
expenses and legal fees. The arbitration shall be held in any of the following
locations (individually, the "Arbitration Location"): (a) Palm Beach County,
Florida; (b) the City of Norfolk, Virginia; or (c) the city where Employee is or
was last employed by Company. The selection of an Arbitration Location shall be
at the sole and absolute discretion of the Company.
19. EQUITABLE RELIEF: JURISDICTION AND VENUE. Employee acknowledges
that the Company's principal corporate office is in the City of Palm Beach,
Florida. Upon due consideration of any effects created hereby, Employee hereby
irrevocably submits to the jurisdiction and venue of a court of competent civil
jurisdiction sitting in Palm Beach County, Florida, in any action or proceeding
brought by the Company arising out of, or relating to, the provisions in
paragraphs 7 through 10 of this Agreement. Employee hereby irrevocably agrees
that any such action or proceeding may, at the Company's option, be heard and
determined in such court. Employee agrees that a final order or judgment in any
such action or proceeding shall, to the extent permitted by applicable law, be
conclusive and may be enforced in other jurisdictions by suit on the order or
judgment, or in any other manner provided by applicable law related to the
enforcement of judgments.
20. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
[Execution page on next page]
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
WORKFLOW MANAGEMENT, INC.
/s/ Steve R. Gibson
-----------------------
Steve R. Gibson
Executive Vice President
EMPLOYEE
/s/ Frederick Shaw
------------------------
Frederick Shaw
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
Under the Company's Incentive Bonus Plan, Employee will be eligible to earn up
to 50% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of the Company or a compensation committee thereof,
depending upon the achievement of specified criteria and payable in the form of
cash, stock options, or other non-cash awards, in such proportions, and in such
forms, as are determined by the Board of the Company or a compensation committee
thereof. Bonuses under the Incentive Bonus Plan will be determined by measuring
Employee's performance and the Company's performance based on the following
criteria, weighted as indicated, and measured against target performance levels
established by the Board of Company or such compensation committee: (i) quality
and timeliness of the Fulfillment/Manufacturing Division's financial reporting
- -- 50%; (ii) the growth of the Fulfillment/Manufacturing Division's revenues due
to internal growth and acquisitions -- 25%; and (iii) improvement in the
Fulfillment/Manufacturing Division's operating margin -- 25%. In addition to the
foregoing in order to reward extraordinary performance and exceptional Company
results, the Board of the Company or a compensation committee thereof may
declare and pay bonus compensation to Employee in excess of 50% of Employee's
base salary which may be payable in the form of cash, stock options, or other
cash awards, in such proportions, and in such forms, as are determined by the
Board of the Company or a compensation committee thereof.
<PAGE>
EXHIBIT B
Employee shall receive a monthly expense reimbursement of $2000 to cover living
expenses while Employee temporarily lives in Palm Beach, Florida.
Exhibit 21.1
WORKFLOW MANAGEMENT, INC.
UNITED STATES SUBSIDIARIES
WORKFLOW MANAGEMENT, INC.
OWNS 100% OF THE OUTSTANDING STOCK OR
MEMBERSHIP INTERESTS OF THE FOLLOWING:
Penn-Grover Envelope Corp., a New York corporation
Hano Document Printers, Inc., a Virginia corporation
SFI of Delaware, LLC, a Delaware limited liability company
Pacific Admail, Inc., a California corporation
DirectPro LLC, a New York limited liability company
United Envelope, LLC, a Delaware limited liability company
Premier Graphics, Inc., a South Carolina corporation
Freedom Graphic Services, Inc., a New Jersey corporation
TLB, Inc., a Virginia corporation
Workflow Management Acquisition Corp., a New Jersey corporation
SFI OF DELAWARE, LLC
OWNS 100% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
Superior Graphics, Inc., a New York corporation
Graphic Management Corporation, a Wisconsin corporation
SFI of Puerto Rico, Inc., a Delaware corporation
UNITED ENVELOPE, LLC
OWNS 100% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
Huxley Envelope Corp., a New York corporation
Rex Envelope Co., Inc., a New York corporation
Pocono Envelope Corp., a Pennsylvania corporation
Astrid Offset Corp., a New York corporation
WORKFLOW MANAGEMENT ACQUISITION CORPORATION OWNS 100% OF THE OUTSTANDING STOCK
OF THE FOLLOWING:
Universal Folding Box Co., Inc., a New York corporation
DIRECTPRO LLC
OWNS 100% OF THE MEMBERSHIP INTEREST OF THE FOLLOWING:
DirectPro West LLC, an Ohio limited liability company
<PAGE>
CANADIAN SUBSIDIARIES
WORKFLOW MANAGEMENT, INC.
- - OWNS 100% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
1186202 Ontario Limited, an Ontario corporation
- - OWNS 100% OF THE CLASS A SHARES OF THE FOLLOWING:
3303471 CANADA, INC., A CANADIAN FEDERAL CORPORATION
- - OWNS 36.78% OF THE CLASS B, C AND D SHARES OF THE FOLLOWING:
Data Business Forms Limited, an Ontario corporation
1186202 ONTARIO LIMITED
OWNS 100% OF THE COMMON STOCK OF THE FOLLOWING:
3303471 CANADA, INC., A CANADIAN FEDERAL CORPORATION
3303471 CANADA, INC.
OWNS 63.22% OF THE CLASS B, C AND D SHARES OF THE FOLLOWING:
Data Business Forms Limited, an Ontario corporation
DATA BUSINESS FORMS LIMITED
- - OWNS 11.5% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
Sundog Printing Limited, an Alberta corporation
- - OWNS 100% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
517244 Alberta, Ltd., an Alberta corporation
- - OWNS 100% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
408446 Alberta, Inc., an Alberta corporation
517244 ALBERTA, LTD.
OWNS 25.0% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
Sundog Printing Limited, an Alberta corporation
408446 ALBERTA, INC.
OWNS 63.5% OF THE OUTSTANDING STOCK OF THE FOLLOWING:
Sundog Printing Limited, an Alberta corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-57865) of Workflow Management, Inc. of our
report dated June 15, 1999 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
July 20, 1999
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0
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