UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 23, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-24383
WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1507104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
240 Royal Palm Way
Palm Beach, FL 33480
(Address of principal executive offices) (Zip Code)
(561) 659-6551
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
As of February 28, 1999, there were 12,591,303 shares of common stock
outstanding.
<PAGE>
WORKFLOW MANAGEMENT, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet............................................3
January 23, 1999 (unaudited) and April 25, 1998
Consolidated Statement of Income (unaudited)..........................4
For the three months ended January 23, 1999 and January 24, 1998 and
for the nine months ended January 23, 1999 and January 24, 1998
Consolidated Statement of Cash Flows (unaudited)......................5
For the nine months ended January 23, 1999 and January 24, 1998
Notes to Consolidated Financial Statements (unaudited)................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................14
Item 3. Quantitative and Qualitative Disclosure About Market Risk............23
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................24
Item 6. Exhibits and Reports on Form 8-K.....................................24
Signatures...................................................................26
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
January 23, April 25,
ASSETS 1999 1998
------ ----------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 775 $ 234
Accounts receivable, less allowance for doubtful
accounts of $3,182 and $2,859, respectively 59,595 56,328
Inventories 29,957 32,655
Prepaid expenses and other current assets 3,469 1,978
--------- --------
Total current assets 93,796 91,195
Property and equipment, net 36,271 33,210
Notes receivable from employees 3,703
Goodwill and other intangible assets, net 30,396 14,014
Other assets 6,766 4,556
--------- --------
Total assets $ 167,229 $146,678
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,488 $ 5,855
Short-term payable to U.S. Office Products 13,536
Accounts payable 25,244 25,370
Accrued compensation 6,914 4,916
Other accrued liabilities 5,061 7,893
--------- --------
Total current liabilities 38,707 57,570
Long-term debt 63,792 7,065
Long-term payable to U.S. Office Products 19,221
Deferred income taxes 4,032 3,314
Other long-term liabilities 9 17
--------- --------
Total liabilities 106,540 87,187
--------- --------
Commitments and contingencies
Stockholders' equity:
Divisional equity 50,270
Preferred stock, $.001 par value, 1,000,000 shares
authorized, none outstanding
Common stock, $.001 par value, 150,000,000 shares
Authorized, 12,591,303 and no shares issued and
outstanding, respectively 13
Additional paid-in capital 49,332
Stock subscription notes receivable (1,951)
Accumulated other comprehensive loss (2,843) (1,056)
Retained earnings 16,138 10,277
--------- --------
Total stockholders' equity 60,689 59,491
--------- --------
Total liabilities and stockholders' equity $ 167,229 $146,678
========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
January 23, January 24, January 23, January 24,
1999 1998 1999 1998
-------- -------- -------------------------
Revenues $ 95,542 $ 86,730 $276,128 $257,777
Cost of revenues 67,539 64,644 198,460 190,482
-------- -------- -------- --------
Gross profit 28,003 22,086 77,668 67,295
Selling, general and
administrative expenses 21,356 17,625 59,900 52,918
Amortization expense 220 66 486 165
Strategic restructuring
plan costs 3,818
-------- -------- -------- --------
Operating income 6,427 4,395 13,464 14,212
Interest expense 1,287 555 3,242 1,665
Interest income (39) (125) (9)
Other income (72) (37) (119) (205)
-------- -------- -------- --------
Income before provision
for income taxes 5,251 3,877 10,466 12,761
Provision for income taxes 2,310 1,612 4,605 5,211
-------- -------- -------- --------
Net income $ 2,941 $ 2,265 $ 5,861 $ 7,550
======== ======== ======== ========
Income per share:
Basic $ 0.23 $ 0.13 $ 0.40 $ 0.49
Diluted $ 0.23 $ 0.13 $ 0.40 $ 0.48
Weighted average common
shares outstanding:
Basic 13,065 17,017 14,575 15,301
Diluted 13,069 17,352 14,646 15,625
See accompanying notes to consolidated financial statements.
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
January 23, January 24,
1999 1998
----------- -----------
Cash flows from operating activities:
Net income $ 5,861 $ 7,550
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 5,009 4,803
Strategic restructuring plan costs 3,818
Cash paid for strategic restructuring plan costs (2,427)
Changes in assets and liabilities (net of
assets acquired and liabilities assumed
in business combinations):
Accounts receivable 3,165 (2,863)
Inventories 2,490 (2,830)
Prepaid expenses and other current assets (318) 703
Accounts payable (6,371) (3,876)
Accrued liabilities 6,733 2,517
------- --------
Net cash provided by operating activities 17,960 6,004
------- --------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received (21,355) 114
Additions to property and equipment (6,769) (3,383)
Cash received on the sale of property and equipment 154 141
Cash collection of notes receivable from employees 3,703
Payments of non-recurring acquisition costs (906)
------- --------
Net cash used in investing activities (24,267) (4,034)
------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 101,862 1,771
Payments on long-term debt (45,176) (2,307)
Proceeds from (payments of) short-term debt, net (4,371) 1,257
Cash paid for deferred financing costs (3,491)
Retirement of common stock (12,419)
Issuance of stock subscription notes receivable (1,951)
Payments to U.S. Office Products (36,096) (4,620)
Capital contributed by U.S. Office Products 8,510
------- --------
Net cash provided by (used in) financing activities 6,868 (3,899)
------- --------
Effect of exchange rates on cash and cash equivalents (20) 9
------- --------
Net increase (decrease) in cash and cash equivalents 541 (1,920)
Cash and cash equivalents at beginning of period 234 2,168
------- --------
Cash and cash equivalents at end of period $ 775 $ 248
======= ========
(Continued)
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)
Nine Months Ended
January 23, January 24,
1999 1998
----------- -----------
Supplemental disclosures of cash flow information:
Interest paid $ 1,849 $ 535
Income taxes paid $ 5,564 $ 3,468
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method during the nine months
ended January 23, 1999 and January 24, 1998. The fair values of the assets and
liabilities at the respective dates of acquisition are presented as follows:
Nine Months Ended
January 23, January 24,
1999 1998
----------- -----------
Accounts receivable $ 6,718 $ 1,109
Inventories 495 41
Prepaid expenses and other current assets 218 26
Property and equipment 1,799 84
Goodwill and other intangible assets 16,868 1,445
Short-term debt (16)
Accounts payable (3,113) (332)
Accrued liabilities (1,573) (365)
Long-term debt (41) (10)
--------- --------
Net assets acquired $ 21,355 $ 1,998
======== ========
The acquisitions accounted for under the purchase method were funded as follows:
Nine Months Ended
January 23, January 24,
1999 1998
----------- -----------
Common stock $ $ 2,112
Cash paid, net of cash received 21,355 (114)
-------- --------
Total $ 21,355 $ 1,998
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
Workflow Management, Inc. (the "Company" or "Workflow Management") is a Delaware
corporation formed by U.S. Office Products Company, also a Delaware corporation
("U.S. Office Products" or "USOP"), in connection with U.S. Office Products'
strategic restructuring plan that was consummated June 9, 1998 (the "Strategic
Restructuring Plan"). As part of its Strategic Restructuring Plan, U.S. Office
Products (i) transferred to the Company substantially all the assets and
liabilities of U.S. Office Products' Print Management Division and (ii)
distributed to holders of U.S. Office Products' common stock 14,625 shares (the
"Distribution" or "Workflow Distribution") of the Company's common stock, par
value $.001 per share ("Company Common Stock"). Holders of U.S. Office Products'
common stock were not required to pay any consideration for the shares of the
Company Common Stock they received in the Distribution. The Distribution
occurred on June 9, 1998 (the "Distribution Date").
Workflow Management is a leading graphic arts company providing a "one-stop
shop" e-commerce solution for businesses to purchase office consumables via the
Internet. The Company employs approximately 2,400 people in North America,
including an approximately 600-person salesforce. Workflow Management has
manufacturing operations located throughout the United States and Canada which
produce envelopes, commercial printing products and documents. The Company seeks
to expand its operations through the strategic acquisition and integration of
companies in the highly fragmented graphic arts industry. Workflow Management
currently has 21 manufacturing facilities in nine states and five Canadian
provinces, 27 distribution centers, eight print-on-demand centers and 61 sales
offices.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Workflow Management
and the companies acquired in business combinations accounted for under the
purchase method from their respective dates of acquisition.
For periods prior to the Distribution Date, the consolidated financial
statements reflect the assets, liabilities, divisional equity, revenues and
expenses that were directly related to the Company as it was operated within
U.S. Office Products. Upon the Distribution, divisional equity was reclassified
to common stock and additional paid-in-capital. In cases involving assets and
liabilities not specifically identifiable to any particular business of U.S.
Office Products, only those assets and liabilities transferred to the Company
prior to the Distribution were included in the Company's separate consolidated
balance sheet. The Company's statement of income includes all of the related
costs of doing business including an allocation of certain general corporate
expenses of U.S. Office Products incurred prior to the Distribution Date which
were not directly related to these businesses. These allocations were based on a
variety of factors, dependent upon the nature of the costs being allocated.
Management believes these allocations were made on a reasonable basis.
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. The
consolidated financial statements included in this Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 25, 1998 ("Fiscal 1998").
NOTE 3 - LONG-TERM DEBT
Revolving Credit Facility
The Company entered into a secured $150,000 revolving credit facility (the
"Credit Facility") underwritten and agented by Bankers Trust Company on June 9,
1998. The 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. At January 23, 1999, the Company had $58,050 drawn against the Credit
Facility at an average interest rate of 6.72%.
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 its financial advisor,
the Company 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.
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 4 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the nine months ended January 23, 1999
were as follows:
Stockholders' equity balance at April 25, 1998 $ 59,491
Capital contributions:
Contribution by U.S. Office Products 8,510
Stock options tendered in the USOP
equity tender offer by the Company's employees 2,956
Purchase and retirement of Company Common Stock (12,419)
Issuance of stock subscription notes receivable (1,951)
Issuance of common stock to the outside members
of the Company's board of directors 28
Comprehensive income 4,074
---------
Stockholders' equity balance at January 23, 1999 $ 60,689
=========
Comprehensive Income
Effective April 26, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes
standards for reporting and display of changes in equity from non-owner sources
in the financial statements. The statement requires minimum pension liability
adjustments, unrealized gains or losses on available-for-sale securities and
foreign currency translation adjustment, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.
The components of comprehensive income are as follows:
Three Months Ended Nine Months Ended
January 23, January 24, January 23, January 24,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income $ 2,941 $ 2,265 $ 5,861 $ 7,550
Other comprehensive income:
Foreign currency
translation adjustment 398 (1,407) (1,787) (1,462)
-------- -------- -------- --------
Comprehensive income $ 3,339 $ 858 $ 4,074 $ 6,088
======== ======== ======== ========
Notes Receivable from the Sale of Stock
In August 1998, the Company's board of directors approved a program under which
the Company would extend both secured and unsecured loans to certain members of
management for the purchase, in the open market, of Company Common Stock by
those individuals. The secured notes are full recourse promissory notes bearing
interest at 6.75% per annum and are collateralized by both the stock purchased
with these loan proceeds and an equal amount of pledged Company Common Stock
personally owned by those management members participating in the program. The
unsecured notes are full recourse promissory notes bearing interest at 6.75% per
annum. Principal and interest are payable at maturity, September 1, 1999. The
outstanding balance on the secured and unsecured notes at January 23, 1999,
totaled $1,101 and $850, respectively, and is reflected as stock subscription
notes receivable in the accompanying balance sheet.
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Retirement of Company Common Stock
In August 1998, the Company's board of directors approved a stock repurchase
program plan (the "Stock Repurchase Program") whereby the Company's management
is authorized to repurchase and retire up to $15,000 of Company Common Stock.
Under the program, Company Common Stock is bought by the Company at prevailing
market prices at the time of the repurchase. During the nine months ended
January 23, 1999, a total of 2,038 shares of Company Common Stock had been
purchased and retired at a cost of $12,419.
Distribution Ratio
At the Distribution Date, U.S. Office Products distributed to its shareholders
one share of Company Common Stock for every 7.5 shares of U.S. Office Products
common stock held by each respective shareholder. The share data reflected in
the accompanying financial statements represents the historical share data for
U.S. Office Products for the period or as of the date indicated, and
retroactively adjusted to give effect to the one for 7.5 distribution ratio.
NOTE 5 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for computing
and presenting earnings per share ("EPS"). SFAS No. 128 requires the dual
presentation of basic and diluted EPS on the face of the statement of income.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company adopted SFAS No. 128 during Fiscal 1998 and has
restated all prior period EPS data. The following information presents the
Company's computations of basic and diluted EPS for the periods presented in the
consolidated statement of income:
Three Months Ended Nine Months Ended
January 23, January 24, January 23, January 24,
1999 1998 1999 1998
-----------------------------------------------
Basic earnings per share:
Net income $ 2,941 $ 2,265 $ 5,861 $ 7,550
======== ======== ======== ========
Weighted average number of
common shares outstanding 13,065 17,017 14,575 15,301
======== ======== ======== ========
Basic earnings per share $ 0.23 $ 0.13 $ 0.40 $ 0.49
======== ======== ======== ========
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Diluted earnings per share:
Net income $ 2,941 $ 2,265 $ 5,861 $ 7,550
======== ======== ======== ========
Weighted average number of:
Common shares outstanding 13,065 17,017 14,575 15,301
Common stock equivalents* 4 335 71 324
-------- -------- -------- --------
Total 13,069 17,352 14,646 15,625
======== ======== ======== ========
Diluted earnings per share $ 0.23 $ 0.13 $ 0.40 $ 0.48
======== ======== ======== ========
* 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.
NOTE 6 - BUSINESS COMBINATIONS
During the nine month period ended January 23, 1999, the Company completed four
business combinations which were accounted for under the purchase method for an
aggregate purchase price of $21,355 consisting entirely of cash. The total
assets related to these acquisitions were $26,098, including goodwill and other
intangible assets of $16,868. The results of these acquisitions have been
included in the Company's results from their respective dates of acquisition.
During Fiscal 1998, the Company made two acquisitions accounted for under the
purchase method for an aggregate purchase price of $14,868, consisting of common
stock with a market value of $2,112 and cash of $12,756. The total assets
related to these acquisitions were $18,835, including goodwill and other
intangible assets of $13,269. The results of these acquisitions have been
included in the Company's results from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the three and nine month periods ended January 23, 1999 and January
24, 1998, as if the Strategic Restructuring Plan, the Stock Repurchase Program
and the purchase acquisitions completed since the beginning of Fiscal 1998 had
been consummated at the beginning of Fiscal 1998. The pro forma results of
operations include certain pro forma adjustments including the amortization of
intangible assets, reductions in executive compensation at the acquired
companies and an increase in corporate overhead expenses as if the Company was a
stand-alone entity for the entire period:
Three Months Ended Nine Months Ended
January 23, January 24, January 23, January 24,
1999 1998 1999 1998
-----------------------------------------------
Revenues $ 96,307 $ 94,630 $286,654 $281,093
Net income 3,063 1,890 8,331 6,510
Earnings per share:
Basic $ 0.24 $ 0.15 $ 0.66 $ 0.52
Diluted 0.24 0.15 0.66 0.50
The pro forma results of operations are prepared for comparative purposes only
and do not necessarily reflect the results that would have occurred had the
acquisitions, the Stock Repurchase Program and the Strategic Restructuring Plan
occurred at the beginning of Fiscal 1998 or the results that may occur in the
future.
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 7 - OTHER RELATED PARTY TRANSACTIONS
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. The Company believes that
the terms of these transactions are as favorable as could be negotiated with
unaffiliated third parties.
Lease for Distribution Division Administrative Offices
On December 21, 1998, the Company's distribution 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. The Company believes that the terms of this transaction are as
favorable as could be negotiated with third parties.
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. 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 purchase price was determined
by the Company utilizing its standard acquisition pricing model at an earnings
multiple typical of an arm's-length acquisition. The Company believes that the
terms and conditions of this transaction were no less favorable than the terms
and conditions that would be negotiated with an independent third party.
NOTE 8 - SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way management
organizes and evaluates financial information internally for making decisions
and assessing performance. It also requires related disclosures about products,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 for
the year ending April 24, 1999. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 9 - SUBSEQUENT EVENTS
Business Combinations
Subsequent to January 23, 1999 and through February 28, 1999, the Company
completed two business combinations which were accounted for under the purchase
method for an aggregate purchase price of $14,744 consisting entirely of cash.
The total assets related to these acquisitions were approximately $20,552,
including goodwill and other intangible assets of approximately $9,789. The
results of these acquisitions will be included in the Company's results from
their respective dates of acquisition.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. When used in this Report, the words
"anticipate," "believe," "estimate," "intend," "may," "will," "expect" and
similar expressions as they relate to Workflow Management, Inc. (the "Company"
or "Workflow Management") or its management are intended to identify such
forward-looking statements. Such forward looking statements include, but are not
limited to, statements regarding the Company's expectations of the impact of the
year 2000 issue on results of operations. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements, which are made only as of
the date hereof.
Introduction
Workflow Management is a leading graphic arts company providing a "one-stop
shop" e-commerce solution for businesses to purchase office consumables via the
Internet. The Company employs approximately 2,400 people in North America,
including an approximately 600-person salesforce. Workflow Management has
manufacturing operations located throughout the United States and Canada which
produce envelopes, commercial printing products and documents. The Company seeks
to expand its operations through the strategic acquisition and integration of
companies in the highly fragmented graphic arts industry. Workflow Management
currently has 21 manufacturing facilities in nine states and five Canadian
provinces, 27 distribution centers, eight print-on-demand centers and 61 sales
offices. Prior to the consummation of the U.S. Office Products Company ("U.S.
Office Products") strategic restructuring plan (the "Strategic Restructuring
Plan") on June 9, 1998 (the "Distribution Date"), the Company's subsidiaries
(other than those acquired since the Distribution Date) comprised the Print
Management Division of U.S. Office Products.
The following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto, appearing
elsewhere in this Quarterly Report on Form 10-Q, as well as the Company's
audited consolidated financial statements, and notes thereto, for the fiscal
year ended April 25, 1998 ("Fiscal 1998") included in the Company's Annual
Report on Form 10-K.
Consolidated Results of Operations
Three Months Ended January 23, 1999 Compared to Three Months Ended January
24, 1998
Consolidated revenues increased 10.2%, from $86.7 million for the three months
ended January 24, 1998, to $95.5 million for the three months ended January 23,
1999. This increase was primarily due to acquisitions and internal growth in the
Company's distribution division through increased sales to existing customers.
Revenues for the three months ended January 23, 1999, include revenues from five
companies acquired in business combinations accounted for under the purchase
method after the beginning of the fourth quarter of Fiscal 1998 (the "Purchased
Companies"). Revenues for the three months ended January 24, 1998, do not
include revenues from the Purchased Companies.
<PAGE>
International revenues decreased 7.7%, from $31.4 million, or 36.2% of
consolidated revenues, for the three months ended January 24, 1998, to $29.0
million, or 30.3% of consolidated revenues, for the three months ended January
23, 1999. International revenues consisted exclusively of revenues generated in
Canada. This decrease was entirely due to a decline in the Canadian exchange
rate during the three months ended January 23, 1999. International revenues,
when stated in the local currency, increased $27,000 (Canadian) or 0.1% for the
three months ended January 23, 1999 when compared to the three months ended
January 24, 1998.
Gross profit increased 26.8%, from $22.1 million, or 25.5% of revenues, for the
three months ended January 24, 1998, to $28.0 million, or 29.3% of revenues, for
the three months ended January 23, 1999. The increase in gross profit was
primarily due to the additional gross profit generated from internal revenue
growth in the Company's distribution division and the Purchased Companies. The
increase in gross profit as a percentage of revenues was due to the 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 21.2%, from $17.6
million, or 20.3% of revenues, for the three months ended January 24, 1998, to
$21.4 million, or 22.4% of revenues, for the three months ended January 23,
1999. The increase in selling, general and administrative expenses was primarily
due to the Purchased Companies and the additional corporate overhead that was
incurred during the three months ended January 23, 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 sales during the three
months ended January 23, 1999 was primarily due to the additional corporate
overhead incurred during the period.
Amortization expense increased $154,000 from $66,000 for the three months ended
January 24, 1998, to $220,000 for the three months ended January 23, 1999. This
increase was due exclusively to the increased number of acquisitions accounted
for under the purchase method that are included in the Company's results for the
three months ended January 23, 1999 versus the three months ended January 24,
1998.
Interest expense, net of interest income, increased 124.9%, from $555,000 for
the three months ended January 24, 1998, to $1.2 million for the three months
ended January 23, 1999. This increase in net interest expense was due to the
increased level of debt outstanding during the three months ended January 23,
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 subsequent borrowings for acquisition purposes.
Other income increased from $37,000 for the three months ended January 24, 1998,
to $72,000 for the three months ended January 23, 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 $1.6 million for the three months
ended January 24, 1998 to $2.3 million for the three months ended January 23,
1999, reflecting effective income tax rates of 41.6% and 44.0%, respectively.
During both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 34.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from the
acquisitions of certain of the Purchased Companies.
<PAGE>
Nine Months Ended January 23, 1999 Compared to Nine Months Ended January
24, 1998
Consolidated revenues increased 7.1%, from $257.8 million for the nine months
ended January 24, 1998, to $276.1 million for the nine months ended January 23,
1999. This increase was primarily due to acquisitions and internal growth in the
Company's distribution division through increased sales to existing customers.
Revenues for the nine months ended January 23, 1999, include revenues from six
companies acquired in business combinations accounted for under the purchase
method after the beginning of Fiscal 1998. Revenues for the nine months ended
January 24, 1998, include revenues from one of such Purchased Companies for a
portion of such period.
International revenues decreased 5.2%, from $95.0 million, or 36.8% of
consolidated revenues, for the nine months ended January 24, 1998, to $90.0
million, or 32.6% of consolidated revenues, for the nine months ended January
23, 1999. International revenues consisted exclusively of revenues generated in
Canada. This decrease was entirely due to a decline in the Canadian exchange
rate during the nine months ended January 23, 1999. International revenues, when
stated in the local currency, increased $3.4 million (Canadian) or 2.5% for the
nine months ended January 23, 1999 when compared to the nine months ended
January 24, 1998.
Gross profit increased 15.4%, from $67.3 million, or 26.1% of revenues, for the
nine months ended January 24, 1998, to $77.7 million, or 28.1% of revenues, for
the nine months ended January 23, 1999. The increase in gross profit was
primarily due to the inclusion of the Purchased Companies in the consolidated
results of the Company for the entire period and the additional gross profit
generated from two new customer accounts for envelopes and documents. The
increase in gross profit as a percentage of revenues was due to the 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 13.2%, from $52.9
million, or 20.5% of revenues, for the nine months ended January 24, 1998, to
$59.9 million, or 21.7% of revenues, for the nine months ended January 23, 1999.
The increase in selling, general and administrative expenses was primarily due
to the Purchased Companies and the additional corporate overhead that was
incurred during the nine months ended January 23, 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 sales during the nine
months ended January 23, 1999 was primarily due to the additional corporate
overhead incurred during the period.
Amortization expense increased $321,000 from $165,000 for the nine months ended
January 24, 1998, to $486,000 for the nine months ended January 23, 1999. This
increase was due exclusively to the increased number of acquisitions accounted
for under the purchase method that are included in the Company's results for the
nine months ended January 23, 1999 versus the nine months ended January 24,
1998.
The Company incurred expenses of approximately $3.8 million during the nine
months ended January 23, 1999 associated with U.S. Office Products' Strategic
Restructuring Plan. Under Generally Accepted Accounting Principles, the Company
was required to record a one-time, non-cash expense of approximately $3.0
million with a corresponding contribution to capital relating to the tender of
stock options by Workflow Management employees in U.S. Office Products' equity
tender offer at the Distribution Date. As a result of the Distribution, the
Company also incurred an additional $750,000 in transaction costs during the
nine months ended January 23, 1999 relating to the Strategic Restructuring Plan
for legal, accounting and financial advisory services and various other fees.
<PAGE>
Interest expense, net of interest income, increased 88.2%, from $1.7 million for
the nine months ended January 24, 1998, to $3.1 million for the nine months
ended January 23, 1999. This increase in net interest expense was due to the
increased level of debt outstanding during the nine months ended January 23,
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 $205,000 for the nine months ended January 24, 1998,
to $119,000 for the nine months ended January 23, 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 decreased from $5.2 million for the nine months ended
January 24, 1998 to $4.6 million for the nine months ended January 23, 1999,
reflecting effective income tax rates of 40.8% and 44.0%, respectively. During
both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 34.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from the
acquisitions of certain of the Purchased Companies.
Liquidity and Capital Resources
At January 23, 1999, the Company had cash of $775,000 and working capital of
$55.1 million. The Company's capitalization, defined as the sum of long-term
debt and stockholders' equity, at January 23, 1999, was approximately $124.5
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 January 23, 1999, primarily
represented customer collections and in-transit cash sweeps from the Company's
subsidiaries at the end of the quarter.
Workflow Management's anticipated capital expenditures budget for the next
twelve months is approximately $8.0 million for new equipment and maintenance,
including any costs associated with compliance testing and technical upgrades to
ensure that the Company's computer systems are Year 2000 compliant. See "--Year
2000 Issue" below.
During the nine months ended January 23, 1999, net cash provided by operating
activities was $18.0 million. Net cash used in investing activities was $24.3
million, including $21.4 million used for acquisitions and $6.8 million used for
capital expenditures which were all partially offset by the collection of $3.7
million in notes receivable from employees. Net cash provided by financing
activities was $6.9 million, which included $52.3 million in net borrowings by
the Company and an $8.5 million capital contribution by U.S. Office Products
which were partially offset by $36.1 million of cash paid to U.S. Office
Products under its Strategic Restructuring Plan, $12.4 million paid to retire
the Company's common stock, $3.5 million paid in deferred financing fees and
$2.0 million paid for the issuance of stock subscription notes receivable.
During the nine months ended January 24, 1998, net cash provided by operating
activities was $6.0 million. Net cash used in investing activities was $4.0
million, including $3.4 million used for capital expenditures. Net cash used in
financing activities totaled $3.9 million.
<PAGE>
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 32.6% of the Company's
total net sales for the nine months ended January 23, 1999. As a result,
Workflow Management is subject to certain risks inherent in conducting business
internationally, including fluctuations in currency exchange rates. Changes in
exchange rates may have a significant effect on the Company's business,
financial condition and results of operations.
During the nine months ended January 23, 1999, the Canadian dollar weakened
against the U.S. dollar ("USD"). The Canadian exchange rate declined from
approximately $0.70 USD at April 25, 1998 to $0.66 USD at January 23, 1999. This
resulted in a reduction in stockholders' equity, through a foreign currency
translation adjustment, of approximately $1.8 million, reflecting the impact of
the declining exchange rate on the Company's investments in its Canadian
subsidiary. The Company is currently reviewing certain hedge transaction options
to mitigate the effect of currency fluctuations.
As a result of the provisions of Section 355 of the Internal Revenue Code of
1986, as amended, and certain tax contribution agreements entered into by the
Company in connection with the Distribution, the Company may be subject to
constraints on its ability to issue additional shares of the Company's common
stock in certain transactions for two years following the Distribution Date. In
particular, if 50% or more, by vote or value, of the capital stock of Workflow
Management is acquired by one or more persons acting pursuant to a plan or
series of transactions that includes the Distribution, Workflow Management will
suffer significant tax liability. The Company will evaluate any significant
future issuance of capital stock to avoid the imposition of such tax liability.
The Strategic Restructuring Plan called for an allocation of $45.6 million of
debt by U.S. Office Products to Workflow Management at the Distribution Date.
This allocation resulted in the forgiveness of $8.5 million of debt during the
nine months ended January 23, 1999, which was reflected in the Company's
financial statements as a contribution of capital by U.S. Office Products.
The Company entered into a secured $150.0 million revolving credit facility (the
"Credit Facility") underwritten and agented by Bankers Trust Company on June 9,
1998. The 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. The Credit Facility matures on June 10, 2003 and is secured by
substantially all assets of the Company. The Credit Facility is subject to terms
and conditions typical of a credit facility of such type and size, including
certain financial covenants. Interest rate options are available to the Company
conditioned on certain leverage tests. The maximum rate of interest is the prime
rate from time to time in effect. Workflow Management expects that the Credit
Facility is adequate to fund working capital and capital expenditure needs. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants.
The Company repaid the $45.6 million of debt owed to U.S. Office Products and
other third party creditors with funds available under the Credit Facility
during the nine months ended January 23, 1999. At February 28, 1999, the Company
had approximately $72.7 million outstanding under the Credit Facility, at an
annual interest rate of approximately 6.74%, and $127.3 million available under
the Credit Facility for acquisitions and working capital purposes.
<PAGE>
On January 19, 1999, the Company issued approximately $4.9 million 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 $5.0 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 an
analysis performed by Wachovia Bank, N.A., an independent lending institution
acting as its financial advisor, the Company 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
year-end mailings. As the Company continues to complete acquisitions, it may
become subject to other seasonal influences if the businesses it acquires are
seasonal. Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by the Company for the products it sells, the mix
of products sold and general economic conditions. Moreover, the operating
margins of companies acquired may differ substantially from those of Workflow
Management, which could contribute to further fluctuation in its quarterly
operating results. Therefore, results for any quarter are not necessarily
indicative of the results that the Company may achieve for any subsequent fiscal
quarter or for a full fiscal year.
Inflation
The Company does not believe that inflation has had a material impact on its
results of operations during the nine-month periods ended January 23, 1999 and
January 24, 1998, respectively.
<PAGE>
New Accounting Pronouncements
Reporting Comprehensive Income. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Workflow Management has adopted
SFAS No. 130 for the fiscal year ending April 24, 1999.
Disclosures about Segments of an Enterprise and Related Information. In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments in annual and interim financial statements.
Operating segments are determined consistent with the way management organizes
and evaluates financial information internally for making decisions and
assessing performance. It also requires related disclosures about products,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 for
the year ending April 24, 1999. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
Year 2000 Issue
Many existing computer programs were designed and developed without considering
the impact of the upcoming change in the century and consequently use only two
digits to identify a year in the date field. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000 (the
"Year 2000 Issue" or "Year 2000").
The Company has commenced a process to assess the potential impact of the Year
2000 Issue on its systems and the systems of major vendors, major customers and
third party service providers, and to remediate any non-compliance of its
systems. With respect to its internal systems, the potential Year 2000 effects
extend beyond the Company's information technology systems to its manufacturing
systems and physical facilities. The Company has implemented a three step
approach to address Year 2000 which involves the following phases: (i)
Identification, (ii) Assessment and (iii) Remediation and Testing. The Company
has created a committee chaired by the Company's internal audit staff and made
up of Company key management and in-house management information systems (MIS)
personnel to monitor progress of the Year 2000 Issue, including particularly
assessment and remediation.
The Company has completed the identification phase of the Year 2000 Issue and
has inventoried all internal systems, including information technology (IT) and
non-IT systems, hardware, software and its proprietary software systems and
services material to its operations that are potentially susceptible to Year
2000 problems. The Company has also prepared plans for assessing compliance and
for completing remediation. In addition, the Company has prepared and
distributed vendor, supplier and customer compliance surveys to ascertain the
Year 2000 readiness of its key suppliers and business partners.
<PAGE>
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.
Based upon the assessment phase, the Company believes that the majority of its
non-IT systems, including the Company's printing presses, security systems, time
clocks and manufacturing facilities, are Year 2000 compliant. The Company
believes that there are no significant uses of micro-processing oriented
equipment within its manufacturing systems and that the cost to address any
components deemed to be non-compliant is not material. Based on information
provided by vendors and suppliers in the compliance surveys, the Company also
believes that the vast majority of its vendors and customers who have responded
to the Company's compliance surveys will be Year 2000 compliant by the end of
June 1999. The Company intends to work directly with its key vendors, suppliers
and distributors to avoid any business interruptions due to the Year 2000 Issue.
For major third-parties with known Year 2000 compliance issues, contingency
plans are being developed and are expected to be implemented in March 1999.
In the remediation and testing phase, the Company intends to deploy plans for
elimination, upgrade, replacement or modification of non-compliant systems and
test compliance. The Company completed the Year 2000 conversion and testing of
its proprietary distribution software system (known as GetSmart) in November
1998 and 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 various stages of completion regarding the remediation and testing
phase for its other systems but believes that all of its systems will be Year
2000 compliant by the end of June 1999.
If the Company and its customers, suppliers and vendors were not Year 2000
compliant by January 1, 2000, the most reasonably likely worst case scenario
would be a temporary shutdown or cessation of distribution or manufacturing
operations at one or more of the Company's facilities and a temporary inability
of the Company to timely process customer orders and deliver products to
customers. Any such shutdown could have a material adverse effect on the
Company's results of operations, liquidity and financial position. The Company's
systems are not now uniform across all operations and the Company does not
expect uniformity by the end of 1999. Therefore, the Company does not anticipate
system wide failures as a result of the Year 2000 Issue. The Company's
individual business units and Year 2000 committees are currently identifying and
considering various contingency options, including identification of alternate
suppliers, vendors and service providers, and manual alternatives to systems
operations, which would allow the Company to minimize the risks of any
unresolved Year 2000 problems on their operations and to minimize the effect of
any unforeseen Year 2000 failures.
The Company estimates that it will incur approximately $6.0 million of
incremental expenses and capitalized costs in connection with the Year 2000
Issue, of which approximately $5.2 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.
<PAGE>
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.
Factors Affecting the Company's Business
Risks Associated with Acquisitions
One of the Company's strategies is to increase its revenues and the markets it
serves through the acquisition of additional graphic arts businesses. There can
be no assurance that suitable candidates for acquisitions can be identified or,
if suitable candidates are identified, that acquisitions can be completed on
acceptable terms, if at all.
Integration of acquired companies may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on its reported operating
results (including those adverse short-term effects caused by severance payments
to employees of acquired companies, restructuring charges associated with the
acquisitions and other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations and various other
acquisition-related costs); diversion of management's attention; difficulties
with retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets. Furthermore, although Workflow Management conducts due
diligence and generally requires representations, warranties and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies. If an acquired company's financial or
operating results were misrepresented, the acquisition could have a material
adverse effect on the results of operations and financial condition of Workflow
Management.
Workflow Management may in the future seek to finance its acquisitions by using
shares of Company Common Stock. If the Company Common Stock does not maintain a
sufficient market value, if the price of Company Common Stock is highly
volatile, or if potential acquisition candidates are otherwise unwilling to
accept Company Common Stock as part of the consideration for the sale of their
businesses, Workflow Management may be required to use more of its cash
resources or more borrowed funds in order to initiate and maintain its
acquisition program. If Workflow Management does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity offerings. The Company does not anticipate
utilizing Company Common Stock for acquisition purposes during the current
fiscal year.
<PAGE>
Approximately $30.4 million, or 18.2% of the Company's total assets as of
January 23, 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.
Risks Associated with Canadian Operations
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 32.6% and 36.2% of the
Company's total net sales in the nine months ended January 23, 1999 and the
fiscal year ended April 25, 1998, respectively. As a result, Workflow Management
is subject to certain risks inherent in conducting business internationally,
including fluctuations in currency exchange rates. Workflow Management is also
subject to risks associated with the imposition of protective legislation and
regulations, including those resulting from trade or foreign policy. In
addition, because of the Company's Canadian operations, significant revenues and
expenses are denominated in Canadian dollars. Changes in exchange rates may have
a significant effect on the Company's business, financial condition and results
of operations. Workflow Management does not currently engage in currency hedging
transactions.
For additional risk factors, refer to the Company's Annual Report on Form 10-K
for the year ended April 25, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
NONE
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On January 19, 1999, the Company issued approximately $4.9 million in
subordinated unsecured notes with attached warrants ("Subordinated Notes") to
certain members of the Company's management. The proceeds from the issuance of
the Subordinated Notes were used by the Company to repurchase and retire Company
Common Stock. No underwriters were engaged by the Company in connection with the
issuance of these securities. The securities were sold to three accredited
investors in a transaction not involving a public offering. The securities were
exempt from the registration requirements of the Securities Act of 1933
("Securities Act") pursuant to Section 4(2) of the Securities Act and Rules 505
and 506 of Regulation D, as promulgated under the Securities Act. For a
discussion of the principal terms of the Subordinated Notes, including terms
governing the exercise of the warrants, see "Part I. Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Stock Purchase Agreement dated February 5, 1999, among Workflow
Management, Inc., Premier Graphics, Inc., Stanley L. Pippin,
Michael D. Snyder and Dean J. Murry.
10.2 Stock Purchase Agreement dated February 12, 1999, among Workflow
Management, Inc., Pacific-Admail, Inc., James G. Corey and Sharon
Corey.
10.3 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.
10.4 Subscription Agreement dated January 19, 1999 between Workflow
Management, Inc. and the Thomas B. and Elzbieta D'Agostino 1997
Charitable Remainder Trust.
10.5 Subscription Agreement dated January 19, 1999 between Workflow
Management, Inc. and Richard M. Schlanger.
10.6 Subscription Agreement dated January 19, 1999 between Workflow
Management, Inc. and Robert Fishbein.
10.7 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.
10.8 12% Subordinate Promissory Note dated January 19, 1999 and form
Warrant made by Workflow Management, Inc. and held by Richard M.
Schlanger.
<PAGE>
10.9 12% Subordinate Promissory Note dated January 19, 1999 and form
Warrant made by Workflow Management, Inc. and held by Robert
Fishbein.
10.10 Lease Agreement dated December 21, 1998 between D&C LLC and SFI of
Delaware, LLC.
10.11 Lease and Option Agreement dated January 8, 1999 between Workflow
Management, Inc. and FJK-TEEJAY Limited.
10.12 Agreement dated December 30, 1998, among Nationsbank, N.A., Workflow
Management, Inc. and FJK-TEEJAY Limited.
10.13 Severance agreement dated January 19, 1999, between Workflow
Management, Inc. and Thomas B. D'Agostino.
10.14 Severance agreement dated January 19, 1999, between Workflow
Management, Inc. and Steven R. Gibson.
10.15 Severance agreement dated January 19, 1999, between Workflow
Management, Inc. and Claudia S. Amlie.
10.16 Severance agreement dated January 19, 1999, between Workflow
Management, Inc. and Thomas B. D'Agostino, Jr.
10.17 Severance agreement dated January 19, 1999, between Workflow
Management, Inc. and Richard M. Schlanger.
11.1 Statement regarding computation of net income per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORKFLOW MANAGEMENT, INC.
March 8, 1999 By: /s/ Thomas B. D'Agostino
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Date Thomas B. D'Agostino
Chairman of the Board, Chief Executive
Officer, President, Director (Principal
Executive Officer)
March 8, 1999 By: /s/ Steven R. Gibson
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Date Steven R. Gibson
Executive Vice President, Chief Financial
Officer, Treasurer, Secretary (Principal
Financial Officer and Principal
Accounting Officer)
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
By and Among
Workflow Management, Inc.
Premier Graphics, Inc.
and
The Stockholders Named Therein
made effective as of February 5, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 5th day of February, 1999, by and among Workflow Management, Inc., a
Delaware corporation ("Buyer"), Premier Graphics, Inc., a South Carolina
corporation (the "Company"), and Stanley L. Pippin, Michael D. Snyder, and Dean
J. Murry (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) $7,500,000 of the Purchase Price shall be payable in cash
at Closing ("Cash Purchase Price"). 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(a)(i).
(ii) Certain payments shall be made to the Stockholders based
upon the "Adjusted EBITDA" of the Company, as specifically set forth in Section
1.7 hereof. For purposes of the Code, 4.71% 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
February 1999 in Revenue Ruling 99 - 8.
<PAGE>
(iii) Buyer represents to the Stockholders that Buyer has no
reason to believe that the Stockholders will suffer any adverse Tax consequences
("Incremental Taxes") in connection with the Section 338(h)(10) Election (as
defined in Section 5.1(c)(i)). If, however, it is ultimately determined
(pursuant to the procedures set forth in Section 5.1) that the Stockholders will
incur Incremental Taxes as a result of the 338(h)(10) Election, Buyer shall pay
to the Stockholders an additional amount ("338 Payment") equal to the
Incremental Taxes. Any 338 Payment, as finally determined in a manner consistent
with the allocation of Purchase Price (as provided in Section 5.1(c)(ii)), shall
be paid by the Buyer to the Stockholders (in proportion to their respective
holdings of Stock as set forth on Schedule 1.2(a)(i)) on the date that the
Section 338 Forms (as defined in Section 5.1(c)(i)) are filed pursuant to the
terms and conditions of Section 5.1(c).
(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 $1,385,000 (the "Net Worth
Target") as of the Closing; provided, however, that notwithstanding anything in
GAAP to the contrary the Net Worth Target shall be calculated for purposes of
this Agreement after giving effect to any expenses incurred by the Company in
connection with the transactions contemplated by this Agreement. In addition,
notwithstanding anything in GAAP to the contrary, the Buyer acknowledges and
agrees that any amounts ultimately determined to be owed or payable by the
Company as a result of the litigation disclosed on Schedule 3.27(c) ("Contingent
Litigation Liability") shall not be given any effect for purposes of determining
the Net Worth Target or the Actual Company Net Worth
(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 and(ii) no effect shall be given to the
Contingent Litigation Liability. In the event that Buyer's Accountant determines
that the actual Company net worth as of the Closing Date was less than the
<PAGE>
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
Deloitte & Touche (the "Independent Accounting Firm") shall review the Company's
books, Closing Financial Certificate and Financial Adjustment Notice (and
related information) to determine the amount, if any, of the Purchase Price
Adjustment. The Independent Accounting Firm shall be directed to consider only
those agreements, contracts, commitments or other documents (or summaries
thereof) that were either (i) delivered or made available to Buyer's Accountant
in connection with the transactions contemplated hereby, or (ii) reviewed by
Buyer's Accountant during the course of the Post-Closing Audit. The Independent
Accounting Firm shall make its determination of the Purchase Price Adjustment,
if any, within thirty (30) days of its selection. The determination of the
Independent Accounting Firm shall be final and binding on the parties hereto,
and upon such determination, Buyer shall be entitled to receive from the
Stockholders (which may, at Buyer's sole discretion, be from the Pledged Assets
as defined in Section 1.4) the Purchase Price Adjustment. The costs of the
Independent Accounting Firm shall be borne by the 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.
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") $750,000, which equals 10% of the Cash
Purchase Price (the "Pledged Assets").
(b) The Pledged Assets shall be held by the Escrow Agent pursuant to
the terms and conditions set forth in the Escrow Agreement ("Escrow Agreement")
dated as of the date hereof by and among Buyer, the Company and the
Stockholders.
<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
June 5, 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 the Pledged Assets (in
proportion to their respective holdings of Stock as set forth on Schedule
1.2(a)(i)), 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 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
<PAGE>
of shares of the Stock for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.6 Stockholders' Representative.
(a) Each Stockholder, by signing this Agreement, designates Stan
Pippin or, in the event that Stan Pippin is unable or unwilling to serve,
designates Michael Snyder, 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 the 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 day 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, whether or not constituting an entire fiscal
year, individually an "Annual Earn-out Period" for purposes of this Section
1.7), the Stockholders (as a group) shall be entitled to receive from the Buyer
forty percent (40%) of the annual Adjusted EBITDA (as defined herein) of the
Company for any Annual Earn-out Period, on the specific terms and conditions set
forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall
be payable in cash within thirty (30) days after the last day of the Annual
Earn-out Period and shall be payable to the Stockholders in proportion to their
respective holdings of Stock as set forth on Schedule 1.2(a)(i).
(b) Adjusted EBITDA for any Annual Earn-out Period shall mean the
Company's earnings before interest, taxes, depreciation and amortization, as
adjusted to reflect add-backs of one time, non-recurring costs incurred by the
<PAGE>
Company, as specifically agreed to by the Company and the Stockholders and
reflected on the Earn-out Statements (as defined below) ("Add-Backs"). In
determining Adjusted EBITDA, no effect shall be given to the results of
operations of any direct or indirect parent or subsidiary of the Company. Buyer
shall prepare a statement of Adjusted EBITDA for each Annual Earn-out Period,
including the Add-Backs (collectively, "Earn-out Statements"). 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. 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 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 and the Stockholders' Representative shall
designate the Independent Accounting Firm to resolve such dispute. The
Independent Accounting Firm shall review the Company's books and records and the
Earn-out Statements (and related information) to determine the amount, if any,
of the Earn-out. The Independent Accounting Firm shall be directed to consider
all agreements, contracts, commitments or other documents (or summaries thereof)
that it determines should be considered in accordance with GAAP and the terms of
this Agreement to make the determination of the Earn-out. The Independent
Accounting Firm shall make its determination of the Earn-out, if any, within
thirty (30) days of its selection. The determination of the Independent
Accounting Firm shall be final and binding on the parties hereto. If there is a
determination that the 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. 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
Earn-out was further from the determination of the Independent Accounting Firm,
or equally by Buyer and the Stockholders as a group in the event that the
determination by the Independent Accounting Firm is equidistant between the
determination of the Earn-out by the Buyer and Stockholders, respectively.
(c) To the extent that the Company has a negative Adjusted EBITDA
during any Annual Earn-out Period (such amount an "Adjusted EBITDA Loss"), the
Adjusted EBITDA Loss shall be carried forward to the subsequent Annual Earn-out
Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for
such subsequent Annual Earn-out Period(s) for purposes of determining the
Earn-out, if any, due for such subsequent Annual Earn-out Period(s). All
Adjusted EBITDA Losses shall continue to be carried forward on an annual basis
until such time as Adjusted EBITDA is fully offset by the total amount of the
Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior
payments of Earn-outs for Annual Earn-out Periods in which the Company had a
positive Adjusted EBITDA.
(d) In the event that, after the date of this Agreement, the Company
is merged (or otherwise consolidated) into Buyer or any direct or indirect
subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company
is not the surviving corporation under applicable law, the Earn-out shall only
be payable with respect to the business and operations conducted by the Company
<PAGE>
as of the date of this Agreement and without reference to the business and
operations of the Merger Affiliate. For purposes of calculating the Earn-out
payable under this Section 1.7 after a merger or other consolidation by the
Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to
(i) conduct the Company's former business and operations as a division of the
Merger Affiliate ("Company Division") and (ii) maintain such financial reporting
systems as are necessary to accurately calculate the Adjusted EBITDA (or
Adjusted EBITDA Losses) of the Company Division. Without in any way limiting
Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer
acknowledges that, based on the Buyer's and the Company's existing operations,
it is intended that all products sold or revenue generated from the Company's
operations in Columbia, South Carolina will be given full effect when
determining Adjusted EBITDA of the Company pursuant to this Section 1.7.
(e) Except as otherwise expressly agreed to by Buyer and the
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) and
without reference to any other entity hereafter merged into or otherwise
consolidated with the Company. In the event that the Buyer causes any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial reporting systems as are necessary to accurately calculate the
Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company
Division) without taking into account the results of any other operations of the
Company or any such other entity.
(f) Notwithstanding anything in this Section 1.7 to the contrary,
(i) Buyer shall have the right to reduce any amounts otherwise payable as an
Earn-out by the amount of any indemnification obligations of the Stockholders
under Article 8 and (ii) no effect will be given to the Contingent Litigation
Liability (whether or not ultimately paid by the Company) for purposes of
determining the Earn-outs due to the Stockholders under this Section 1.7.
(g) Any Earn-outs due pursuant to this Section 1.7 shall be payable
to the Stockholders in proportion to their respective holdings of Stock as set
forth on Schedule 1.2(a)(i).
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."
<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.
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;
<PAGE>
(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) 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"), if
applicable, 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 three
(3) 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(a)(i) 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
<PAGE>
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 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.
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 end of its most recent fiscal
year ending December 31, 1998 was not less than $ 1,610,451.
(b) The Company's sales for (i) its fiscal year ending December 31,
1997 were not less than $5,659,407, and (ii) its most recent fiscal year ending
December 31, 1998 were not less than $ 6,963,537.
(c) The Company's earnings before interest, taxes, depreciation and
amortization (after the addition of "add-backs" set forth on Schedule 3.9(c))
for its most recent fiscal year ending December 31, 1998 were not less than
$1,830,000.
(d) 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 amounts due to Stockholders, liabilities as of the Balance Sheet Date
as specified on the Company's unaudited balance sheet as of December 31, 1998
and included with the Company Financial Statements on Schedule 3.10 and
<PAGE>
liabilities incurred by the Company in the ordinary course of business since the
Balance Sheet Date ("Accrued Liabilities"), 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) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete and
correct copies of the Company's reviewed statement of assets, liabilities and
stockholders' equity as of December 31, 1997 (the end of its most recent
completed fiscal year for which reviewed financial statements are available),
and reviewed statement of revenues, expenses, retained earnings and cash flows
for the year ended December 31, 1997 (collectively, the "Reviewed 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 and statement of cash flows for the 12-month period
then ended (collectively, the "Interim Financials," and together with the
Reviewed Financials, the "Company Financial Statements"). Except as noted on the
accountant's report accompanying the Reviewed Financials, the Company Financial
Statements have been prepared in accordance with GAAP consistently applied,
subject, in the case of the Interim Financials, to (i) the exceptions stated on
Schedule 3.10, and (ii) the omission of footnote information. Each statement of
assets, liabilities and stockholders' equity and 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 revenue,
expenses, retained earnings and cash flows and each income statement 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) 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.
<PAGE>
(c) Schedule 3.11(c) also includes a summary description of all
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
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
<PAGE>
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are current and collectible net of any respective reserves shown on the
Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within one hundred
twenty (120) days after the day on which it first became due and payable. There
is no contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
3.15 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, 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.
<PAGE>
(ii) All structures and all structural, mechanical and other
physical systems thereof that constitute part of the Real Property, including
but not limited to the walls, roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facility
included therein, and other material items at the Real Property (collectively,
the "Tangible Assets"), are free of defects and in good operating condition and
repair. For purposes of this Section, a defect shall mean a condition relating
to the structures or any structural, mechanical or physical system which
requires an expenditure of more than $1,000 to correct. No maintenance or repair
to the Real Property, structures, facilities and improvements to the Real
Property ("Structure") 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.
<PAGE>
(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) 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
$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.
<PAGE>
(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 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.
<PAGE>
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 3.18(c). Those Other Rights constitute all of the Other Rights that the
Company now owns or is licensed to use. The Company owns or is licensed to
practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 3.18(a), (b), or (c). No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property or other trade secret material to the Company;
or (iv) challenging the Company's license or legally enforceable right to use of
the Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor any of its
subsidiaries (x) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, or copyrights and which
has not been finally terminated or been informed or notified by any third party
that the Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its subsidiaries of any trade secret, patent, trademark, service mark, or
copyright of another.
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list of all
Significant Customers and Significant Suppliers. For purposes of this Agreement,
"Significant Customers" are the twenty (20) customers that have effected the
most purchases, in dollar terms, from the Company during each of the past four
<PAGE>
(4) fiscal quarters, and "Significant Suppliers" are the twenty (20) suppliers
who supplied the largest amount by dollar volume of products or services to the
Company during the twelve (12) months ending on the Balance Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $10,000 or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$10,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.19(c), (i) none of
the Company's Significant Customers has canceled or substantially reduced or, to
the knowledge of the Company, is currently attempting or threatening to cancel
or substantially reduce, any purchases from the Company, (ii) none of the
Company's Significant Suppliers has canceled or substantially reduced or, to the
knowledge of the Company, is currently attempting to cancel or substantially
reduce, the supply of products or services to the Company, (iii) the Company has
complied with all of its commitments and obligations and is not in default under
any of the Material Contracts, and no notice of default has been received with
respect to any thereof, and (iv) there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services, nor has it had any of its
products returned by a purchaser thereof except for normal warranty returns
consistent with past history and those returns that would not result in a
reversal of any material revenue.
(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.
<PAGE>
(f) The outstanding balance on all loans or credit agreements either
(i) between the Company and any person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
person in which any of the Stockholders owns a material interest, are set forth
in Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or substantially
all of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 3.19(g), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 3.19(g)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
3.20 Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company is not a party
to any government contracts.
(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.
<PAGE>
(g) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials and
supplies, manufactured and purchased parts, goods in process and finished goods,
all of which is merchantable and fit for the purposes for which it was procured
or manufactured, and none of which is slow-moving, obsolete, damaged, or
defective, subject to a 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
the loss experience with respect to such policies 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, to the Company's knowledge, any other person or
entity for whose conduct the Company is or may be held responsible, have no
liability under, have never violated, and are presently in compliance with any
and all environmental, health or safety-related laws, regulations, ordinances or
by-laws at the federal, state and local level (the "Environmental Laws")
applicable to the Real Property and any facilities and operations thereon,
except as listed in Schedule 3.23(a).
(b) To the Company's knowledge, there exist no conditions with
respect to the environment on or off the Real Property, whether or not yet
discovered, that could or do result in any damage, loss, cost, expense, claim,
demand, order or liability to or against the Company by any third party
including, without limitation, any condition resulting from the operation of the
Company's business and/or the operation of the business of any other property
owner or operator in the vicinity of the Real Property and/or any activity or
operation formerly conducted by any person or entity on or off the Real
Property, except as set forth in Schedule 3.23(b).
(c) The Company, and, to the Company's knowledge, any other person
or entity for whose conduct the Company is or may be held responsible, have not
generated, manufactured, refined, transported, treated, stored, handled,
disposed, transferred, produced, or processed any pollutant, toxic substance,
<PAGE>
hazardous waste, hazardous material, hazardous substance, or oil as defined in
or pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water
Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, ordinance, rule, or bylaw, whether existing
as of the date hereof, previously enforced, or subsequently enacted ("Hazardous
Material") or any solid waste at the Real Property, or at any other location,
except in compliance with all applicable Environmental Laws and except as listed
in Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Real Property of any Hazardous Material, except as listed
in Schedule 3.23(e).
(f) The Company has not, and, to the Company's knowledge, any other
person or entity for whose conduct the Company is or may be held responsible has
not, (i) entered into or been subject to any consent decree, compliance order,
or administrative order with respect to the Real Property or any facilities or
operations thereon; (ii) received notice under the citizen suit provision of any
of the Environmental Laws in connection with the Real Property or any facilities
or operations thereon; (iii) received any request for information, notice,
demand letter, administrative inquiry, or formal or informal compliant or claim
with respect to any Environmental Condition relating to the Real Property or any
facilities or operations thereon; or (iv) been subject to or threatened with any
governmental or citizen enforcement action with respect to the Real Property or
any facilities or operations thereon, except as set forth in Schedule 3.23(f);
and the Company, and any other person or entity for whose conduct it is or may
be held responsible, have no knowledge that any of the above will be
forthcoming.
(g) The Company has all permits necessary pursuant to Environmental
Laws for its activities and operations at the Real Property and for any past or
ongoing alterations or improvements at the Real Property, which permits are
listed in Schedule 3.23(g).
(h) To the Company's knowledge, none of the following exists at the
Real Property: (1) underground storage tanks, (2) asbestos-containing materials
in any form or condition, (3) materials or equipment containing polychlorinated
biphenyls, (4) lead paint, pipes or solder, or (5) landfills, surface
impoundments or disposal areas, except as listed in Schedule 3.23(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
<PAGE>
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;
(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
<PAGE>
(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.
(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.
<PAGE>
(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 Premier Graphics, Inc. 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);
<PAGE>
(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 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
<PAGE>
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) sets forth certain experience ratings and loss
run information with respect to the Company's workers' compensation policy.
(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.
<PAGE>
(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 1991.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
since the date of the Company's incorporation. The Company has not agreed to,
and is not and will not be required to, make any adjustments under Code Section
481(a) as a result of a change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last fiscal year have been delivered to Buyer.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
<PAGE>
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or 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) (i) The Company has, since its date of 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" 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
<PAGE>
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
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;
<PAGE>
(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 such payments or distributions to the Stockholders as
will not cause the Company's Certified Closing Net Worth to be less than the Net
Worth Target (any such payment or distribution 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;
<PAGE>
(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, the Company has no reason to
believe that its respective vendors, suppliers and customers are not Year 2000
Compliant and Ready where the failure to be Year 2000 Compliant and Ready would
have a material adverse affect on the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, profits or
condition (financial or otherwise) of the Company. For purposes of this
Agreement, the term "Year 2000 Compliant and Ready," with respect to any person,
means that the hardware and software systems and components (including without
limitation imbedded microchips) owned, licensed or used by such person in
connection with its business operations will (without any additional cost or the
need for human intervention) (i) accurately process information involving any
and all dates before, during and/or after January 1, 2000, including without
limitation recognizing and processing input, providing output, storing
information and performing date-related calculations, all without creating any
ambiguity as to the century and without any other error or malfunction, (ii)
operate accurately without material interruption or malfunction on and in
respect of any and all dates before, during and/or after January 1, 2000 and
(iii) where applicable, respond to and process two digit year input without
creating any ambiguity as to the century.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce the Company 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 corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite 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. 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.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of
the Buyer's Certificate of Incorporation or Bylaws;
(b) conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, if applicable, together with all rules and
regulations promulgated thereunder).
<PAGE>
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholders, on
the other, for certain tax matters following the Closing Date:
(i) Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the Company
on or before the due date of such Tax Returns the amount of all Taxes shown as
due on such Tax Returns to the extent that such Taxes are not reflected in the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. Such Tax
Returns shall be prepared and filed in accordance with applicable law and in a
manner consistent with past practices and shall be subject to review and
approval by Buyer. To the extent reasonably requested by the Stockholders or
required by law, Buyer and the Company shall participate in the filing of any
Tax Returns filed pursuant to this paragraph.
(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
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 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
<PAGE>
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:
(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"). 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. 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.
<PAGE>
(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-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 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.
(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 periods ending on or before the Closing
Date (including any Tax resulting from the Section 338(h)(10) Election). Buyer
shall be responsible for all federal income Taxes of the Company for periods
ending after the Closing Date.
(ii) 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. 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 by such state, local and/or foreign
jurisdiction resulting from the transactions contemplated by this Agreement.
Finally, Stockholders will be liable for nonfederal income Taxes of the Company
ending on or before the Closing Date, and the Buyer and Company will be liable
for nonfederal income Taxes of the Company for periods ending after the Closing
Date.
<PAGE>
5.2 Accounts Receivable. In the event that all Accounts Receivable are not
collected in full (net of reserves specified in Section 3.14) within one hundred
twenty (120) days after the Closing then, at the request of the Company or
Buyer, the Stockholders shall pay (based on their percentage ownership of the
Company immediately prior to the Closing Date) the Company an amount equal to
the Accounts Receivable not so collected, and upon receipt of such payment the
Company shall assign to the Stockholders making the payment all rights with
respect to the uncollected Accounts Receivable giving rise to the payment and
shall also thereafter promptly remit any excess collections received by it with
respect to such assigned Accounts Receivable. If and when the amount
subsequently collected by Stockholders with respect to the assigned Accounts
Receivable equals (a) the payment made therefor plus (b) the costs and expenses
reasonably incurred by the Stockholders in the collection of such assigned
Accounts Receivable, the Stockholders shall reassign to the Company all of such
assigned Accounts Receivable as have not been collected in full by the
Stockholders and shall also thereafter promptly remit any excess collections
received by them. Upon the written request of the Company, the Stockholders
shall provide it with a status report concerning the collection of assigned
Accounts Receivable.
5.3 Removal of Shareholder Guaranties. Within one hundred twenty (120)
days of the Closing Date, Buyer shall use its best efforts to cause to be
removed, canceled or otherwise extinguished those guaranties given by the
Stockholders to certain third parties that are specifically identified on
Schedule 5.3.
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. The Stockholders acknowledge that any
contributions to be made by the Company to the Company 401(k) Plan with respect
to the period beginning January 1, 1999 and ending on the Closing Date(or any
other pre-Closing period) for which cash is not distributed to the Company
401(k) Plan prior to Closing shall be accrued on the Company's books as of the
Closing and shall be given full effect by the Buyer's Accountant when
determining the Actual Company Net Worth pursuant to Section 1.3.
5.5 Related Party Agreements. The Company and/or the Stockholders, as the
case may be, shall terminate any Related Party Agreements which Buyer requests
the Company or Stockholders to terminate.
5.6 Cooperation.
(a) The Company, Stockholders, and Buyer shall each deliver or cause
to be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
<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.
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company and
(ii) such additional financial and operating data and other information as to
the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
(c) Prior to the Closing Date, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Buyer in
writing. Buyer agrees to keep the Company and the Stockholders apprised in
advance of any disclosure of the subject matter of this Agreement by Buyer prior
to the Closing Date.
5.8 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, the Company will (except as requested or agreed by Buyer):
<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. Between the date hereof and the Closing Date,
the Company will not, without the prior written consent of Buyer:
(a) make any change in its Articles of Incorporation or Bylaws,
or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) 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 in excess of $5,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(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.
<PAGE>
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.
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.
<PAGE>
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 Quarterly Financial Statements. Buyer shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to Buyer.
6.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
6.9 Delivery of Closing Financial Certificate. Buyer shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
signed on behalf of the Company and by each of the Stockholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recent fiscal year;
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth"), it being acknowledged that Buyer's rights and
remedies with respect to the Certified Closing Net Worth are set forth in
Article I of this Agreement;
(c) the sales of the Company for the fiscal year ending December 31,
1997;
(d) the sales of the Company for the fiscal year ending December 31,
1998;
(e) the earnings of the Company before interest, taxes, depreciation
and amortization (after the addition of "add-backs" set forth on Schedule
3.9(c)) for the most recent fiscal year preceding the Closing Date;
(f) 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 amounts due to Stockholders, Accrued Liabilities, 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
<PAGE>
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 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. Each of Stan Pippin, Michael Snyder and Dean
Murry shall have entered into an employment 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.
<PAGE>
7.4 Employment Agreements. The Company and each of Stan Pippin, Michael
Snyder and Dean Murry shall have entered into an employment agreement with the
Company in a form reasonably satisfactory to each of them.
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholders. Each Stockholder, jointly
and severally, covenants and agrees to indemnify, defend, protect and hold
harmless Buyer 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:
(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) the matters disclosed on Schedules 3.23 (environmental
matters), 3.25 (employee benefit plans), and 3.26 (taxes); 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 $65,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Cash
<PAGE>
Purchase Price as set forth in Sections 1.2 and 1.3; (ii) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock; accounting treatment), 3.19
(significant customers; material contracts and commitments), 3.23 (environmental
matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27 (conformity with
law; litigation), or (iii) Damages described in Section 8.1(a)(iv);
(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) 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)
<PAGE>
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty (30) days from the date of
delivery of the Claim Notice to notify the Indemnified Party (A) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute, and
(B) if such party does not dispute liability, whether or not the Indemnifying
Party desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated) to file any motion, answer or other pleading and
to take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Company or any subsidiary, the Indemnified Party shall have the right to control
or assume (as the case may be) the defense of any such Third Party Claim and the
amount of any judgment or settlement and the reasonable costs and expenses of
defense shall be included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Indemnified Party elects to exercise such
right, the Indemnifying Party shall have the right to participate in, but not
control, the defense of such Third Party Claim at the sole cost and expense of
the Indemnifying Party.
<PAGE>
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
and Buyer in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
The representations of the Company and the Stockholders will survive the Closing
and will remain in effect until, and will expire upon, the termination of the
indemnification obligations as provided in Section 8.2. The representations of
Buyer will survive the Closing and will remain in effect until, and will expire
upon the third anniversary of the Closing Date.
8.5 Exclusive Remedies . Absent fraud, the foregoing indemnification
provisions are in lieu of, and not in addition to, any statutory, equitable or
common law remedy Buyer may have for breach of any representation, warranty or
covenant.
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
<PAGE>
covenant that they will not, for a period of three (3) 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
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
<PAGE>
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 three (3) 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
<PAGE>
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 Directors of Buyer and
the board of directors of the Company; or
(b) by the Stockholders and the Company as a group, on the one hand,
or by Buyer, on the other hand, if the Closing shall not have occurred on or
before February 28, 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. 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
<PAGE>
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholders and
the Company deemed to be a single party for purposes of this Article 10), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Buyer, and the heirs and legal representatives of the Stockholders.
Notwithstanding anything in the foregoing to the contrary, Buyer may assign any
of its rights or obligations under this Agreement to any direct or indirect
subsidiary of Buyer in its sole and absolute discretion and without the consent
of the Company or the Stockholders; provided, however that in the event of such
assignment Buyer 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.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer represents and warrants to the Company and
the Stockholders (as a group) that it has not employed any broker or agent in
connection with the transactions contemplated by this Agreement and agrees to
indemnify the Stockholders against all losses, damages or expenses relating to
or arising out of claims for fees or commissions of any broker or agent employed
or alleged to have been employed by Buyer. The Company and each Stockholder (as
a group) have engaged Geneva Corporate Finance, Inc. ("Geneva") on their behalf
as a broker and the Stockholders (and not the Company) shall be responsible for
any fees, commissions or other payments owed to Geneva as a result of this
Agreement (or otherwise). The Company and the Stockholders represent that they
have not employed any broker or agent other than Geneva in connection with the
transactions contemplated by this Agreement. The Stockholders agree to indemnify
the Buyer against all losses, damages or expenses relating to or arising out of
claims for fees or commissions of Geneva or any other broker or agent alleged to
have been employed by the Stockholders or the Company.
10.7 Expenses. Buyer has and will pay the fees, expenses and disbursements
of Buyer and its agents, representatives, accountants and counsel incurred in
<PAGE>
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.
10.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
(Telefax: (561) 659-7793)
with a required copy to:
Kaufman & Canoles, P.C.
P.O. Box 3037
Norfolk, VA 23514
Attn: Gus J. James, II, Esq. and T. Richard Litton, Jr., Esq.
(Telefax: (757) 624-3169)
If to any Stockholder to the Stockholders' Representative:
Stan Pippin
103 Trade Zone Drive
West Columbia, SC 29171
(Telefax: (803) 822-8417)
<PAGE>
with a required copy to:
Mark L. Bender, Esq.
Nexsen Pruet Jacobs & Pollard
1441 Main Street, Suite 1500
Columbia, SC 29201
(Telefax: (803) 253-8277)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any disputes
arising out of, in connection with or with respect to this Agreement, the
subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of Wilmington,
Delaware and nowhere else. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of such court for the purposes of any suit, civil action or
other proceeding arising out of, in connection with or with respect to this
Agreement, the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby
(collectively, "Suit"). Each of the parties hereto hereby waives and agrees not
to assert by way of motion, as a defense or otherwise in any such Suit, any
claim that it is not subject to the jurisdiction of the above courts, that such
Suit is brought in an inconvenient forum, or that the venue of such Suit is
improper.
10.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
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.
<PAGE>
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.
WORKFLOW MANAGEMENT, INC.
By: /s/ Claudia S. Amlie
---------------------------------------
Claudia S. Amlie,
Vice President and General Counsel
PREMIER GRAPHICS, INC.
By: /s/ Stanley L. Pippin
------------------------------------
Name: Stanley L. Pippin
Title: President
STOCKHOLDERS:
/s/ Stanley L. Pippin
------------------------------------
Stan Pippin, individually
/s/ Michael D. Snyder
------------------------------------
Michael Snyder, individually
/s/ Dean Murry
------------------------------------
Dean Murry, individually
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
By and Among
WORKFLOW MANAGEMENT, INC.
PACIFIC ADMAIL, INC.
and
The Stockholders Named Therein
made effective as of February 12, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 12th day of February, 1999, by and among WORKFLOW MANAGEMENT, INC., a
Delaware corporation ("Buyer"), PACIFIC-ADMAIL, INC., a California corporation
(the "Company"), and JAMES G. COREY and SHARON COREY, husband and wife (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 and other 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) $ 7,131,069 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(a)(i). An additional $17,340 of the
Purchase Price shall be payable to the Stockholders in the form of 3,000 shares
of the Buyer's voting common stock ("Shares"), which Shares were owned by the
Company prior to the Closing Date (the "Stock Purchase Price"). The Stock
Purchase Price shall be paid in the form of a distribution by the Company to the
Stockholders of the Shares immediately upon Closing, but such distribution shall
in all events be deemed to be Purchase Price for purposes of this Agreement.
<PAGE>
(ii) Certain payments shall be made to the Stockholders based
upon the "Adjusted EBITDA" 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
for February 1999 in Revenue Ruling 99 - 8.
(iii) In order to 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)), Buyer shall pay
to the Stockholders such additional amount ("338 Payment") as will be determined
in accordance with the hypothetical formula calculation of Incremental Taxes set
forth on Schedule 1.2(a)(iii). The parties acknowledge that Schedule 1.2(a)(iii)
sets forth a calculation of the Incremental Taxes and corresponding 338 Payment
by way of example only and is not intended to provide the actual amount of the
338 Payment. The 338 Payment, as determined in a manner consistent with the
allocation of Purchase Price (as provided in Section 5.1(c)(ii)) and with the
formula calculation set forth on Schedule 1.2(a)(iii), shall be paid by the
Buyer to the Stockholders (in proportion to their respective holdings of Stock
as set forth on Schedule 1.2(a)(i)) on the date that the Section 338 Forms (as
defined in Section 5.1(c)(i)) are filed pursuant to the terms and conditions of
Section 5.1(c). In addition, the Buyer shall assume 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 $1,600,000 (the "Net Worth
Target") as of the Closing; provided, however, that notwithstanding anything in
GAAP to the contrary the Net Worth Target shall be calculated for purposes of
this Agreement (i) after giving effect to any expenses incurred by the Company
(or the Stockholders and paid by the Company, if any) in connection with the
transactions contemplated by this Agreement and (ii) in a manner consistent with
the Company's Historical Inventory Valuation (as defined in Section 3.10).
(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
<PAGE>
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 and (ii) net worth shall be calculated in
accordance with Section 1.2(b). 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) an
explanation in reasonable detail of all calculations made by the Buyer's
Accountant in connection with determining the Actual Company Net Worth,
including supporting work papers which shall be made available in Santa Ana,
California, (iii) 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 (iv) 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). In the event
that the Buyer's Accountant determines that there is a Net Worth Excess (as
defined in Section 1.2(b)(i)), then the terms and conditions of Section
1.2(b)(ii) shall govern.
(c) The Stockholders' Representative shall have sixty (60) 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 sixty (60) 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 sixty (60) day period, then
Buyer's Accountant shall select Arthur Anderson & Co. ("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 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. 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 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.
<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 hereby, transfer, pledge and assign to Buyer, for the
benefit of Buyer, a security interest in the following assets (the "Pledged
Assets"):
(i) $700,000 of the cash comprising each Stockholder's share
of the Cash Purchase Price as the same may have been adjusted pursuant to
Section 1.2 or Section 1.3 hereof; and
(ii) all interest and earnings incident to the foregoing
property.
(b) Each Stockholder's Pledged Assets shall be withheld by Buyer
from distribution to such Stockholder at the Closing (as defined below) and
shall be retained by Buyer in an interest-bearing account chosen by Buyer in its
sole and absolute discretion that earns interest equal to or greater than
prevailing rates for United States Treasury bills.
(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
August 12, 1999 (the "Release Date"). Promptly following the Release Date, Buyer
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(a)(i)) the Pledged
Assets, together with all earned and accrued interest, 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 the parties are disputing 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 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.
<PAGE>
(c) No Further Ownership Rights in Capital Stock of the Company. All
cash to be delivered (including cash that constitutes Pledged Assets) upon the
surrender for exchange of shares of the Stock in accordance with the terms
hereof shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Stock, and following the Closing, the Stockholders
shall have no further rights to, or ownership in, shares of capital stock of the
Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such cash as provided in Section 1.2; provided, however
that Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Buyer with respect to the certificates alleged to
have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.5, none of the Company or any party hereto shall be liable to a holder
of shares of the Stock for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.6 Stockholders' Representative.
(a) Each Stockholder, by signing this Agreement, designates James G.
Corey or, in the event that James G. Corey is unable or unwilling to serve,
designates Sharon Corey, 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.
<PAGE>
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) for each of Buyer's
next two (2) fiscal years following the Initial Fiscal Period, and (iii) the
period commencing April 29, 2001 and ending on the date that is three (3) 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
thirty-three percent (33%) of the annual Adjusted EBITDA (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 within ninety(90) days after the last day of the Annual
Earn-out Period and shall be payable, at the option of Buyer, in cash or in
voting common stock (NASDAQ-WORK) of the Buyer (any such common stock the
"Earn-out Stock"). Earn-out Stock will not be registered under the Securities
Act of 1933 ("Securities Act") and the Stockholders will have no registration or
other rights that would obligate Buyer to cause the Earn-out Stock to be
registered under the Securities Act. For purposes of valuing the Earn-out Stock
under this Section 1.7, the Stockholders shall be entitled to receive such
number of shares of common stock of Buyer ("Workflow Common Stock") as is equal
to the Earn-out due divided by the average of the closing sales prices of the
Workflow Common Stock on the NASDAQ National Market System (or any other
automated quotation system of a registered securities association or stock
exchange on which Workflow Common Stock is then traded) for the thirty (30)
trading days prior to the day on which the Earn-out is due.
(b) Adjusted EBITDA for any Annual Earn-out Period shall mean the
Company's earnings before interest, taxes, depreciation and amortization, as
adjusted to reflect add-backs of one time, non-recurring costs incurred by the
Company, as specifically reasonably agreed to by the Company and the
Stockholders and reflected on the Earn-out Statements (as defined below)
("Add-Backs"). In determining Adjusted EBITDA, no effect shall be given to the
results of operations of any direct or indirect parent or subsidiary of the
Company. Buyer shall prepare a statement of Adjusted EBITDA for each Annual
Earn-out Period, including the Add-Backs (collectively, "Earn-out Statements").
Each Earn-out Statement shall be delivered to the Stockholders' Representative
no later than ninety (90) days after the last day of each Annual Earn-out
Period. 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 the Independent
Accountant shall be appointed 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 which shall be made available in Santa Ana, California) 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 or stated 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. The costs of the Independent
Accountant shall be borne by the party (either Buyer or the Stockholders as a
group) whose determination of the Earn-out was further from the determination of
the Independent Accountant, or equally by Buyer and the Stockholders as a group
in the event that the determination by the Independent Accountant is equidistant
between the determination of the Earn-out by the Buyer and Stockholders,
respectively.
(c) To the extent that the Company has a negative Adjusted EBITDA
during any Annual Earn-out Period (such amount an "Adjusted EBITDA Loss"), the
Adjusted EBITDA Loss shall be carried forward to the subsequent Annual Earn-out
Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for
such subsequent Annual Earn-out Period(s) for purposes of determining the
Earn-out, if any, due for such subsequent Annual Earn-out Period(s). All
Adjusted EBITDA Losses shall continue to be carried forward on an annual basis
until such time as Adjusted EBITDA is fully offset by the total amount of the
Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior
payments of Earn-outs for Annual Earn-out Periods in which the Company had a
positive Adjusted EBITDA.
(d) In the event that, after the date of this Agreement, the Company
is merged (or otherwise consolidated) into Buyer or any direct or indirect
subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company
is not the surviving corporation under applicable law, the Earn-out shall only
be payable with respect to the business and operations conducted by the Company
as of the date of this Agreement and without reference to the business and
operations of the Merger Affiliate. For purposes of calculating the Earn-out
payable under this Section 1.7 after a merger or other consolidation by the
Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to
(i) conduct the Company's former business and operations as a division of the
Merger Affiliate ("Company Division") and (ii) maintain such financial reporting
systems as are necessary to accurately calculate the Adjusted EBITDA (or
Adjusted EBITDA Losses) of the Company Division. Without in any way limiting
Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer
acknowledges that, based on the Buyer's and the Company's existing operations,
it is intended that all products sold or revenue generated from the Company's
operations in Santa Ana, California will be given full effect when determining
Adjusted EBITDA of the Company pursuant to this Section 1.7.
(e) Except as otherwise expressly agreed to by Buyer and the
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) and
without reference to any other entity hereafter merged into or otherwise
consolidated with the Company. In the event that the Buyer causes any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial reporting systems as are necessary to accurately calculate the
Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company
<PAGE>
Division) without taking into account the results of any other operations of the
Company or any such other acquired or merged 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 any indemnification obligations of the Stockholders
under Article 8.
(g) Notwithstanding anything in this Section 1.7 to the contrary,
during the period from the Closing Date through the date which is three (3)
years after the Closing Date, neither the Company, 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
Adjusted EBITDA 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) the Company (or the Company Division, as applicable) may sell
inventory and other assets, and replace, improve or dispose of obsolete or
non-usable 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 the Stockholders, 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 operational facilities on a sustained and continuing
basis.
1.8 Accounting Terms. Except as otherwise expressly provided in Section
3.10 or elsewhere herein or in the Schedules attached to this Agreement, 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
<PAGE>
and the directors and officers of the Company prior to the Closing Date,
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.
3.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of
the Charter Documents;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any Lien (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;
<PAGE>
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together
with all rules and regulations promulgated thereunder.
3.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 1,000,000 shares of common stock, no par value, of which
1,000 shares are issued and outstanding. 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(a)(i)
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, and other than this Agreement, no option, warrant, call,
subscription right, conversion right or other contract or commitment of any kind
will exist as of the Closing Date 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.
<PAGE>
(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 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, except for (i) matters specifically identified on Schedule
3.8, (ii) claims arising out of this Agreement, (iii) rights of James G. Corey
under his Employment Agreement to be entered into with the Company pursuant to
Section 6.11 of this Agreement, (iv) any accrued but unpaid wages owed as of
Closing to Stockholders who are employees of the Company, (v) accrued but unpaid
rent owed to the Stockholders in their capacity as landlords for the Company's
leased real property located at 1909 South Susan Street, Santa Ana, California
("Stockholder Real Property") and (vi) rights of the Stockholders under the
lease to be entered into with respect to the Stockholder Real Property pursuant
to Section 6.12.
3.9 Company Financial Conditions.
(a) The Company's net worth, determined after giving effect to the
Company's Historical Inventory Valuation (as defined in Section 3.10), (i) as of
the end of its fiscal year ended December 31, 1998 was not less than $1,730,000,
and (ii) as of the Closing will not be less than the Net Worth Target.
(b) The Company's sales for (i) its fiscal year ending December 31,
1997 were not less than $11,090,000, and (ii) the twelve (12) month period
ending December 31, 1998 were not less than $16,450,000.
(c) The average of the Company's earnings before interest, taxes,
depreciation and amortization (after the addition of "add-backs" set forth on
Schedule 3.9(c), and after giving effect to the Company's Historical Inventory
Valuation (as defined in Section 3.10)) for its fiscal years ending December 31,
1997 and December 31, 1998 was not less than $2,280,026.
(d) 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 amounts due to any Stockholders as identified in Section 3.8 and 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 $2,515,813.
<PAGE>
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 and complete
copies of the Company's reviewed balance sheet as of December 31, 1997 (the end
of its most recent completed fiscal year for which reviewed financial statements
are available), and statement of income and retained earnings and statement of
cash flows for the year ended December 31, 1997 (collectively, the "Reviewed
Financials") and (b) true and complete copies of the Company's unaudited balance
sheet (the "Interim Balance Sheet") as of December 31, 1998 (the "Balance Sheet
Date") and income statement and statement of cash flows for the 12-month period
then ended (collectively, the "Interim Financials," and together with the
Reviewed Financials, the "Company Financial Statements"). Except as noted on the
accountants' report accompanying the Reviewed 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
adjustments, which individually or in the aggregate will not be material, (ii)
to the omission of footnote information, and (iii) to the Company's historical
accounting practice of not reflecting work in process inventory as an asset on
the Company's financial statements (such historical accounting practice the
"Historical Inventory Valuation"). To the Company's knowledge, each balance
sheet included in the Company Financial Statements presents fairly the financial
condition of the Company as of the date indicated thereon, and, to the Company's
knowledge, each of the statements of income and retained earnings and statement
of cash flows included in the Company Financial Statements presents fairly the
results of its operations for the periods indicated thereon. Since the dates of
the Company Financial Statements, there have been no material changes in the
Company's accounting policies other than as requested by Buyer to conform the
Company's accounting policies to GAAP.
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 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.
<PAGE>
(c) Schedule 3.11(c) also includes a summary description of all
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured. Schedule 3.11(d) contains a
complete list of all known indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, 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 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 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
<PAGE>
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).
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 as currently conducted by 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
<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, 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 material maintenance or repair to the Real Property, structures, facilities
and improvements to the Real Property ("Structure") 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) During the time that the Stockholders have held an
interest in the Real Property, whether as tenant, landlord or owner, 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.
<PAGE>
(viii) 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, except
for the leases identified on Schedule 3.16(b).
(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") will be
valid and in full force and effect as of the Closing Date. On or before the
Closing Date, the Company will provide 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, or, if consent is required, such consent will be obtained
prior to the Closing Date.
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, within the past four (4) years, 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) Except as set forth on Schedule 3.17(c), all of the trucks and
other material, machinery and equipment of the Company, including those listed
on Schedule 3.17(a), are in reasonable working order and condition to perform
their intended functions, 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.
<PAGE>
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 3.18(c). Those Other Rights constitute all of the Other Rights that the
Company now owns or is licensed to use (other than third party computer software
programs generally available to commercial or retail consumers). 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 (in all
material respects) of all Significant Customers and Significant Suppliers. For
purposes of this Agreement, "Significant Customers" are the customers of the
Company that have effected the most purchases, in dollar terms, from the Company
during the years ended December 31, 1996 and 1997 and the eleven months ended
<PAGE>
November 30, 1998 as identified on Schedule 3.19(a), and "Significant Suppliers"
are the suppliers of the Company identified on Schedule 3.19(a), each of whom
has supplied products and services to the Company during the period beginning
January 1, 1998 and ending November 30, 1998.
(b) Schedule 3.19(b) contains a complete and accurate list (in all
material respects) 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 (in all material respects) copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.19(c), (i) none of
the Company's Significant Customers has canceled or substantially reduced or, to
the knowledge of the Company, is currently attempting or threatening to cancel
or substantially reduce, any purchases from the Company, (ii) none of the
Company's Significant Suppliers has canceled or substantially reduced or, to the
knowledge of the Company, is currently attempting to cancel or substantially
reduce, the supply of products or services to the Company, (iii) the Company has
complied with all of its commitments and obligations and is not in default under
any of the Material Contracts, and no notice of default has been received with
respect to any thereof, and (iv) there are no Material Contracts that were not
negotiated at arm's length. The term "arm's length" shall not be deemed to
include (to the extent consistent with the Company's ordinary course of
business) volume discounts, preferred customer pricing or other reasonable
business arrangements or accommodations. The Company has not received any
material unresolved 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 in material uncured 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) 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.
<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.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials and
supplies, manufactured and purchased parts, and finished goods, all of which is
merchantable and fit for the purposes for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject to a
GAAP reserve for inventory set forth on the balance sheet included with the
Interim Financials (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. Notwithstanding anything in this Section 3.21 to the
contrary, the Stockholders and Company shall only be deemed to have breached
this representation and warranty to the extent that inventory of the Company in
excess of $8,000 (on a fair market value basis) does not meet the standards set
forth in the preceding sentence.
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 (in all material respects) copies of all current insurance policies, all
of which are in full force and effect. All premiums due and payable under all
such policies have been paid and the Company is otherwise in full compliance
with the terms of such policies. To the knowledge of the Company, there have
been no threatened terminations of, or material premium increases with respect
to, any of such policies.
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 (except
contractual, contingent liabilities with respect to real property leased by the
Company as specifically identified on Schedule 3.23(a)), 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
<PAGE>
the Company by any third party including, without limitation, any condition
resulting from the operation of the Company's business and/or the operation of
the business of any other property owner or operator in the vicinity of the Real
Property and/or any activity or operation formerly conducted by any person or
entity on or off the Real Property, except as set forth in Schedule 3.23(b).
(c) The Company, and, to the Company's knowledge, any other person
or entity for whose conduct the Company is or may be held responsible, have not
generated, manufactured, refined, transported, treated, stored, handled,
disposed, transferred, produced, or processed any pollutant, toxic substance,
hazardous waste, hazardous material, hazardous substance, or oil as defined in
or pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water
Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, ordinance, rule, or bylaw, whether existing
as of the date hereof, previously enforced, or subsequently enacted ("Hazardous
Material") or any solid waste at the Real Property, or at any other location,
except in compliance with all applicable Environmental Laws and except as listed
in Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except in compliance with applicable Environmental Laws and except
as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Real Property of any Hazardous Material, except as listed
in Schedule 3.23(e).
(f) The Company has not, and, to the Company's knowledge, any other
person or entity for whose conduct the Company is or may be held responsible has
not, (i) entered into or been subject to any consent decree, compliance order,
or administrative order with respect to the Real Property or any facilities or
operations thereon; (ii) received notice under the citizen suit provision of any
of the Environmental Laws in connection with the Real Property or any facilities
or operations thereon; (iii) received any request for information, notice,
demand letter, administrative inquiry, or formal or informal 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, 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).
<PAGE>
(h) Except as set forth on Schedule 3.23(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.
(i) The Company has provided to Buyer copies of all documents,
records and information in its possession or control or reasonably 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) Except as set forth on Schedule 3.24(a), the Company is and has
been in compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including without limitation any such laws respecting
employment discrimination, workers' compensation, family and medical leave, the
Immigration Reform and Control Act, and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three (3) years has there
been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, and other than the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America (Local 509) ("Company Union"), no labor representation organization
effort exists nor has there been any such activity within the past three (3)
years;
<PAGE>
(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) except for the Company Union, the employees of the Company are
not and have never been represented by any labor union, and, except for the
collective bargaining agreement between the Company and the Company Union dated
September 15, 1996, 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. A list of IRS Form 1099 distributees of the Company
for calendar year 1998 is attached as Schedule 3.24(g).
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.
<PAGE>
(iv) "Employee Benefit Plan" has the meaning given in Section
3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(vi) "ERISA Affiliate" means any person that, together with
the Company, would be or was at any time treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA and any general partnership of
which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan that
meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan described
in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements. Schedule 3.25(b) specifically
identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies (in all material
respects) of all the following documents with respect to each Company Plan and
Company Benefit Arrangement, to the extent applicable, have been delivered to
Buyer: (A) all documents constituting the Company Plans and Company Benefit
Arrangements, including but not limited to, trust agreements, insurance
policies, service agreements, and formal and informal amendments thereto; (B)
the most recent Forms 5500 or 5500C/R and any financial statements attached
thereto and those for the prior three (3) years; (C) the last Internal Revenue
Service determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted by
the Company to obtain those letters; (D) the most recent summary plan
description; (E) the most recent written descriptions of all non-written
agreements relating to any such plan or arrangement; (F) all reports submitted
within the four (4) years preceding the date of this Agreement by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors; (G) all notices that were given within the three (3)
years preceding the date of this Agreement by the IRS, Department of Labor, or
any other governmental agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel or employee relations
policies;
<PAGE>
(ii) the Pacific-Admail, Inc. 401(k) Plan (the "Company 401(k)
Plan") is the only Qualified Plan. The Company 401(k) Plan is a single plan with
two components: a profit sharing component and a 401(k) component. The Company
has never maintained or contributed to another Qualified Plan. The Company
401(k) Plan qualifies under Section 401(a) of the Code, and any trusts
maintained pursuant thereto are exempt from federal income taxation under
Section 501 of the Code, and nothing has occurred with respect to the design or
operation of any Qualified Plans that could cause the loss of such qualification
or exemption or the imposition of any liability, lien, penalty, or tax under
ERISA or the Code;
(iii) the Company has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit Arrangement
has been maintained in accordance with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits by, against, or
relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company 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;
<PAGE>
(viii) all reporting, disclosure, and notice requirements of
ERISA and the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the Company
Benefit Plans into conformity with the applicable provisions of ERISA, the Code,
and other applicable laws have been made or taken except to the extent such
amendments or actions (A) are not required by law to be made or taken until
after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the Company is
required to pay as contributions to the Company Benefit Plans as of the last day
of the most recent fiscal year of each of the plans ended before the date of
this Agreement; all benefits accrued under any unfunded Company Plan or Company
Benefit Arrangement will have been paid, accrued, or otherwise adequately
reserved in accordance with GAAP as of the Balance Sheet Date; and all monies
withheld from employee paychecks with respect to Company Plans have been
transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any Welfare Plan
through a trust, reserve, premium stabilization, or similar account, nor does it
provide benefits through a voluntary employee beneficiary association as defined
in Section 501(c)(9);
(xii) no statement, either written or oral, has been made by
the Company to any person with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan or Company Benefit
Arrangement and that could have an adverse economic consequence to the Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its affiliates
have been operated in material compliance with the requirements of Sections
4980B (and its predecessor) and 5000 of the Code, and the Company has provided,
or will have provided before the Closing Date, to individuals entitled thereto
all required notices and coverage pursuant to Section 4980B with respect to any
"qualifying event" (as defined therein) occurring before or on the Closing Date;
(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.
<PAGE>
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of the
date hereof, of all employees of the Company who may earn more than $50,000 in
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 (to
the extent any are owing) 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 current
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 April 1990.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past 16 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.
<PAGE>
(vii) Except as set forth on Schedule 3.26, the Company has
withheld and paid over to the proper governmental authorities all Taxes required
to have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid to any employee,
independent contractor, creditor, or other third party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last fiscal year have been delivered to Buyer.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax exempt
use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xiv) 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.
<PAGE>
(b) The Company has, since April 1, 1990, been an S Corporation
within the meaning of Section 1361 of the Code.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including
any information return), report, statement, schedule, notice, form, estimate, or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) The Company has not violated any law or regulation or any order
of any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it.
(b) No Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(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.
<PAGE>
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 that do not cause
the Certified Closing Net Worth to be less than the Net Worth Target (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;
<PAGE>
(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 $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 or in the ordinary
course of the Company's business 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
<PAGE>
Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to any Stockholder that has specific
application to such Stockholder or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
Stockholder can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or any Schedule hereto.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five (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 (and
although the Company makes no representations or warranties regarding Year 2000
compliance of any third party interfacing database, hardware platforms, custom
or non-custom software or components), the Company has no knowledge 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
<PAGE>
addition, and although the Company has not performed or caused to be performed
Year 2000 audits on its vendors, suppliers or customers, the Company has no
knowledge that its respective vendors, suppliers and customers are not Year 2000
Compliant and Ready where the failure to be Year 2000 Compliant and Ready would
have a material adverse effect on the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, profits or
condition (financial or otherwise) of the Company. For purposes of this
Agreement, the term "Year 2000 Compliant and Ready," with respect to any person,
means that the hardware and software systems and components (including without
limitation imbedded microchips) owned, licensed or used by such person in
connection with its business operations will (without any additional cost or the
need for human intervention) (i) accurately process information involving any
and all dates before, during and/or after January 1, 2000, including without
limitation recognizing and processing input, providing output, storing
information and performing date-related calculations, all without creating any
ambiguity as to the century and without any other material and adverse error or
malfunction, (ii) operate accurately without material and adverse 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 corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite 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. 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.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of
the Buyer's Certificate of Incorporation or Bylaws;
(b) conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
<PAGE>
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholders, on
the other, for certain tax matters following the Closing Date:
(i) Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the Company
on or before the due date of such Tax Returns the amount of all Taxes shown as
due on such Tax Returns to the extent that such Taxes are not reflected in the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. Such Tax
Returns shall be prepared and filed in accordance with applicable law and in a
manner consistent with past practices and shall be subject to review and
reasonable 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 expressly acknowledges that it
is assuming (and shall be responsible for paying) all Taxes that the Company
incurs as a result of the Company's net recognizable built in gain within the
meaning of Section 1374 of the Code ("Built-In Gain"). In the event that Tax on
the Built-In Gain is triggered as a result of Buyer's decision to make a
338(h)(10) Election (as defined in Section 5.1(c)(i)), then Buyer shall
calculate and pay the Tax attributable to the Built-In Gain in conjunction with
the Stockholders' filing of income Tax Returns for the short period beginning
January 1, 1999 and ending on the Closing Date, which Tax Returns shall include
and reflect the allocations of federal income Taxes specified in Section
5.1(d)(i).
(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
<PAGE>
5.1, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(iii) Buyer and the Company on one hand and Stockholders on
the other hand shall (A) cooperate fully, as reasonably requested, in connection
with the preparation and filing of Tax Returns pursuant to this Section 5.1 and
any audit, litigation or other proceeding with respect to Taxes; (B) make
available to the other, as reasonably requested, all information, records or
documents with respect to Tax matters pertinent to the Company for all periods
ending prior to or including the Closing Date; and (C) preserve information,
records or documents relating to Tax matters pertinent to the Company that are
in their possession or under their control until the expiration of any
applicable statute of limitations or extensions thereof.
(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.
<PAGE>
(c) The parties agree as follows with respect to Section 338(h)(10)
of the Code:
(i) At the Buyer's option, the Company and 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 and pay Tax attributable to the Company 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. 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-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 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
the Independent Accountant ("Allocation Arbiter"). 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 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 periods ending on or before the Closing
Date (including any Tax on taxable income allocable to the Stockholders
resulting from the Section 338(h)(10) Election and any Tax on taxable income
incurred as a result of the Company's Historical Inventory Valuation). 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 nonfederal income
Taxes of the Company ending on or before the Closing Date, and the Buyer and the
Company will be liable for 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 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 Stockholders shall pay (based on their percentage ownership of the
Company immediately prior to the Closing Date) the Company an amount equal to
the Accounts Receivable not so collected, and upon receipt of such payment the
Company shall assign to the Stockholders making the payment all rights with
respect to the uncollected Accounts Receivable giving rise to the payment and
shall also thereafter promptly remit any excess collections received by it with
respect to such assigned Accounts Receivable. If and when the amount
subsequently collected by Stockholders with respect to the assigned Accounts
Receivable equals (a) the payment made therefor plus (b) the costs and expenses
reasonably incurred by the Stockholders in the collection of such assigned
Accounts Receivable, the Stockholders shall reassign to the Company all of such
assigned Accounts Receivable as have not been collected in full by the
Stockholders and shall also thereafter promptly remit any excess collections
received by them. Upon the written request of the Company, the Stockholders
shall provide it with a status report concerning the collection of assigned
Accounts Receivable.
5.3 Removal of Guaranties. (a) Within one hundred and twenty (120) days of
the Closing Date, Buyer shall use its best efforts and due diligence to cause to
be removed, cancelled or otherwise extinguished those guaranties given by the
Stockholders to certain third parties that are specifically identified on
Schedule 5.3(a).
<PAGE>
(b) Within three (3) years after the Closing Date, the Stockholders
shall use their best efforts and due diligence to cause to be removed, cancelled
or otherwise extinguished those guaranties given by the Company to certain third
parties that are specifically identified on Schedule 5.3(b)
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. The Company and Stockholders represent and
warrant (and the Buyer acknowledges) that the profit sharing component of the
Company 401(k) Plan was discontinued prior to Closing. The Company and the
Stockholders acknowledge that (i) effective upon the Closing, any matching
contributions by the Company with respect to the salary deferral component of
the Company 401(k) Plan will occur only in accordance with the Buyer's employee
benefit policies (as determined by Buyer in its sole discretion) and (ii) at
such time as is determined by Buyer in its sole discretion, the Company 401(k)
Plan will be merged into Buyer's 401(k) plan.
5.5 Related Party Agreements. The Company and/or the Stockholders, as the
case may be, shall terminate any Related Party Agreements which Buyer requests
the Company or Stockholders to terminate.
5.6 Cooperation.
(a) The Company, Stockholders, and Buyer shall each deliver or cause
to be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
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
<PAGE>
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
(c) Prior to the Closing Date, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Buyer in
writing. Buyer agrees to keep the Company and the Stockholders apprised in
advance of any disclosure of the subject matter of this Agreement by Buyer prior
to the Closing Date.
5.8 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(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;
<PAGE>
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
5.9 Prohibited Activities. Between the date hereof and the Closing Date,
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;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $5,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay (except for staff or
other subordinate positions in the ordinary course of the Company's business and
consistent with past practice);
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
<PAGE>
(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;
(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 substantially untrue or result in any
of the conditions set forth in Articles 6 and 7 not being satisfied.
<PAGE>
5.10 Exclusivity. None of the Stockholders, the Company, or any agent,
officer, director or any representative of the Company or any Stockholder will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing or the termination of this Agreement in
accordance with its terms, directly or indirectly: (a) solicit, encourage or
initiate the submission of proposals or offers from any person for, (b) 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
in writing by Buyer, and shall provide Buyer with proof that any required notice
has been sent.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true, correct and complete on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date; all of the terms, covenants, agreements and conditions
of this Agreement to be complied with, performed or satisfied by the Company and
the Stockholders on or before the Closing Date shall have been duly complied
with, performed or satisfied; and a certificate to the foregoing effects dated
the Closing Date and signed on behalf of the Company and by each of the
Stockholders shall have been delivered to Buyer.
<PAGE>
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. Other than as disclosed on Schedule 3.27(c),
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 undisclosed
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. 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 Quarterly Financial Statements. Buyer shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to Buyer.
6.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
<PAGE>
6.9 Delivery of Closing Financial Certificate. Buyer shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
signed on behalf of the Company and by each of the Stockholders, setting forth:
(a) the net worth of the Company as of December 31, 1998, after
giving effect to the Company's Historical Inventory Valuation;
(b) the net worth of the Company as of the Closing Date, after
giving effect to the Company's Historical Inventory Valuation (the "Certified
Closing Net Worth");
(c) the sales of the Company for the fiscal year ending December 31,
1997;
(d) the sales of the Company for the twelve (12) month period ending
on December 31, 1998;
(e) the average of the earnings of the Company before interest,
taxes, depreciation and amortization (after the addition of "add-backs" set
forth on Schedule 3.9(c) and after giving effect to the Company's Historical
Inventory Valuation) for the fiscal years ending December 31, 1997 and December
31, 1998; and
(f) 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 amounts due to Stockholders as identified in Section 3.8 and 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, 1998. In addition, the
Certified Closing Net Worth shall be calculated after giving effect to any
expenses incurred by the Company or the Stockholders 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. James Corey shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to
Buyer.
6.12 Lease/Real Estate Matters. The Company and the Stockholder shall have
entered into a lease with respect to the Stockholder Real Property in such form
as is reasonably satisfactory to the Stockholders and the Buyer.
<PAGE>
6.13 Salesmen Agreements. Each of the sales representatives of the Company
shall have entered into a non-disclosure/non-piracy agreement with the Company
in such form as is reasonably satisfactory to the 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 Employment Agreements. The Company and James Corey shall have entered
into an employment agreement in a form reasonably satisfactory to James Corey.
7.5 Lease/Real Estate Matters The Company and the Stockholder shall have
entered into a lease with respect to the Stockholder Real Property in such form
as is reasonably satisfactory to the Stockholders and the Buyer.
<PAGE>
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholders. Each Stockholder, jointly
and severally, covenants and agrees to indemnify, defend, protect and hold
harmless Buyer 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:
(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), and 3.27
(conformity with law; litigation), (B) the failure of the Company (prior to
Closing) to comply with the federal, state or local immigration laws in
connection with the Company's hiring and retention of its employees, (C) any
actions taken by the Small Business Administration ("SBA") to enforce the
Company's guaranty of certain debt owed by the Stockholders to the SBA in
connection with the Stockholder Real Property pursuant to a Note and related
Deed of Trust dated March 29, 1996, such guaranty being further described and
identified on Schedule 5.3(b), (D) any breaches by the Company (prior to
Closing) of the Company's obligations under any collective bargaining agreement
governing any employees of the Company, (E) any violation by the Company (prior
to Closing) of workers compensation laws, or (F) the failure of the Company
(prior to Closing) to file on a timely basis Form 5500s with the Internal
Revenue Service; and
(v) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 8.1.
<PAGE>
(b) Buyer covenants and agrees to indemnify, defend, protect and
hold harmless the Stockholders from, against and in respect of all Damages
suffered, sustained, incurred or paid by the 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) the business, operations or assets of the Company
following the Closing Date, or the actions or omissions of the
Company's directors, officers, stockholders, employees or agents
after the Closing Date; provided, however, that notwithstanding
the foregoing (and notwithstanding anything to the contrary
in the lease with respect to the Stockholder Real Property being
entered into pursuant to Sections 6.12 and 7.5), Buyer shall
have no indemnification obligations under this Agreement (or such
lease) to the extent any post-Closing Damages occur as a result of
the sole actions or sole omissions of either of the
Stockholders (or actions or omissions taken by other persons at the
direction of either of the Stockholders) in their capacity as
officers or employees of the Company; and
(iv) any and all Damages incident to any of the foregoing or
to the enforcement of this Section 8.1(b).
8.2 Limitation and Expiration. Notwithstanding the above:
(a) 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 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock; accounting treatment), 3.19
(significant customers; material contracts and commitments), 3.23 (environmental
matters), 3.25 (employee benefit plans), 3.26 (taxes), or 3.27 (conformity with
law; litigation), or (iii) Damages described in Section 8.1(a)(iv);
(b) the aggregate amount of the Stockholders' or Buyer's 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) shall not be subject to such limitation and shall not count toward the
limitation described in the first clause of this Section 8.2(b);
<PAGE>
(c) the indemnification obligations under this Article 8, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 8.2(c):
(i) (1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii) or (iv), on (A) the date that is six (6) months after the expiration of
the longest applicable federal or state statute of limitation (including
extensions thereof), or (B) if there is no applicable statute of limitation, (x)
ten (10) years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands pending as of
the relevant dates described in clause (i) of this Section 8.2(c) (such claims
referred to as "Pending Claims").
8.3 Indemnification Procedures All claims or demands for indemnification
under this Article 8 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party (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, a detailed statement of the basis for that position
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 Indemnifying Party and Indemnified 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).
(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 together with a
detailed statement of the basis for that position and the amount or estimated
amount of the Third Party Claim to the extent then possible to determine. The
<PAGE>
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 (with counsel selected by
the Indemnifying Party and reasonably approved by the Indemnified 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 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 (with counsel selected by the
Indemnifying Party and reasonably approved by the Indemnified Party) the
Indemnified Party against such Third Party Claim by appropriate proceedings,
provided that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any Third Party Claim (in whole or in part) if
such settlement does not include a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at its
sole cost and expense. If the Indemnifying Party elects not to defend the
Indemnified Party against a Third Party Claim, whether by failure of such party
to give the Indemnified Party timely notice as provided herein or otherwise,
then the Indemnified Party, without waiving any rights against such party, may
settle or defend against such Third Party Claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Indemnifying
Party, any Third Party Claim seeks material prospective relief which could have
an adverse effect on any Indemnified Party or the Company or any subsidiary, the
Indemnified Party shall have the right to control or assume (as the case may be)
the defense of any such Third Party Claim and the amount of any judgment or
settlement and the reasonable costs and expenses of defense shall be included as
part of the indemnification obligations of the Indemnifying Party hereunder. If
the Indemnified Party elects to exercise such right, the Indemnifying Party
shall have the right to participate in, but not control, the defense of such
Third Party Claim at the sole cost and expense of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
<PAGE>
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 terms of any insurable
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 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 the provisions of 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 on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
The representations of the Company, the Stockholders and the 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.
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 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
<PAGE>
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 reliably informed in good faith
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 two
percent (2%) 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
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
<PAGE>
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. The obligations of the Stockholders
under this Section 9.2 are conditioned upon the Closing.
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
(notwithstanding that the covenant against competition contained in the
Employment Agreement of James Corey being entered into pursuant to Section 6.11
and the covenants of the Stockholders in this Article IX may run concurrently).
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.
<PAGE>
9.7 Materiality. The Company and each Stockholder hereby agree that the
covenants set forth in this Article 9 are a material and substantial part of the
transactions contemplated by this Agreement, supported by adequate
consideration.
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the Board of Directors of Buyer and the
board of directors of the Company; or
(b) by the Stockholders and the Company as a group, on the one hand,
or by Buyer, on the other hand, if the Closing shall not have occurred on or
before February 12, 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 uncured
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. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10 and 8, and Sections 5.7(b)
and 9.2, shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholders and
the Company deemed to be a single party for purposes of this Article 10), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
<PAGE>
10.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Buyer, and the heirs and legal representatives of the Stockholders.
Notwithstanding anything in the foregoing to the contrary, Buyer may assign any
of its rights or obligations under this Agreement to any direct or indirect
subsidiary of Buyer in its sole and absolute discretion and without the consent
of the Company or the Stockholders; provided, however that in the event of such
assignment Buyer shall continue to be liable to the Stockholders for the payment
of the Purchase Price and for all other obligations of Buyer hereunder.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer represents and warrants to the Company and
the Stockholders (as a group) that it has not employed any broker or agent in
connection with the transactions contemplated by this Agreement and agrees to
indemnify the Stockholders against all losses, damages or expenses relating to
or arising out of claims for fees or commissions of any broker or agent employed
or alleged to have been employed by Buyer. The Company and each Stockholder (as
a group) have engaged Oxford Mergers and Acquisitions, Inc. ("Oxford") on their
behalf as a broker and the Stockholders (and not the Company) shall be
responsible for any fees, commissions or other payments owed to Oxford as a
result of this Agreement (or otherwise). The Company and the Stockholders
represent that they have not employed any broker or agent other than Oxford in
connection with the transactions contemplated by this Agreement. The
Stockholders agree to indemnify the Buyer against all losses, damages or
expenses relating to or arising out of claims for fees or commissions of Oxford
or any other broker or agent alleged to have been employed by the Stockholders
or the Company.
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
<PAGE>
Stockholders, the Company, and their agents, representatives, financial
advisers, accountants and counsel incurred in connection with the subject matter
of this Agreement.
10.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
(Telefax: (561) 659-7793)
with a required copy to:
Kaufman & Canoles, P.C.
P.O. Box 3037
Norfolk, VA 23514
Attn: Gus J. James, II, Esq. and T. Richard Litton, Jr., Esq.
(Telefax: (757) 624-3169)
If to any Stockholder to the Stockholders' Representative::
Mr. James G. Corey
Pacific-Admail, Inc.
1909 South Susan Street
Santa Ana, California 92704
(Telefax: (714) 540-1025)
<PAGE>
with a required copy to:
Paul K. Watkins, Esq.
Watkins, Blakely & Torgerson, LLP
535 Anton Boulevard
Costa Mesa, CA 92626-7115
(Telefax: (714) 641-4012)
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.
(a) Subject to the provisions of Section 10.10(b) below, 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.
(b) Prior to instituting any formal legal actions in connection with
disputes arising under this Agreement, the Buyer and Stockholders (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 will be held in Santa Ana,
California.
(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. 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.
<PAGE>
(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 honored 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.
(vi) The foregoing provisions of this Section 10.10(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 10.10(b) shall be construed to limit the rights of
the Buyer to seek injunctive relief in the event that the Stockholders violate
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 other 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.
10.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.13 Mutual Drafting. 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
<PAGE>
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.
10.15 Reliance on Representations and Warranties. The Buyer acknowledges that it
is not relying on any representations and warranties in connection with the
purchase of the Stock pursuant to this Agreement other than those
representations and warranties specifically set forth in this Agreement.
10.16 Good Faith and Fair Dealing. The parties to this Agreement agree that
their obligations hereunder are subject to the covenant of good faith and fair
dealing.
[Execution Page Following]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WORKFLOW MANAGEMENT, INC.,
a Delaware corporation
By:
Name:
Title:
PACIFIC-ADMAIL, INC., a California
corporation
By: /s/ Claudia Amlie
-------------------------------
Name: Claudia Amlie
-----------------------------
Title: Vice President
----------------------------
STOCKHOLDERS:
/s/ James G. Corey
----------------------------------
James Corey, individually
/s/ Sharon Corey
----------------------------------
Sharon Corey, individually
EXHIBIT 10.3
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (this "Amendment and
Restatement"), dated as of December 4, 1998, among WORKFLOW MANAGEMENT, INC., a
Delaware corporation ("Workflow"), DATA BUSINESS FORMS LIMITED, an Ontario
corporation ("DBF" and, together with Workflow, the "Borrowers"), the lenders
party to the Existing Credit Agreement referred to below (the "Lenders"), and
BANKERS TRUST COMPANY, as Agent (in such capacity, the "Agent"). Unless
otherwise defined herein, all capitalized terms used herein and defined in the
Existing Credit Agreement are used herein as so defined.
WITNESSETH:
WHEREAS, the Borrowers, the Lenders and the Agent are parties to a Credit
Agreement, dated as of June 9, 1998 (as amended, modified or supplemented to,
but not including, the date hereof, the "Existing Credit Agreement");
WHEREAS, the Borrowers and the Lenders wish to amend and restate the
Existing Credit Agreement to, inter alia, increase the Total Commitment
thereunder from $150,000,000 to $200,000,000, all as herein provided; and
WHEREAS, subject to the terms and conditions of this Amendment and
Restatement, the parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. The Existing Credit Agreement shall be, and hereby is, amended and
restated in its entirety in the form of the Existing Credit Agreement after
giving effect to the changes thereto effected hereby.
2. Section 6 of the Existing Credit Agreement is hereby amended by
inserting the following new Section 6.24 at the end hereof:
"6.24 Permitted Subordinated Indebtedness. From and after the
issuance thereof, the subordination provisions contained in the Permitted
Subordinated Indebtedness will be enforceable against Workflow and the
holders of the Permitted Subordinated Indebtedness, and all Obligations of
Workflow under this Agreement and the Canadian General Guaranty will be
within the definition of "Senior Debt" included in such subordination
provisions."
<PAGE>
3. Section 7.01(i) of the Existing Credit Agreement is hereby amended by
deleting the reference to "30 days" each place such reference appears therein
and inserting "90 days" in lieu thereof in each such place.
4. Section 8.04 of the Existing Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (g) thereof, (ii)
deleting clause (h) at the end thereof and (iii) inserting the following the new
clauses (h) and (i) at the end thereof:
"(h) unsecured subordinated *indebtedness of Workflow (the
"Permitted Subordinated Indebtedness") in an aggregate principal amount
not to exceed $10,000,000 (plus the principal amount of any notes issued
in respect of pay-in-kind interest thereon) so long as (i) at the time of
the incurrence thereof and immediately after giving effect thereto, no
Default or Event of Default shall then exist or result therefrom, (ii)
such Indebtedness is incurred on or prior to the last day of Workflow's
fiscal year ending closest to April 30, 1999, (iii) the proceeds from the
incurrence of such Indebtedness are used solely to finance Dividends
permitted under Section 8.07(d), (iv) the maturity of such Indebtedness is
at least ten years from the date of issuance thereof (with no interim
amortizations, redemptions or sinking fund obligations prior to such
time), (v) the interest rate of such Indebtedness is no greater than 12%
per annum (although the holders of such Indebtedness may receive warrants
to purchase shares of Workflow's common stock), (vi) (x) for the first
three years after the issuance thereof, the interest payments thereon
shall consist of no more than 50% cash and at least 50% in-kind, provided
that no cash interest payments shall be required (nor shall any cash
interest payments be made) at any time that a Default or an Event of
Default exists, and (y) after such three year period, such interest
payments may consist of all cash, provided that no cash interest payments
shall be required (nor shall any cash interest payments be made) at any
time that a Default or an Event of Default exists, and (vii) all of the
other terms and conditions thereof are reasonably satisfactory to the
Agent (it being understood and agreed that during each of the first three
years after the issuance of such Indebtedness, Workflow may seek the
consent of the Supermajority Lenders to permit the interest payments on
the Permitted Subordinated Indebtedness to be paid in all cash (provided
that each such request may not be made until Workflow has delivered to the
Lenders its audited financial statements for its immediately preceding
fiscal year)); and
(i) unsecured Indebtedness of Workflow and its Subsidiaries not
otherwise permitted by the foregoing clauses (a) through (h), provided
that the aggregate principal amount of all Indebtedness incurred pursuant
to the clause (i) shall not exceed $7,000,000 at any time outstanding."
5. Section 8.07 of the Existing Credit Agreement is hereby amended by
Inserting the following new clause (d) at the end thereof:
"(d) In addition to the Dividends permitted by clauses (a) and (c)
of this Section 8.07, on or prior to the last day of Workflow's fiscal
year ending closest to April 30, 1999, Workflow may repurchase additional
<PAGE>
shares of its capital stock so long as (i) no Default or Event of Default
then exists or would result therefrom and (ii) all such repurchases are
effected with proceeds received by Workflow from the issuance of the
Permitted Subordinated Indebtedness."
6. Section 8 of the Existing Credit Agreement is hereby further amended by
inserting the following new Section 8.13 at the end thereof:
"8.13 Limitation on Payments and Modification of Permitted
Subordinated Indebtedness. From and after the issuance of the Permitted
Subordinated Indebtedness, Workflow will not, and will not permit any of
its Subsidiaries to:
(i) make (or give any notice in respect of) any payment,
prepayment, redemption or acquisition for value of (including, without
limitation, by way of depositing with any Person money or securities
before due for the purpose of payment when due) any Permitted
Subordinated Indebtedness (whether in respect of principal, interest or
otherwise), provided that so long as no Default or Event of Default then
exists or would result therefrom, Workflow may make cash and in-kind
interest payments on the Permitted Subordinated Indebtedness to the
extent permitted by Section 8.04(h); and
(ii) amend or modify, or permit the amendment or modifications
of, any provision of the Permitted Subordinated Indebtedness."
7. Section 9 of the Existing Credit Agreement is hereby amended by (i)
inserting the word "or" at the end of Section 9.10 thereof and (ii) inserting
the following new Section 9.11 immediately after such Section 9.10:
"9.11 Permitted Subordinated Indebtedness. At any time after the
issuance of the Permitted Subordinated Indebtedness, the original holders
thereof satisfactory to the Agent shall cease to hold at least 50% of the
aggregate outstanding principal amount of the Permitted Subordinated
Indebtedness;".
8. The definition of "Acquisition Sub-Limit" appearing in Section 10 of
the Existing Credit Agreement is hereby amended by deleting the reference to the
amount "$125,000,000" appearing therein and inserting the amount "$165,000,000"
in lieu thereof.
9. The definition of "Applicable Base Rate/Canadian Prime Rate Margin"
appearing in Section 10 of the Existing Credit Agreement is hereby amended by
deleting the table set forth therein and inserting the following new table in
lieu thereof:
<PAGE>
Applicable Base Rate/
"Leverage Ratio Canadian Prime Rate Margin
-------------- --------------------------
Greater than or equal to 3.0:1 .750%
Less than 3.0:1 but greater than or equal .500%
to 2.5:1
Less than 2.5:1 but greater than or equal .250%
to 2.0:1
Less than 2.0:1 0%
10. The definition of "Applicable Commitment Fee Percentage" appearing in
Section 10 of the Existing Credit Agreement is hereby amended by deleting the
table set forth therein and inserting the following new table in lieu thereof:
Applicable Commitment
"Leverage Ratio Fee Percentage
-------------- --------------
Greater than or equal to 3.0:1 .500%
Less than 3.0:1 but greater than or equal .400%
to 2.5:1
Less than 2.5:1 but greater than or equal .300%
to 2.0:1
Less than 2.0:1 .250%."
11. The definition of "Applicable Eurodollar Margin" appearing in Section
10 of the Existing Credit Agreement is hereby amended by deleting the table set
forth therein and inserting the following new table in lieu thereof:
"Leverage Ratio Applicable Eurodollar Margin
-------------- ----------------------------
Greater than or equal to 3.0:1 1.750%
Less than 3.0:1 but greater than or equal 1.500%
to 2.5:1
Less than 2.5:1 but greater than or equal 1.250%
to 2.0:1
Less than 2.0:1 but greater than or equal 1.000%
to 1.5:1
Less than 1.5:1 but greater than or equal .875%
to 1.0:1
Less than 1.0:1 .750%."
12. Section 10 of the Existing Credit Agreement is hereby further amended
by inserting the following new definitions in the appropriate alphabetical
order:
"Permitted Subordinated Indebtedness" shall have the meaning
provided on Section 8.04(h).
<PAGE>
"Supermajority Lenders" shall mean those. Non-Defaulting Lenders
which would constitute the Required Lenders under, and as defined in, this
Agreement if the percentage "50'/o" contained therein were changed to
"66-2/3%".
13. The Lenders hereby approve an increase in the Total Commitment from
$150,000,000 to $200,000,000. In that connection, Annex I-A to the Existing
Credit Agreement is hereby amended by deleting such Annex in its entirety and
replacing it with the new Annex I-A attached hereto. In connection with the
increase in the Total Commitment as set forth on the new Annex I-A attached
hereto, the Lenders hereby agree that Workflow and the Agent may take all such
actions as may be necessary to ensure that all Lenders continue to participate
in each Borrowing of Dollar Revolving Loans on a pro rata basis (based on the
Commitment of each Lender after giving effect to this Amendment), and it is
hereby further agreed that to the extent any Lender incurs any funding or other
costs (including those of the type described in Section 1.11 of the Existing
Credit Agreement) in connection therewith, such costs shall be for the account
of Workflow. In addition, it is hereby further agreed that at the time of such
increase in the Total Commitment with respect to all outstanding Letters of
Credit there shall be an automatic adjustment to the participations by the
Lenders in such Letters of Credit to reflect the new Percentages of the Lenders
after giving effect to this Amendment and Restatement.
14. Each Credit Party hereby agrees that, on or promptly after the
Restatement Effective Date (as defined below) and upon the request of the Agent,
such Credit Party will execute such amendments to the Mortgages as the Agent
shall reasonably require in connection with this Amendment and Restatement.
15. This Amendment and Restatement shall become effective on the date (the
"Restatement Effective Date") when each of the following conditions have been
met:
(a) each Credit Party, the Required Lenders (as determined before
giving effect to this Amendment and Restatement) and each Lender whose
Commitment shall be increased pursuant to this Amendment and Restatement
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at the Notice Office;
(b) the Agent shall have received from Kaufman & Canoles, counsel to
the Credit Parties, an opinion addressed to the Agent, the Collateral
Agent and each of the Lenders and dated the Restatement Effective Date, in
form and substance reasonably satisfactory to the Agent, and covering such
matters incident to this Amendment arid Restatement and the transactions
contemplated herein as the Agent may reasonably request;
(c) the Agent shall have received resolutions of the Board of
Directors of each U.S. Credit Party, which resolutions shall be certified
by the Secretary or any Assistant Secretary of such U.S. Credit Party and
shall authorize the execution, delivery and performance by such U.S.
Credit Party of this Amendment and Restatement and the consummation of the
transactions contemplated hereby, and the foregoing shall be reasonably
satisfactory to the Agent;
<PAGE>
(d) the Agent and the Lenders shall have received the financial
statements and related officer's certificate required to be delivered
pursuant to Sections 7.01(b) and (e) of the Existing Credit Agreement in
respect of Workflow's fiscal quarter ended closest to October 31, 1998;
(e) Workflow shall have paid in cash to the Agent for distribution
to each Lender that has signed a counterpart of this Amendment and
Restatement and delivered the same to the Agent at the Notice Office by
no later than 5:30 p.m. (New York time) on December 2, 1998 a consent fee
equal to .05% of each such Lender's Commitment on the Restatement
Effective date (before giving effect to this Amendment and Restatement);
and
(f) Workflow shall have paid to the Agent and each of the Lenders
all other fees and expenses to the extent due and payable.
16. In order to induce the Lenders to enter into this Amendment and
Restatement, the Borrowers hereby represent and warrant that (i) the
representations, warranties and agreements contained in Section 6 of the
Existing Credit Agreement are true and correct in all material respects on and
as of the Restatement Effective Date, both before and after giving effect to
this Amendment and Restatement and (ii) there exists no Default or Event of
Default on the Restatement Effective Date, both before and after giving effect
to this Amendment and Restatement.
17. By executing and delivering a counterpart hereof, each Subsidiary
Guarantor hereby agrees that all Loans (including, without limitation, the
additional Revolving Loans which may be incurred pursuant to the Total
Commitment after giving effect to this Amendment and Restatement) shall be fully
guaranteed pursuant to the U.S. Subsidiaries Guaranty *in accordance with the
terms and provisions thereof and shall be fully secured pursuant to the
applicable Security Documents.
18. This Amendment and Restatement is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
19. This Amendment and Restatement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrowers and the Agent.
20. THIS AMENDMENT AND RESTATEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
<PAGE>
21. From and after the Restatement Effective Date, all references in the
Existing Credit Agreement and in the other Credit Documents to the Existing
Credit Agreement shall be deemed to be references to the Existing Credit
Agreement as amended and restated hereby.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment and Restatement as of the date
first above written.
WORKFLOW MANAGEMENT, INC.
By: /s/ Steve R. Gibson
------------------------------
Name: Steve R. Gibson
----------------------------
Title: Vice President and CFO
--------------------------
DATA BUSINESS FORMS LIMITED
By: /s/ Claudia Amlie
-----------------------------
Name: Claudia Amlie
--------------------------
Title: Vice President
------------------------
SFI OF DELAWARE, LLC
By: /s/ Claudia Amlie
-----------------------------
Name: Claudia Amlie
-------------------------
Title: Vice President
------------------------
SFI OF PUERTO RICO, INC.
By: /s/ Claudia Amlie
-------------------------------
Name: Claudia Amlie
--------------------------
Title: Vice President
-------------------------
<PAGE>
ASTRID OFFSET CORP.
By: /s/ Claudia Amlie
-------------------------------
Name: Claudia Amlie
-------------------------
Title: Vice President
---------------------------
REX ENVELOPE CO., INC.
By: /s/ Claudia Amlie
--------------------------
Name: Claudia Amlie
-----------------------
Title: Vice President
----------------------
HANO DOCUMENT PRINTERS, INC.
By: /s/ Claudia Amlie
-------------------------------
Name: Claudia Amlie
-----------------------------
Title: Vice President
---------------------------
UNITED ENVELOPE, LLC
By: /s/ Claudia Amlie
-------------------------------
Name: Claudia Amlie
----------------------------
Title: Vice President
---------------------------
HUXLEY ENVELOPE CORP.
By: /s/ Claudia Amlie
------------------------------
Name: Claudia Amlie
-----------------------------
Title: Vice President
----------------------------
POCONO ENVELOPE, CORP.
By: /s/ Claudia Amlie
-----------------------------
Name: Claudia Amlie
---------------------------
Title: Vice President
--------------------------
<PAGE>
DIRECTPRO LLC
By: /s/ Claudia Amlie
-------------------------------
Name: Claudia Amlie
----------------------------
Title: Vice President
--------------------------
DIRECTPRO WEST LLC
By: /s/ Claudia Amlie
-----------------------------
Name: Claudia Amlie
--------------------------
Title: Vice President
-------------------------
PENN-GROVER ENVELOPE CORP.
By: /s/ Claudia Amlie
-----------------------------
Name: Claudia Amlie
---------------------------
Title: Vice President
--------------------------
BANKERS TRUST COMPANY,
Individually and as Agent
By: /s/ David J. Bell
----------------------------
Name: David J. Bell
---------------------------
Title: Vice President
--------------------------
BANKBOSTON, N.A.
By: /s/ Jorge Schwarz
-------------------------------
Name: Jorge Schwarz
----------------------------
Title: Director
---------------------------
<PAGE>
PNC BANK, N.A.
By: /s/ Rose M. Crump
--------------------------------
Name: Rose M. Crump
-----------------------------
Title: Vice President
----------------------------
WACHOVIA BANK, N.A.
By: /s/ Kenneth Washington
-------------------------------
Name: Kenneth Washington
-----------------------------
Title: Vice President
----------------------------
NATIONSBANK N.A.
By: /s/ Eileen M. Mayette
------------------------------
Name: Eileen M. Mayette
----------------------------
Title: Commercial Banking Officer
---------------------------
BANK OF MONTREAL
By: /s/ Bank of Montreal
----------------------------
Name:
Title: Sr. Mgr. Corp. Finance
----------------------------
By: /s/ J.B. Kelsey
---------------------------------
Name: J.B. Kelsey
------------------------------
Title: VP & Head of Corp. Finance
-----------------------------
COMERICA BANK
By: /s/ Martin G. Ellis
-------------------------------
Name: Martin G. Ellis
-----------------------------
Title: Vice President
----------------------------
<PAGE>
THE FUJI BANK AND TRUST
COMPANY
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
FLEET NATIONAL BANK
By: /s/ Deane M. Horn
-------------------------------
Name: Deane M. Horn
-----------------------------
Title: Assistant Vice President
--------------------------
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Gaye C. Plunkett
------------------------------
Name: Gaye C. Plunkett
----------------------------
Title: Vice President
---------------------------
NATIONAL BANK OF CANADA
By: /s/ B. Walsh
------------------------------
Name: B. Walsh
----------------------------
Title: Senior Manager
---------------------------
<PAGE>
Workflow Allocations
Existing
Exposure New Commitment Allocation Total Exposure
BT $16,250,000 $5,000,000 $4,750,000 $21,000,000
Bk One $16,250,000 $5,000,000 $4,750,000 $21,000,000
Wachovia $16,250,000 $10,000,000 $7,125,000 $23,375,000
Comerica $16,250,000 $10,000,000 $7,125,000 $23,375,000
Fleet $12,500,000 $10,000,000 $7,125,000 $19,625,000
NBC $12,500,000 $2,500,000 $2,500,000 $15,000,000
Bk Boston $12,500,000 $5,000,000 $4,750,000 $17,250,000
Nations $12,500,000 $10,000,000 $7,125,000 $19,625,000
BMo $12,500,000 $5,000,000 $4,750,000 $17,250,000
PNC $12,500,000 $0 $0 $12,500,000
Fuji $10,000,000 $0 $0 $10,000,000
------------ ------------ ------------ ------------
$150,000,000 $62,500,000 $50,000,000 $200,000,000
EXHIBIT 10.4
SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT
WITH RESPECT TO
PROMISSORY NOTES IN
WORKFLOW MANAGEMENT, INC.
January 19, 1999
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Gentlemen:
1. Subscription.
a. The undersigned irrevocably subscribes for and agrees to purchase
a promissory note (the "Note") of Workflow Management, Inc., a Delaware
corporation ("Company") having a principal amount specified on the signature
page hereof (the "Note Amount"), pursuant to the terms and conditions of this
Subscription and Investment Representation Agreement ("Agreement"). The purchase
price for the Note shall be the Note Amount. The undersigned understands that
after delivery: (i) this subscription to purchase the Note is irrevocable; and
(ii) in the event this subscription is for any reason rejected, in whole or in
part, or the offering is for any reason canceled, the undersigned will have no
obligations or rights, except as provided in this Agreement. The Note is in the
form of Exhibit A and is accompanied by an attached warrant to acquire shares of
the common stock of the Company, which is attached as an exhibit to the Note
("Warrant").
b. Upon the execution of this Agreement, the undersigned will
deliver to the Company the following: (i) the original of this Agreement, fully
executed, with the Note Amount the undersigned desires to purchase specified on
the signature page hereof; (ii) a check made payable to the Company, in the
amount corresponding to the Note Amount; and (iii) any other pertinent documents
requested by the Company.
c. $4,878,000 in Notes (the "Offering Maximum") is proposed to be
sold in this offering. The offering will terminate on the earlier of (i)
acceptance by the Company of subscriptions for the Offering Maximum or (ii)
January 20, 1999. The Company reserves the right to extend the offering to
January 30, 1999, at its discretion. At such time as Notes equal to the Offering
Maximum have been subscribed for, the Company will use all funds raised in this
offering to redeem shares of the Company's common stock in open market or
privately negotiated transactions at prevailing market prices.
<PAGE>
2. Acceptance of Subscription. The undersigned understands and agrees that
the Company, in its sole discretion, reserves the right to accept or reject this
or any other subscription for Notes, in whole or in part, on or before January
20, 1999, notwithstanding prior receipt by the undersigned of notice of
acceptance, subject to the Company's right to extend the offering to January 30,
1999. If this subscription is rejected in its entirety, the Company shall
promptly return all funds received, without interest thereon, if any, and this
Agreement shall thereafter be of no further force or effect.
3. Acknowledgments. The undersigned understands and acknowledges that:
a. The undersigned has received a copy of (i) the form of the Note,
(ii) the form of the Warrant, (iii) the Company's Certificate of Incorporation
and Bylaws, (iv) the Company's Annual Report on Form 10-K for the fiscal year
ended April 25, 1998, as filed with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 ("Exchange Act") and (v) the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended July 25,
1998, and October 24, 1998, as filed with the SEC under the Exchange Act
(collectively referred to as the "Transaction Documents"). The undersigned has
had an opportunity to carefully review the Transaction Documents, any other
documents the undersigned has requested to review, and to ask questions and
receive answers from the Company concerning the terms and conditions of the
offering. The undersigned acknowledges that the exhibits to the Company's Forms
10-K and 10-Q included within the Transaction Documents are available to the
undersigned upon written request. The undersigned has also had the opportunity
to obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Transaction Documents. In evaluating the suitability
of an investment in the Company, the undersigned has not relied upon any
representations or other information (whether oral or written) other than as set
forth in the Transaction Documents.
b The Notes and the Warrant (collectively the "Securities") have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or under any applicable state securities laws. The Securities are intended
to be exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act and the provisions of Rules 505 and 506 of
Regulation D promulgated thereunder by the SEC ("Regulation D") and applicable
exemptions from state securities laws.
c. No federal or state agency has passed upon the Securities or made
any finding or determination concerning the fairness of this investment.
<PAGE>
d. The Securities may not be transferred in the absence of (i)
registration of the Securities for resale under the Securities Act or (ii) an
opinion by counsel to the Company that the proposed transfer will not violate
applicable federal and state securities laws and will not jeopardize the
exemptions from registration under which the Securities will initially be
issued.
4. Representations and Warranties.
a. The undersigned represents and warrants that:
(1) The undersigned is acquiring the Securities for his or its
own account for investment, and not with a view to distribution or resale, and
will not sell, assign or otherwise transfer any or all of the Securities
acquired pursuant to this Agreement, unless such Securities have been registered
under the Securities Act and any applicable state securities laws or, in the
opinion of counsel for the Company, an exemption from the registration
requirement of the Securities Act and state securities laws is available.
(2) (a) The undersigned either is an "Accredited Investor," as
defined in Regulation D or has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment; (b) the undersigned has adequate net worth and means
of providing for his or its current needs and personal contingencies should the
undersigned sustain a complete loss of his or its investment in the Securities;
(c) the undersigned has no need for liquidity in this investment in the
Securities; and (d) the undersigned has evaluated the risks of investing in the
Securities, has substantial experience in making investment decisions of this
type and is capable of evaluating the merits and risks of this transaction or is
relying on his or its own investment advisor or other qualified investment
representative in making this investment decision.
(3) The undersigned has discussed with his or its professional
legal, tax, and financial advisors the consequences of the investment in the
Securities for his or its particular situation.
(4) The undersigned recognizes that investment in the Company
involves certain risks, and the undersigned has taken full cognizance of and
understands all of the risks factors related to the purchase of the Securities,
including, but not limited to, those risk factors specifically identified in the
Forms 10-K and 10-Q of the Company filed under the Exchange Act and included in
the Transaction Documents.
(5) All information the undersigned has provided in this
Agreement to the Company concerning the undersigned and his or its financial
position is correct and complete as of the date set forth below, and if there
should be any material change in such information before the acceptance of this
Agreement, the undersigned will immediately provide that information.
<PAGE>
(6) The undersigned is acquiring the Securities without being
furnished any offering literature or prospectus other than the Transaction
Documents, and any information the undersigned has requested of the Company has
been provided.
(7) This Agreement constitutes the undersigned's valid and
legally binding obligation and is fully enforceable against the undersigned in
accordance with its terms.
(8) If the undersigned is an entity, the undersigned
represents its purchase of Securities has been duly authorized.
b. These representations and warranties are true and accurate as of
the date of this Agreement and shall be true and accurate as of the date of the
acceptance by the Company of this subscription and the "Closing." "Closing"
shall be that date on which the offering has been terminated by the Company. If,
in any respect, any representations and warranties are not true and accurate
before Closing, the undersigned will give written notice to the Company
specifying which representations and warranties are not true and accurate.
5. Severability. It is the intention of the parties that the provisions of
this Agreement shall be enforceable to the fullest extent permissible under
applicable law. If any clause or provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, then the remainder of this Agreement shall not be affected
thereby, and in lieu of each clause or provision of this Agreement which is
illegal, invalid or unenforceable, there shall be added, as a part of this
Agreement, a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and as may be legal, valid,
and enforceable.
6. Choice of Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
7. Amendment. This Agreement may be amended only by a written instrument
signed by each of the parties hereto.
8. Binding Effect; Counterparts. This Agreement is not transferable or
assignable by the undersigned. This Agreement, upon acceptance by the Company,
shall be binding upon the permitted successors and assigns hereof. This
Agreement may be executed in one or more counterparts, all of which taken
together will constitute one and the same Agreement.
<PAGE>
9. Investor Certifications. The undersigned certifies to the Company that
the undersigned meets the general suitability standards for investors since the
undersigned meets one or more of the following standards:
(Please initial those standards (one or more) which do apply to the
undersigned - the Company must have this information to insure
compliance with Regulation D of the Securities Act of 1933 and any
applicable state securities law).
______ (i) The undersigned is an individual with income in excess of
$200,000 in each of the two most recent calendar years, or had a
joint income with his or her spouse in excess of $300,000 in each of
these years and reasonably expects to have such in the current year.
______ (ii) The undersigned is an individual with a net worth
(including residences, furnishings and automobiles), either alone or
together with his or her spouse of at least $1,000,000.
______ (iii) The undersigned is an entity in which all the equity
owners meet one of the standards set forth in (i) and (ii) above.
______ (iv) The undersigned is a corporation, partnership or other
business entity not formed for the specific purpose of acquiring
the Securities with total assets in excess of $5,000,000.
X (v) The undersigned is a trust with total assets in excess
----
of $5,000,000 not formed for the specific purpose of acquiring the
Securities, whose purchase is directed by a person with such
knowledge and experience in financial and business matters that he
or she is capable of evaluating the merits and risks of the
investment in the Securities.
X (vi) The undersigned has sufficient knowledge and experience
----
in financial and business matters to be capable of evaluating the
merits and risks set forth in this Agreement and in the Transaction
Documents with regard to this investment. Accordingly, although the
undersigned may consult an accountant, attorney, or other advisor,
the undersigned is relying in the main on his or its own judgment in
the decision to invest.
IN WITNESS WHEREOF, subject to acceptance of the Company, the undersigned
has completed this Agreement to evidence his or its subscription for Notes.
THE UNDERSIGNED SUBSCRIBES FOR A NOTE OF THE COMPANY IN A NOTE AMOUNT OF
$3,546,000.
<PAGE>
Thomas B. and Elzbieta D'Agostino 1997 Charitable Remainder Trust
Print Name of Individual or Entity Investor
/s/ Thomas B. D'Agostino
---------------------------------------
Thomas B. D'Agostino, Trustee
________________________________________
Timothy L. Tabor, Trustee
________________________________________
Street Address
________________________________________
City, State, Zip Code
--------------------------------
Federal Identification Number or
Social Security Number
Workflow Management, Inc. has accepted this Subscription Agreement
as of the 19th day of January, 1999.
WORKFLOW MANAGEMENT, INC.
By: /s/ Steve Gibson
-------------------------------------
Name: Steve Gibson
-----------------------------------
Title: Vice President and CFO
----------------------------------
<PAGE>
EXHIBIT A
(Form of Note)
<PAGE>
EXHIBIT A
THIS PROMISSORY NOTE, THE ATTACHED WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANTS HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH WARRANTS OR SHARES, NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH WARRANTS OR SHARES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH UNITS
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12% Subordinate Promissory Note
$__________________ January 19, 1999
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of
__________________________________, with an address to be provided to the
Company, or its registered assigns (the "Holder"), the principal amount of
_____________________________ Dollars ($________________) on the Maturity Date
(as defined below), and to pay interest on the unpaid principal balance hereof
at the rate of twelve percent (12%) per annum (calculated on the basis of a
360-day year consisting of twelve 30-day months) semi-annually on the first day
of each July and January commencing July 1, 1999, and on the Maturity Date (each
such date being an "Interest Payment Date") all as hereafter further provided.
Fifty percent (50%) of the interest payable hereunder on any Interest Payment
Date may, at the option of the Company, be paid in additional Notes in the form
hereof for such amount.
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
<PAGE>
1. Offering; Subscription Agreement. This Note was issued by the Company
in an offering of promissory notes (the "Offering") made pursuant to a
Subscription Agreement of even date herewith (the "Subscription Agreement")
between the Company and the original Holder hereof. The series of promissory
notes issued in connection with the Offering is referred to hereafter as the
"Notes."
2. Payments.
(a) To the extent not previously paid as provided herein,
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on January 18, 2009 (the "Maturity Date").
(b) Interest on this Note shall accrue from the date hereof to but
excluding the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date thereafter.
(c) If any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of Palm Beach,
Florida.
(d) The Company may not prepay this Note during the first twelve
(12) months following the date hereof. Thereafter, the Company may, at its
option prepay in whole, but not in part, the principal of this Note and any
Notes issued in lieu of the payment of interest hereon pursuant to the first
paragraph of this Note by paying to the holder hereof such principal plus any
accrued interest with respect thereto, plus the Optional Redemption Premium. The
Optional Redemption Premium shall be a premium equal to the following
percentages of the principal amount: 6.00% during the second year following the
date hereof, 3.00% during the third year following the date hereof, 2.00% during
the fourth year following the date hereof, 1.00% during the fifth year following
the date hereof, and 0.00% thereafter. All payments on this Note shall be
applied first to accrued interest hereon and the balance to the payment of
principal hereof. Except for such permitted prepayments, the Company may not
voluntarily prepay this Note without the consent of the Holder.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
<PAGE>
(f) On each anniversary of this Note (or, if not on a Business Day,
then on the next succeeding Business Day) Warrants for the purchase of Common
Stock of the Company in substantially the form attached as Exhibit A (the
"Warrants") will be issued to the holder of this Note sufficient to provide for
a Total Annual Return (as hereinafter defined) for such preceding year of 15%.
The value of such Warrants shall be the Fair Market Value of the Company's
common stock (the "Common Stock") issuable upon exercise of such Warrants. Upon
payment in full of all amounts due under this Note, or upon a Change of Control
(as hereinafter defined), the Warrant or Warrants previously issued to the
holder of this Note will be returned to the Company and Warrants will be
reissued to the holder of this Note for the purchase of a number of shares of
the Company's stock such that the holder's aggregate Total Annual Return is not
less than 15% per annum and not greater than 18% per annum.
For purposes of this Note, the term "Change of Control" means
if (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (i) is or
shall become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of 20% or more on a fully diluted
basis of the voting and economic interests of the Company or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the Board
of Directors of the Company or (b) the Board of Directors of the Company shall
cease to consist of a majority of "Continuing Directors" (as hereinafter
defined) or (c) the Company shall sell substantially all of its assets.
"Continuing Directors" shall mean the (A) directors serving on the Board of
Directors of the Company as of the date of issuance of this Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election). "Total Annual Return" means at any one time the return on the
investment in this Note by the holder hereof which shall include (i) the
annual interest obligations of the Company relating to this Note and any Notes
issued in lieu of interest thereon, (ii) the Fair Market Value of Common Stock
issuable upon exercise of the Warrants (based on the assumption that the
Warrants are exercised on said date), and (iii) any Optional Redemption
Premium paid to the holder hereof. The term "Fair Market Value" means the
current market price per share of the Common Stock at any date which shall be
deemed to be the average of the daily closing price for the 20 consecutive
<PAGE>
days (which are not legal holidays) commencing 30 days (which are not legal
holidays) before the day in question. The closing price for each day shall be
the (i) mean between the closing high bid and low asked quotations of Common
Stock on the National Association of Securities Dealers, Inc., Automated
Quotation System or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or if not
quoted as described in clause (i) the (ii) mean between the high bid and low
asked quotations for Common Stock as reported by the National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and
asked quotations for Common Stock on at least five (5) of the ten (10)
preceding days, or (iii) if the Common Stock is listed or admitted for trading
on any national securities exchange, the last sales price regular way, or the
closing bid price if no sale occurred, of Common Stock on the principal
securities exchange on which Common Stock is listed. If Common Stock is quoted
on a national securities or central market system, in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the Board of
Directors of the Company acting in good faith shall determine the Fair Market
Value of the Common Stock by determining the current market price on the basis
of such quotations and other information as they consider appropriate, in
their reasonable judgment or, lacking such determination, the current market
price shall be the fair market value per share of Common Stock as determined
by a member firm of the New York Stock Exchange, Inc. selected by the Company.
(g) Except as otherwise provided herein, the obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit and diligence in taking any action to
collect any amount called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
(h) Any amounts due hereunder which are not paid within ten (10)
days after their due date shall accrue a late charge equal to ten (10) percent
of the amount due.
3. Ranking of Note.
(a) The Company covenants and agrees, and the Holder, by accepting
this Note, also covenants and agrees, that the indebtedness represented by this
Note and the payment of principal and interest on, premium, if any, and all
other amounts owing in respect of, this Note (collectively, the "Subordinated
Obligations") shall be expressly subordinated, to the extent and in the manner
<PAGE>
hereinafter set forth, to the prior payment in full in cash of all Senior Debt
(as hereinafter defined). Senior Debt shall mean all Indebtedness (as
hereinafter defined) of the Company, whether outstanding on the date hereof or
hereafter arising or created, for principal, premium, interest (including any
interest accruing subsequent to an event of bankruptcy or similar proceeding
with respect to the Company at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees, reimbursements, indemnities, expenses, or
any other obligations due from the Company excluding promissory notes or
accounts payable due to shareholders, officers or affiliates of the Company
(other than any such shareholder or affiliate in its capacity as a lender to, or
creditor of, the Company under one or more other credit or similar facilities
with, or guaranteed by, the Company) and unsecured trade debt of the Company,
each of which shall be pari passu with the Note. The term "Indebtedness" shall
mean (A) any liability of the Company (v) for borrowed money, (w) evidenced by a
note, debenture, bond or other instrument of indebtedness (including, without
limitation, a purchase money obligation), including any given in connection with
the acquisition of property, assets or service, (x) for the payment of rent or
other amounts relating to capitalized lease obligations, (y) in respect of
letters of credit, bankers acceptances and similar facilities or (z) in respect
of interest rate protection agreements, currency agreements, commodity
agreements, hedging agreements and similar agreements and arrangements; (B) any
liability of others described in Section 3(a)(A) which the Company has
guaranteed or which is otherwise its legal liability; and (C) any modification,
renewal, extension, replacement, refinancing, restructuring or refunding of any
such liability; provided, that Indebtedness does not include unsecured trade
credit. The subordination provisions contained in this Note are for the benefit
of, and shall be directly enforceable by, the holders of Senior Debt, and each
holder of Senior Debt, whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance
upon the covenants and provisions contained in this Note.
(b) Payment of Subordinated Obligations due on this Note may be made
as scheduled or permitted so long as there shall not have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt. No
payment of any kind or character, whether in cash, property or securities
(including in the form of additional Notes in respect of in-kind interest
payments), on this Note shall be made by the Company, if, at the time of such
payment or after giving effect thereto, there shall have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt, and
such Default or Event of Default shall not have been cured or waived or shall
not have ceased to exist. In the event that, notwithstanding the foregoing, any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
<PAGE>
(c) Upon any distribution of the assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization, arrangement,
receivership or similar proceedings, whether voluntary or involuntary, or upon
any assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company or otherwise: (i) the holders of the
Senior Debt shall first be entitled to receive cash payment in full of all
amounts payable in respect of all Senior Debt (including, but not limited to,
principal, premium, interest (including any interest accruing subsequent to an
event of bankruptcy or similar proceeding with respect to the Company at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under any such proceeding or applicable law), fees,
reimbursements, indemnities, expenses and other amounts) before the Holder is
entitled to receive any payment of any kind or character in respect of the
Subordinated Obligations evidenced by this Note, whether in cash, property or
securities (including in the form of additional Notes which may be issued in
respect of in-kind interest payments); (ii) any payment by, or distribution of
the assets of, the Company of any kind or character, whether in cash, property
or securities, to which the Holder would be entitled, except for the provisions
of this Section 3, shall be paid or delivered by the person making such payment
or distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holder of Senior Debt or its agent or
other representative, to the extent necessary to make payment in full in cash of
all Senior Debt remaining unpaid, after giving effect to any concurrent payment
or distribution to the holder of such Senior Debt; and (iii) in the event that,
notwithstanding the foregoing, any payment by, or distribution of the assets of,
the Company of any kind or character, whether in cash, property or securities
shall be received by the Holder before all Senior Debt is paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over to the holder of, such Senior Debt or its agent or
representative, for application to the payment of all Senior Debt remaining
unpaid until all such Senior Debt shall have been paid in full in cash, after
giving effect to any concurrent payment or distribution to the holder of such
Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt, the
holder of this Note shall be subrogated to the rights of the holder of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on this Note shall
be paid in full, and, as between the Company, its creditors, other than the
holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holder of Senior Debt by virtue of this Section 3 which
otherwise would have been made to the Holder shall be deemed to be a payment by
the Company on account of this Note.
(e) Nothing contained in this Note is intended to or shall impair,
as between the Company, its creditors, other than the holder of Senior Debt, and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this Note
as and when the same shall become due and payable in accordance with its terms,
<PAGE>
or affect the relative rights of the Holder and the creditors of the Company,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Note of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending, or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holder of the Senior Debt and any other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed thereon and all other facts pertinent thereto or to this
Note.
(g) With or without notice to or further assent from the Holder, any
holder of Senior Debt may at any time or from time to time, in its discretion,
either prior to or after any default on the part of the Company, extend or
change any of the terms of the Senior Debt, waive any default, modify, rescind,
or waive any provision of any related agreement or collateral undertaking,
release, exchange, fail to resort to or realize upon any collateral security or
any part thereof available to it for the Senior Debt, and generally deal with
the Company in such manner as such holder of Senior Debt may see fit without
impairing or affecting its rights and remedies under this Note. The Holder, by
accepting this Note, waives any and all notice of the receipt of acceptance of
the terms of subordination contained herein by any holder of Senior Debt and
other creation, renewal, extension or accrual of any of the Senior Debt.
(h) In the event the Company is adjudged a bankrupt or insolvent by
a court having jurisdiction, or in the event such a court approves a petition
seeking reorganization, arrangement, adjustment, or compensation of, or in
respect of, the Company under Federal Bankruptcy Law, as now hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in the event the Company is otherwise subject to a
voluntary or involuntary case under Federal or state bankruptcy or insolvency
law, and a Holder does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then any of the holders of the Senior Debt or
their agent or representative is hereby authorized to file an appropriate claim
for and on behalf of the Holder of this Note. Nothing herein contained shall be
deemed to authorize the holders of Senior Debt or their agent or representative
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting this Note or
the rights of the Holder hereof, or to authorize the holders of Senior Debt or
their agent or representative to vote in respect of the claim of the Holder in
any such proceeding.
<PAGE>
(i) To the extent any payment of Senior Debt (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(j) Section 3 of this Note may not be amended without the prior written
consent of the holders of the Senior Debt or their agent.
4. Information. The Company shall make available to the Holder financial
or other information regarding the Company that the Holder may reasonably
require. The Company shall notify the Holder immediately upon the occurrence of
an Event of Default under Section 5(d), (e) or (f) hereof.
5. Events of Default. The occurrence of any of the following events shall
constitute an event of default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for
thirty (30) business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note and continuance of such default or
breach for a period of sixty (60) days after receipt of notice from the Holder
as to such breach.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
<PAGE>
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(e) The acceleration of Senior Debt in excess of $5,000,000.
(f) Any final judgment(s) for the payment of money in excess of the
sum of $5,000,000 in the aggregate shall be rendered against the Company (to the
extent not paid or covered by insurance) and such judgment or judgments shall
not be satisfied, discharged, vacated, stayed, or bonded pending appeal within
thirty (30) days after the entry of said judgment.
6. Remedies Upon Default.
(a) Subject to Section 6(c) hereof, upon the occurrence of an Event
of Default, the Holders of not less than 25% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company, it being understood and
agreed that such acceleration shall not be effective unless and until at least
ten (10) days prior written notice thereof has been given by the Holder to the
Company's senior credit facility lenders through their agent, which, as of the
date of this Note, is Banker's Trust Company. Notwithstanding the immediately
preceding sentence, subject to the terms of this Note (including the provisions
of Section 3 hereof), in the event of an Event of Default under Section 5(a) or
5(b), the Holder shall be entitled to pursue the Company for the unpaid
principal or interest then due and payable.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
(c) The provisions of Section 6(a) are subject to the condition that
if the principal of and accrued interest on all or any outstanding Notes have
been declared immediately due and payable by reason of the occurrence of any
Event of Default described in Section 5(a) through (f), inclusive, the holders
of 51% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that at the time such declaration is
<PAGE>
annulled and rescinded (i) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes; (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under 6(a)) shall have been duly paid or the payment
thereof as a condition precedent to such rescission or annulment shall have been
waived by the holders of more than 51% in aggregate principal amount of the
Notes then outstanding pursuant to Section 7(a) hereof; and (iii) each and every
other Default and Event of Default shall have been made good, cured or waived
pursuant to Section 7(a) hereof; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
7. Amendments, Waivers and Consents.
(a) Any term, covenant, agreement or condition contained in this
Note may, with the consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 51% in aggregate principal amount of the
Notes then outstanding; provided that, without the written consent of each
Holder affected thereby, no such waiver, modification, alteration or amendment
shall be effective (i) which will extend the maturity date of the Notes or
reduce the principal amount thereof or change the rate of interest thereon or
amend Section 4(d), or (ii) which will change the percentage of holders of the
Notes required to consent to any such amendment, alteration or modification or
any of the provisions of this Section 7.
(b) Except as otherwise provided in the proviso to Section 7(a), any
such amendment or waiver shall apply equally to all of the holders of the Notes
and shall be binding upon them, upon each future holder of any Note and upon the
Company, whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereto.
8. Transfer.
(a) Not more than fifty percent (50%) of the face amount of this
Note may be transferred, whether by assignment, participation or otherwise.
(b) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person, and shall not be liable for any registration or transfer of
Notes which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
<PAGE>
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Note shall be transferable only on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act of 1933 (the "Act") and the
rules and regulations thereunder.
(c) The Holder acknowledges that he has been advised by the Company
that neither this Note nor the Warrants nor the shares of Common Stock issuable
upon exercise of the Warrants issued to the Holder in connection with this Note
(the "Warrant Shares") have been registered under the Act, that the Note is
being or has been issued and the Warrant Shares may be issued on the basis of
the statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of the Note, the Warrants or Warrant Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note or Warrant Shares is registered under the Act, it being understood that
neither the Note nor the Warrant Shares are currently registered for sale and
that the Company has no obligation or intention to so register the Notes or
Warrants or Warrant Shares except as specifically provided herein, or (ii) the
Note or Warrant Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of the Note or the Warrant Shares and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or (iii)
such sale, assignment, or transfer is otherwise exempt from registration under
the Act.
(d) The Holder shall provide written notice to the Company at least
thirty (30) days advance written notice of any proposed sale or transfer of this
Note. Following the giving of such notice, the Company shall have a right of
first refusal for twenty (20) days to acquire this Note under the proposed terms
<PAGE>
of transfer. Should the Company fail to exercise its right of first refusal, the
Holder may transfer the Note under the proposed terms so long as such transfer
is effected within ninety (90) days of the giving of the notice.
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 240 Royal Palm
Way, Palm Beach, Florida 33480, Attention: President, with a copy to Kaufman &
Canoles, 2000 NationsBank Center, P.O. Box 3037, Norfolk, Virginia 23514-3037,
Attn: Gus J. James, II, Esq.; (ii) if to the Holder, at its address provided to
the Company; or (iii) in either case, to such other address the party shall have
furnished in writing in accordance with the provisions of this Section 9(a).
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9(a). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 9(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination. In the case of a lost or stolen Note,
the Company may require the Holder to execute an indemnity agreement or to
provide an indemnity bond.
<PAGE>
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) Subject to Section 7 hereof, this Note may be amended only by a
written instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the Jurisdiction of the
state courts of the State of New York located in New York City, New York, and of
any federal court located in such City in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Note, or a
breach of this Note or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 9(a). Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
(g) It is the intention of the parties that the provisions of this
Agreement shall be enforceable to the fullest extent permissible under the
applicable law. If any clause or provision of this Note is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, then the remainder of this Note shall not be affected thereby, and in
lieu of each clause or provision of this Note which is illegal, invalid or
unenforceable, there shall be added, as a part of this Note, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and as may be legal, valid, and enforceable.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
WORKFLOW MANAGEMENT, INC., a
Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXHIBIT 10.5
SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT
WITH RESPECT TO
PROMISSORY NOTES IN
WORKFLOW MANAGEMENT, INC.
January 19, 1999
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Gentlemen:
1. Subscription.
a. The undersigned irrevocably subscribes for and agrees to purchase
a promissory note (the "Note") of Workflow Management, Inc., a Delaware
corporation ("Company") having a principal amount specified on the signature
page hereof (the "Note Amount"), pursuant to the terms and conditions of this
Subscription and Investment Representation Agreement ("Agreement"). The purchase
price for the Note shall be the Note Amount. The undersigned understands that
after delivery: (i) this subscription to purchase the Note is irrevocable; and
(ii) in the event this subscription is for any reason rejected, in whole or in
part, or the offering is for any reason canceled, the undersigned will have no
obligations or rights, except as provided in this Agreement. The Note is in the
form of Exhibit A and is accompanied by an attached warrant to acquire shares of
the common stock of the Company, which is attached as an exhibit to the Note
("Warrant").
b. Upon the execution of this Agreement, the undersigned will
deliver to the Company the following: (i) the original of this Agreement, fully
executed, with the Note Amount the undersigned desires to purchase specified on
the signature page hereof; (ii) a check made payable to the Company, in the
amount corresponding to the Note Amount; and (iii) any other pertinent documents
requested by the Company.
c. $4,878,000 in Notes (the "Offering Maximum") is proposed to be
sold in this offering. The offering will terminate on the earlier of (i)
acceptance by the Company of subscriptions for the Offering Maximum or (ii)
January 20, 1999. The Company reserves the right to extend the offering to
January 30, 1999, at its discretion. At such time as Notes equal to the Offering
Maximum have been subscribed for, the Company will use all funds raised in this
offering to redeem shares of the Company's common stock in open market or
privately negotiated transactions at prevailing market prices.
<PAGE>
2. Acceptance of Subscription. The undersigned understands and agrees that
the Company, in its sole discretion, reserves the right to accept or reject this
or any other subscription for Notes, in whole or in part, on or before January
20, 1999, notwithstanding prior receipt by the undersigned of notice of
acceptance, subject to the Company's right to extend the offering to January 30,
1999. If this subscription is rejected in its entirety, the Company shall
promptly return all funds received, without interest thereon, if any, and this
Agreement shall thereafter be of no further force or effect.
3. Acknowledgments. The undersigned understands and acknowledges that:
a. The undersigned has received a copy of (i) the form of the Note,
(ii) the form of the Warrant, (iii) the Company's Certificate of Incorporation
and Bylaws, (iv) the Company's Annual Report on Form 10-K for the fiscal year
ended April 25, 1998, as filed with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 ("Exchange Act") and (v) the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended July 25,
1998, and October 24, 1998, as filed with the SEC under the Exchange Act
(collectively referred to as the "Transaction Documents"). The undersigned has
had an opportunity to carefully review the Transaction Documents, any other
documents the undersigned has requested to review, and to ask questions and
receive answers from the Company concerning the terms and conditions of the
offering. The undersigned acknowledges that the exhibits to the Company's Forms
10-K and 10-Q included within the Transaction Documents are available to the
undersigned upon written request. The undersigned has also had the opportunity
to obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Transaction Documents. In evaluating the suitability
of an investment in the Company, the undersigned has not relied upon any
representations or other information (whether oral or written) other than as set
forth in the Transaction Documents.
b The Notes and the Warrant (collectively the "Securities") have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or under any applicable state securities laws. The Securities are intended
to be exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act and the provisions of Rules 505 and 506 of
Regulation D promulgated thereunder by the SEC ("Regulation D") and applicable
exemptions from state securities laws.
c. No federal or state agency has passed upon the Securities or made
any finding or determination concerning the fairness of this investment.
<PAGE>
d. The Securities may not be transferred in the absence of (i)
registration of the Securities for resale under the Securities Act or (ii) an
opinion by counsel to the Company that the proposed transfer will not violate
applicable federal and state securities laws and will not jeopardize the
exemptions from registration under which the Securities will initially be
issued.
4. Representations and Warranties.
a. The undersigned represents and warrants that:
(1) The undersigned is acquiring the Securities for his or its
own account for investment, and not with a view to distribution or resale, and
will not sell, assign or otherwise transfer any or all of the Securities
acquired pursuant to this Agreement, unless such Securities have been registered
under the Securities Act and any applicable state securities laws or, in the
opinion of counsel for the Company, an exemption from the registration
requirement of the Securities Act and state securities laws is available.
(2) (a) The undersigned either is an "Accredited Investor," as
defined in Regulation D or has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment; (b) the undersigned has adequate net worth and means
of providing for his or its current needs and personal contingencies should the
undersigned sustain a complete loss of his or its investment in the Securities;
(c) the undersigned has no need for liquidity in this investment in the
Securities; and (d) the undersigned has evaluated the risks of investing in the
Securities, has substantial experience in making investment decisions of this
type and is capable of evaluating the merits and risks of this transaction or is
relying on his or its own investment advisor or other qualified investment
representative in making this investment decision.
(3) The undersigned has discussed with his or its professional
legal, tax, and financial advisors the consequences of the investment in the
Securities for his or its particular situation.
(4) The undersigned recognizes that investment in the Company
involves certain risks, and the undersigned has taken full cognizance of and
understands all of the risks factors related to the purchase of the Securities,
including, but not limited to, those risk factors specifically identified in the
Forms 10-K and 10-Q of the Company filed under the Exchange Act and included in
the Transaction Documents.
(5) All information the undersigned has provided in this
Agreement to the Company concerning the undersigned and his or its financial
position is correct and complete as of the date set forth below, and if there
should be any material change in such information before the acceptance of this
Agreement, the undersigned will immediately provide that information.
<PAGE>
(6) The undersigned is acquiring the Securities without being
furnished any offering literature or prospectus other than the Transaction
Documents, and any information the undersigned has requested of the Company has
been provided.
(7) This Agreement constitutes the undersigned's valid and
legally binding obligation and is fully enforceable against the undersigned in
accordance with its terms.
(8) If the undersigned is an entity, the undersigned
represents its purchase of Securities has been duly authorized.
b. These representations and warranties are true and accurate as of
the date of this Agreement and shall be true and accurate as of the date of the
acceptance by the Company of this subscription and the "Closing." "Closing"
shall be that date on which the offering has been terminated by the Company. If,
in any respect, any representations and warranties are not true and accurate
before Closing, the undersigned will give written notice to the Company
specifying which representations and warranties are not true and accurate.
5. Severability. It is the intention of the parties that the provisions of
this Agreement shall be enforceable to the fullest extent permissible under
applicable law. If any clause or provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, then the remainder of this Agreement shall not be affected
thereby, and in lieu of each clause or provision of this Agreement which is
illegal, invalid or unenforceable, there shall be added, as a part of this
Agreement, a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and as may be legal, valid,
and enforceable.
6. Choice of Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
7. Amendment. This Agreement may be amended only by a written instrument
signed by each of the parties hereto.
8. Binding Effect; Counterparts. This Agreement is not transferable or
assignable by the undersigned. This Agreement, upon acceptance by the Company,
shall be binding upon the permitted successors and assigns hereof. This
Agreement may be executed in one or more counterparts, all of which taken
together will constitute one and the same Agreement.
<PAGE>
9. Investor Certifications. The undersigned certifies to the Company that
the undersigned meets the general suitability standards for investors since the
undersigned meets one or more of the following standards:
(Please initial those standards (one or more) which do apply to the
undersigned - the Company must have this information to insure
compliance with Regulation D of the Securities Act of 1933 and any
applicable state securities law).
X (i) The undersigned is an individual with income in excess of
$200,000 in each of the two most recent calendar years, or had a
joint income with his or her spouse in excess of $300,000 in each of
these years and reasonably expects to have such in the current year.
X (ii) The undersigned is an individual with a net worth
(including residences, furnishings and automobiles), either alone or
together with his or her spouse of at least $1,000,000.
______ (iii) The undersigned is an entity in which all the equity
owners meet one of the standards set forth in (i) and (ii) above.
______ (iv) The undersigned is a corporation, partnership or other
business entity not formed for the specific purpose of acquiring the
Securities with total assets in excess of $5,000,000.
______ (v) The undersigned is a trust with total assets in excess of
$5,000,000 not formed for the specific purpose of acquiring the
Securities, whose purchase is directed by a person with such
knowledge and experience in financial and business matters that he
or she is capable of evaluating the merits and risks of the
investment in the Securities.
______ (vi) The undersigned has sufficient knowledge and experience
in financial and business matters to be capable of evaluating the
merits and risks set forth in this Agreement and in the Transaction
Documents with regard to this investment. Accordingly, although the
undersigned may consult an accountant, attorney, or other advisor,
the undersigned is relying in the main on his or its own judgment in
the decision to invest.
IN WITNESS WHEREOF, subject to acceptance of the Company, the undersigned
has completed this Agreement to evidence his or its subscription for Notes.
THE UNDERSIGNED SUBSCRIBES FOR A NOTE OF THE COMPANY IN A NOTE AMOUNT OF
$666,000.
<PAGE>
Richard M. Schlanger
----------------------------------------------
Print Name of Individual or Entity Investor
/s/ Richard M. Schlanger
---------------------------------------------
Signature
<PAGE>
____________________________________
Street Address
____________________________________
City, State, Zip Code
____________________________________
Social Security Number
Workflow Management, Inc. has accepted this Subscription
Agreement as of the 19th day of January , 1999.
WORKFLOW MANAGEMENT, INC.
By: /s/ Steve Gibson
--------------------------------------
Name: Steve Gibson
------------------------------------
Title: Vice President and CFO
-----------------------------------
<PAGE>
EXHIBIT A
(Form of Note)
<PAGE>
EXHIBIT A
THIS PROMISSORY NOTE, THE ATTACHED WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANTS HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH WARRANTS OR SHARES, NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH WARRANTS OR SHARES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH UNITS
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12% Subordinate Promissory Note
$__________________ January 19, 1999
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of
__________________________________, with an address to be provided to the
Company, or its registered assigns (the "Holder"), the principal amount of
_____________________________ Dollars ($________________) on the Maturity Date
(as defined below), and to pay interest on the unpaid principal balance hereof
at the rate of twelve percent (12%) per annum (calculated on the basis of a
360-day year consisting of twelve 30-day months) semi-annually on the first day
of each July and January commencing July 1, 1999, and on the Maturity Date (each
such date being an "Interest Payment Date") all as hereafter further provided.
Fifty percent (50%) of the interest payable hereunder on any Interest Payment
Date may, at the option of the Company, be paid in additional Notes in the form
hereof for such amount.
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
<PAGE>
1. Offering; Subscription Agreement. This Note was issued by the Company
in an offering of promissory notes (the "Offering") made pursuant to a
Subscription Agreement of even date herewith (the "Subscription Agreement")
between the Company and the original Holder hereof. The series of promissory
notes issued in connection with the Offering is referred to hereafter as the
"Notes."
2. Payments.
(a) To the extent not previously paid as provided herein,
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on January 18, 2009 (the "Maturity Date").
(b) Interest on this Note shall accrue from the date hereof to but
excluding the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date thereafter.
(c) If any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of Palm Beach,
Florida.
(d) The Company may not prepay this Note during the first twelve
(12) months following the date hereof. Thereafter, the Company may, at its
option prepay in whole, but not in part, the principal of this Note and any
Notes issued in lieu of the payment of interest hereon pursuant to the first
paragraph of this Note by paying to the holder hereof such principal plus any
accrued interest with respect thereto, plus the Optional Redemption Premium. The
Optional Redemption Premium shall be a premium equal to the following
percentages of the principal amount: 6.00% during the second year following the
date hereof, 3.00% during the third year following the date hereof, 2.00% during
the fourth year following the date hereof, 1.00% during the fifth year following
the date hereof, and 0.00% thereafter. All payments on this Note shall be
applied first to accrued interest hereon and the balance to the payment of
principal hereof. Except for such permitted prepayments, the Company may not
voluntarily prepay this Note without the consent of the Holder.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
<PAGE>
(f) On each anniversary of this Note (or, if not on a Business Day,
then on the next succeeding Business Day) Warrants for the purchase of Common
Stock of the Company in substantially the form attached as Exhibit A (the
"Warrants") will be issued to the holder of this Note sufficient to provide for
a Total Annual Return (as hereinafter defined) for such preceding year of 15%.
The value of such Warrants shall be the Fair Market Value of the Company's
common stock (the "Common Stock") issuable upon exercise of such Warrants. Upon
payment in full of all amounts due under this Note, or upon a Change of Control
(as hereinafter defined), the Warrant or Warrants previously issued to the
holder of this Note will be returned to the Company and Warrants will be
reissued to the holder of this Note for the purchase of a number of shares of
the Company's stock such that the holder's aggregate Total Annual Return is not
less than 15% per annum and not greater than 18% per annum.
For purposes of this Note, the term "Change of Control" means
if (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (i) is or
shall become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of 20% or more on a fully diluted
basis of the voting and economic interests of the Company or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the Board
of Directors of the Company or (b) the Board of Directors of the Company shall
cease to consist of a majority of "Continuing Directors" (as hereinafter
defined) or (c) the Company shall sell substantially all of its assets.
"Continuing Directors" shall mean the (A) directors serving on the Board of
Directors of the Company as of the date of issuance of this Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election). "Total Annual Return" means at any one time the return on the
investment in this Note by the holder hereof which shall include (i) the
annual interest obligations of the Company relating to this Note and any Notes
issued in lieu of interest thereon, (ii) the Fair Market Value of Common Stock
issuable upon exercise of the Warrants (based on the assumption that the
Warrants are exercised on said date), and (iii) any Optional Redemption
Premium paid to the holder hereof. The term "Fair Market Value" means the
current market price per share of the Common Stock at any date which shall be
deemed to be the average of the daily closing price for the 20 consecutive
<PAGE>
days (which are not legal holidays) commencing 30 days (which are not legal
holidays) before the day in question. The closing price for each day shall be
the (i) mean between the closing high bid and low asked quotations of Common
Stock on the National Association of Securities Dealers, Inc., Automated
Quotation System or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or if not
quoted as described in clause (i) the (ii) mean between the high bid and low
asked quotations for Common Stock as reported by the National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and
asked quotations for Common Stock on at least five (5) of the ten (10)
preceding days, or (iii) if the Common Stock is listed or admitted for trading
on any national securities exchange, the last sales price regular way, or the
closing bid price if no sale occurred, of Common Stock on the principal
securities exchange on which Common Stock is listed. If Common Stock is quoted
on a national securities or central market system, in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the Board of
Directors of the Company acting in good faith shall determine the Fair Market
Value of the Common Stock by determining the current market price on the basis
of such quotations and other information as they consider appropriate, in
their reasonable judgment or, lacking such determination, the current market
price shall be the fair market value per share of Common Stock as determined
by a member firm of the New York Stock Exchange, Inc. selected by the Company.
(g) Except as otherwise provided herein, the obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit and diligence in taking any action to
collect any amount called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
(h) Any amounts due hereunder which are not paid within ten (10)
days after their due date shall accrue a late charge equal to ten (10) percent
of the amount due.
3. Ranking of Note.
(a) The Company covenants and agrees, and the Holder, by accepting
this Note, also covenants and agrees, that the indebtedness represented by this
Note and the payment of principal and interest on, premium, if any, and all
other amounts owing in respect of, this Note (collectively, the "Subordinated
Obligations") shall be expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full in cash of all Senior Debt
(as hereinafter defined). Senior Debt shall mean all Indebtedness (as
<PAGE>
hereinafter defined) of the Company, whether outstanding on the date hereof or
hereafter arising or created, for principal, premium, interest (including any
interest accruing subsequent to an event of bankruptcy or similar proceeding
with respect to the Company at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees, reimbursements, indemnities, expenses, or
any other obligations due from the Company excluding promissory notes or
accounts payable due to shareholders, officers or affiliates of the Company
(other than any such shareholder or affiliate in its capacity as a lender to, or
creditor of, the Company under one or more other credit or similar facilities
with, or guaranteed by, the Company) and unsecured trade debt of the Company,
each of which shall be pari passu with the Note. The term "Indebtedness" shall
mean (A) any liability of the Company (v) for borrowed money, (w) evidenced by a
note, debenture, bond or other instrument of indebtedness (including, without
limitation, a purchase money obligation), including any given in connection with
the acquisition of property, assets or service, (x) for the payment of rent or
other amounts relating to capitalized lease obligations, (y) in respect of
letters of credit, bankers acceptances and similar facilities or (z) in respect
of interest rate protection agreements, currency agreements, commodity
agreements, hedging agreements and similar agreements and arrangements; (B) any
liability of others described in Section 3(a)(A) which the Company has
guaranteed or which is otherwise its legal liability; and (C) any modification,
renewal, extension, replacement, refinancing, restructuring or refunding of any
such liability; provided, that Indebtedness does not include unsecured trade
credit. The subordination provisions contained in this Note are for the benefit
of, and shall be directly enforceable by, the holders of Senior Debt, and each
holder of Senior Debt, whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance
upon the covenants and provisions contained in this Note.
(b) Payment of Subordinated Obligations due on this Note may be made
as scheduled or permitted so long as there shall not have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt. No
payment of any kind or character, whether in cash, property or securities
(including in the form of additional Notes in respect of in-kind interest
payments), on this Note shall be made by the Company, if, at the time of such
payment or after giving effect thereto, there shall have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt, and
such Default or Event of Default shall not have been cured or waived or shall
not have ceased to exist. In the event that, notwithstanding the foregoing, any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
<PAGE>
(c) Upon any distribution of the assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization, arrangement,
receivership or similar proceedings, whether voluntary or involuntary, or upon
any assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company or otherwise: (i) the holders of the
Senior Debt shall first be entitled to receive cash payment in full of all
amounts payable in respect of all Senior Debt (including, but not limited to,
principal, premium, interest (including any interest accruing subsequent to an
event of bankruptcy or similar proceeding with respect to the Company at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under any such proceeding or applicable law), fees,
reimbursements, indemnities, expenses and other amounts) before the Holder is
entitled to receive any payment of any kind or character in respect of the
Subordinated Obligations evidenced by this Note, whether in cash, property or
securities (including in the form of additional Notes which may be issued in
respect of in-kind interest payments); (ii) any payment by, or distribution of
the assets of, the Company of any kind or character, whether in cash, property
or securities, to which the Holder would be entitled, except for the provisions
of this Section 3, shall be paid or delivered by the person making such payment
or distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holder of Senior Debt or its agent or
other representative, to the extent necessary to make payment in full in cash of
all Senior Debt remaining unpaid, after giving effect to any concurrent payment
or distribution to the holder of such Senior Debt; and (iii) in the event that,
notwithstanding the foregoing, any payment by, or distribution of the assets of,
the Company of any kind or character, whether in cash, property or securities
shall be received by the Holder before all Senior Debt is paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over to the holder of, such Senior Debt or its agent or
representative, for application to the payment of all Senior Debt remaining
unpaid until all such Senior Debt shall have been paid in full in cash, after
giving effect to any concurrent payment or distribution to the holder of such
Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt, the
holder of this Note shall be subrogated to the rights of the holder of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on this Note shall
be paid in full, and, as between the Company, its creditors, other than the
holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holder of Senior Debt by virtue of this Section 3 which
otherwise would have been made to the Holder shall be deemed to be a payment by
the Company on account of this Note.
(e) Nothing contained in this Note is intended to or shall impair,
as between the Company, its creditors, other than the holder of Senior Debt, and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this Note
<PAGE>
as and when the same shall become due and payable in accordance with its terms,
or affect the relative rights of the Holder and the creditors of the Company,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Note of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending, or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holder of the Senior Debt and any other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed thereon and all other facts pertinent thereto or to this
Note.
(g) With or without notice to or further assent from the Holder, any
holder of Senior Debt may at any time or from time to time, in its discretion,
either prior to or after any default on the part of the Company, extend or
change any of the terms of the Senior Debt, waive any default, modify, rescind,
or waive any provision of any related agreement or collateral undertaking,
release, exchange, fail to resort to or realize upon any collateral security or
any part thereof available to it for the Senior Debt, and generally deal with
the Company in such manner as such holder of Senior Debt may see fit without
impairing or affecting its rights and remedies under this Note. The Holder, by
accepting this Note, waives any and all notice of the receipt of acceptance of
the terms of subordination contained herein by any holder of Senior Debt and
other creation, renewal, extension or accrual of any of the Senior Debt.
(h) In the event the Company is adjudged a bankrupt or insolvent by
a court having jurisdiction, or in the event such a court approves a petition
seeking reorganization, arrangement, adjustment, or compensation of, or in
respect of, the Company under Federal Bankruptcy Law, as now hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in the event the Company is otherwise subject to a
voluntary or involuntary case under Federal or state bankruptcy or insolvency
law, and a Holder does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then any of the holders of the Senior Debt or
their agent or representative is hereby authorized to file an appropriate claim
for and on behalf of the Holder of this Note. Nothing herein contained shall be
deemed to authorize the holders of Senior Debt or their agent or representative
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting this Note or
the rights of the Holder hereof, or to authorize the holders of Senior Debt or
their agent or representative to vote in respect of the claim of the Holder in
any such proceeding.
<PAGE>
(i) To the extent any payment of Senior Debt (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(j) Section 3 of this Note may not be amended without the prior written
consent of the holders of the Senior Debt or their agent.
4. Information. The Company shall make available to the Holder financial
or other information regarding the Company that the Holder may reasonably
require. The Company shall notify the Holder immediately upon the occurrence of
an Event of Default under Section 5(d), (e) or (f) hereof.
5. Events of Default. The occurrence of any of the following events shall
constitute an event of default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for
thirty (30) business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note and continuance of such default or
breach for a period of sixty (60) days after receipt of notice from the Holder
as to such breach.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
<PAGE>
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(e) The acceleration of Senior Debt in excess of $5,000,000.
(f) Any final judgment(s) for the payment of money in excess of the
sum of $5,000,000 in the aggregate shall be rendered against the Company (to the
extent not paid or covered by insurance) and such judgment or judgments shall
not be satisfied, discharged, vacated, stayed, or bonded pending appeal within
thirty (30) days after the entry of said judgment.
6. Remedies Upon Default.
(a) Subject to Section 6(c) hereof, upon the occurrence of an Event
of Default, the Holders of not less than 25% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company, it being understood and
agreed that such acceleration shall not be effective unless and until at least
ten (10) days prior written notice thereof has been given by the Holder to the
Company's senior credit facility lenders through their agent, which, as of the
date of this Note, is Banker's Trust Company. Notwithstanding the immediately
preceding sentence, subject to the terms of this Note (including the provisions
of Section 3 hereof), in the event of an Event of Default under Section 5(a) or
5(b), the Holder shall be entitled to pursue the Company for the unpaid
principal or interest then due and payable.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
(c) The provisions of Section 6(a) are subject to the condition that
if the principal of and accrued interest on all or any outstanding Notes have
been declared immediately due and payable by reason of the occurrence of any
Event of Default described in Section 5(a) through (f), inclusive, the holders
of 51% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
<PAGE>
and the consequences thereof, provided that at the time such declaration is
annulled and rescinded (i) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes; (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under 6(a)) shall have been duly paid or the payment
thereof as a condition precedent to such rescission or annulment shall have been
waived by the holders of more than 51% in aggregate principal amount of the
Notes then outstanding pursuant to Section 7(a) hereof; and (iii) each and every
other Default and Event of Default shall have been made good, cured or waived
pursuant to Section 7(a) hereof; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
7. Amendments, Waivers and Consents.
(a) Any term, covenant, agreement or condition contained in this
Note may, with the consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 51% in aggregate principal amount of the
Notes then outstanding; provided that, without the written consent of each
Holder affected thereby, no such waiver, modification, alteration or amendment
shall be effective (i) which will extend the maturity date of the Notes or
reduce the principal amount thereof or change the rate of interest thereon or
amend Section 4(d), or (ii) which will change the percentage of holders of the
Notes required to consent to any such amendment, alteration or modification or
any of the provisions of this Section 7.
(b) Except as otherwise provided in the proviso to Section 7(a), any
such amendment or waiver shall apply equally to all of the holders of the Notes
and shall be binding upon them, upon each future holder of any Note and upon the
Company, whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereto.
8. Transfer.
(a) Not more than fifty percent (50%) of the face amount of this
Note may be transferred, whether by assignment, participation or otherwise.
(b) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person, and shall not be liable for any registration or transfer of
Notes which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Note shall be transferable only on the books of the
<PAGE>
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act of 1933 (the "Act") and the
rules and regulations thereunder.
(c) The Holder acknowledges that he has been advised by the Company
that neither this Note nor the Warrants nor the shares of Common Stock issuable
upon exercise of the Warrants issued to the Holder in connection with this Note
(the "Warrant Shares") have been registered under the Act, that the Note is
being or has been issued and the Warrant Shares may be issued on the basis of
the statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of the Note, the Warrants or Warrant Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note or Warrant Shares is registered under the Act, it being understood that
neither the Note nor the Warrant Shares are currently registered for sale and
that the Company has no obligation or intention to so register the Notes or
Warrants or Warrant Shares except as specifically provided herein, or (ii) the
Note or Warrant Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of the Note or the Warrant Shares and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or (iii)
such sale, assignment, or transfer is otherwise exempt from registration under
the Act.
(d) The Holder shall provide written notice to the Company at least
thirty (30) days advance written notice of any proposed sale or transfer of this
Note. Following the giving of such notice, the Company shall have a right of
first refusal for twenty (20) days to acquire this Note under the proposed terms
<PAGE>
of transfer. Should the Company fail to exercise its right of first refusal, the
Holder may transfer the Note under the proposed terms so long as such transfer
is effected within ninety (90) days of the giving of the notice.
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 240 Royal Palm
Way, Palm Beach, Florida 33480, Attention: President, with a copy to Kaufman &
Canoles, 2000 NationsBank Center, P.O. Box 3037, Norfolk, Virginia 23514-3037,
Attn: Gus J. James, II, Esq.; (ii) if to the Holder, at its address provided to
the Company; or (iii) in either case, to such other address the party shall have
furnished in writing in accordance with the provisions of this Section 9(a).
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9(a). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 9(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination. In the case of a lost or stolen Note,
the Company may require the Holder to execute an indemnity agreement or to
provide an indemnity bond.
<PAGE>
22
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) Subject to Section 7 hereof, this Note may be amended only by a
written instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the Jurisdiction of the
state courts of the State of New York located in New York City, New York, and of
any federal court located in such City in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Note, or a
breach of this Note or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 9(a). Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
(g) It is the intention of the parties that the provisions of this
Agreement shall be enforceable to the fullest extent permissible under the
applicable law. If any clause or provision of this Note is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, then the remainder of this Note shall not be affected thereby, and in
lieu of each clause or provision of this Note which is illegal, invalid or
unenforceable, there shall be added, as a part of this Note, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and as may be legal, valid, and enforceable.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
WORKFLOW MANAGEMENT, INC., a
Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXHIBIT 10.6
SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT
WITH RESPECT TO
PROMISSORY NOTES IN
WORKFLOW MANAGEMENT, INC.
January 19, 1999
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Gentlemen:
1. Subscription.
a. The undersigned irrevocably subscribes for and agrees to purchase
a promissory note (the "Note") of Workflow Management, Inc., a Delaware
corporation ("Company") having a principal amount specified on the signature
page hereof (the "Note Amount"), pursuant to the terms and conditions of this
Subscription and Investment Representation Agreement ("Agreement"). The purchase
price for the Note shall be the Note Amount. The undersigned understands that
after delivery: (i) this subscription to purchase the Note is irrevocable; and
(ii) in the event this subscription is for any reason rejected, in whole or in
part, or the offering is for any reason canceled, the undersigned will have no
obligations or rights, except as provided in this Agreement. The Note is in the
form of Exhibit A and is accompanied by an attached warrant to acquire shares of
the common stock of the Company, which is attached as an exhibit to the Note
("Warrant").
b. Upon the execution of this Agreement, the undersigned will
deliver to the Company the following: (i) the original of this Agreement, fully
executed, with the Note Amount the undersigned desires to purchase specified on
the signature page hereof; (ii) a check made payable to the Company, in the
amount corresponding to the Note Amount; and (iii) any other pertinent documents
requested by the Company.
c. $4,878,000 in Notes (the "Offering Maximum") is proposed to be
sold in this offering. The offering will terminate on the earlier of (i)
acceptance by the Company of subscriptions for the Offering Maximum or (ii)
January 20, 1999. The Company reserves the right to extend the offering to
January 30, 1999, at its discretion. At such time as Notes equal to the Offering
Maximum have been subscribed for, the Company will use all funds raised in this
offering to redeem shares of the Company's common stock in open market or
privately negotiated transactions at prevailing market prices.
<PAGE>
2. Acceptance of Subscription. The undersigned understands and agrees that
the Company, in its sole discretion, reserves the right to accept or reject this
or any other subscription for Notes, in whole or in part, on or before January
20, 1999, notwithstanding prior receipt by the undersigned of notice of
acceptance, subject to the Company's right to extend the offering to January 30,
1999. If this subscription is rejected in its entirety, the Company shall
promptly return all funds received, without interest thereon, if any, and this
Agreement shall thereafter be of no further force or effect.
3. Acknowledgments. The undersigned understands and acknowledges that:
a. The undersigned has received a copy of (i) the form of the Note,
(ii) the form of the Warrant, (iii) the Company's Certificate of Incorporation
and Bylaws, (iv) the Company's Annual Report on Form 10-K for the fiscal year
ended April 25, 1998, as filed with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 ("Exchange Act") and (v) the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended July 25,
1998, and October 24, 1998, as filed with the SEC under the Exchange Act
(collectively referred to as the "Transaction Documents"). The undersigned has
had an opportunity to carefully review the Transaction Documents, any other
documents the undersigned has requested to review, and to ask questions and
receive answers from the Company concerning the terms and conditions of the
offering. The undersigned acknowledges that the exhibits to the Company's Forms
10-K and 10-Q included within the Transaction Documents are available to the
undersigned upon written request. The undersigned has also had the opportunity
to obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Transaction Documents. In evaluating the suitability
of an investment in the Company, the undersigned has not relied upon any
representations or other information (whether oral or written) other than as set
forth in the Transaction Documents.
b The Notes and the Warrant (collectively the "Securities") have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or under any applicable state securities laws. The Securities are intended
to be exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act and the provisions of Rules 505 and 506 of
Regulation D promulgated thereunder by the SEC ("Regulation D") and applicable
exemptions from state securities laws.
c. No federal or state agency has passed upon the Securities or made
any finding or determination concerning the fairness of this investment.
<PAGE>
d. The Securities may not be transferred in the absence of (i)
registration of the Securities for resale under the Securities Act or (ii) an
opinion by counsel to the Company that the proposed transfer will not violate
applicable federal and state securities laws and will not jeopardize the
exemptions from registration under which the Securities will initially be
issued.
4. Representations and Warranties.
a. The undersigned represents and warrants that:
(1) The undersigned is acquiring the Securities for his or its
own account for investment, and not with a view to distribution or resale, and
will not sell, assign or otherwise transfer any or all of the Securities
acquired pursuant to this Agreement, unless such Securities have been registered
under the Securities Act and any applicable state securities laws or, in the
opinion of counsel for the Company, an exemption from the registration
requirement of the Securities Act and state securities laws is available.
(2) (a) The undersigned either is an "Accredited Investor," as
defined in Regulation D or has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment; (b) the undersigned has adequate net worth and means
of providing for his or its current needs and personal contingencies should the
undersigned sustain a complete loss of his or its investment in the Securities;
(c) the undersigned has no need for liquidity in this investment in the
Securities; and (d) the undersigned has evaluated the risks of investing in the
Securities, has substantial experience in making investment decisions of this
type and is capable of evaluating the merits and risks of this transaction or is
relying on his or its own investment advisor or other qualified investment
representative in making this investment decision.
(3) The undersigned has discussed with his or its professional
legal, tax, and financial advisors the consequences of the investment in the
Securities for his or its particular situation.
(4) The undersigned recognizes that investment in the Company
involves certain risks, and the undersigned has taken full cognizance of and
understands all of the risks factors related to the purchase of the Securities,
including, but not limited to, those risk factors specifically identified in the
Forms 10-K and 10-Q of the Company filed under the Exchange Act and included in
the Transaction Documents.
(5) All information the undersigned has provided in this
Agreement to the Company concerning the undersigned and his or its financial
position is correct and complete as of the date set forth below, and if there
<PAGE>
should be any material change in such information before the acceptance of this
Agreement, the undersigned will immediately provide that information.
(6) The undersigned is acquiring the Securities without being
furnished any offering literature or prospectus other than the Transaction
Documents, and any information the undersigned has requested of the Company has
been provided.
(7) This Agreement constitutes the undersigned's valid and
legally binding obligation and is fully enforceable against the undersigned in
accordance with its terms.
(8) If the undersigned is an entity, the undersigned
represents its purchase of Securities has been duly authorized.
b. These representations and warranties are true and accurate as of
the date of this Agreement and shall be true and accurate as of the date of the
acceptance by the Company of this subscription and the "Closing." "Closing"
shall be that date on which the offering has been terminated by the Company. If,
in any respect, any representations and warranties are not true and accurate
before Closing, the undersigned will give written notice to the Company
specifying which representations and warranties are not true and accurate.
5. Severability. It is the intention of the parties that the provisions of
this Agreement shall be enforceable to the fullest extent permissible under
applicable law. If any clause or provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, then the remainder of this Agreement shall not be affected
thereby, and in lieu of each clause or provision of this Agreement which is
illegal, invalid or unenforceable, there shall be added, as a part of this
Agreement, a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and as may be legal, valid,
and enforceable.
6. Choice of Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
7. Amendment. This Agreement may be amended only by a written instrument
signed by each of the parties hereto.
8. Binding Effect; Counterparts. This Agreement is not transferable or
assignable by the undersigned. This Agreement, upon acceptance by the Company,
shall be binding upon the permitted successors and assigns hereof. This
Agreement may be executed in one or more counterparts, all of which taken
together will constitute one and the same Agreement.
<PAGE>
9. Investor Certifications. The undersigned certifies to the Company that
the undersigned meets the general suitability standards for investors since the
undersigned meets one or more of the following standards:
(Please initial those standards (one or more) which do apply to the
undersigned - the Company must have this information to insure
compliance with Regulation D of the Securities Act of 1933 and any
applicable state securities law).
______ (i) The undersigned is an individual with income in excess of
$200,000 in each of the two most recent calendar years, or had a
joint income with his or her spouse in excess of $300,000 in each of
these years and reasonably expects to have such in the current year.
______ (ii) The undersigned is an individual with a net worth
(including residences, furnishings and automobiles), either alone or
together with his or her spouse of at least $1,000,000.
______ (iii) The undersigned is an entity in which all the equity
owners meet one of the standards set forth in (i) and (ii) above.
______ (iv) The undersigned is a corporation, partnership or other
business entity not formed for the specific purpose of acquiring the
Securities with total assets in excess of $5,000,000.
______ (v) The undersigned is a trust with total assets in excess of
$5,000,000 not formed for the specific purpose of acquiring the
Securities, whose purchase is directed by a person with such
knowledge and experience in financial and business matters that he
or she is capable of evaluating the merits and risks of the
investment in the Securities.
______ (vi) The undersigned has sufficient knowledge and experience
in financial and business matters to be capable of evaluating the
merits and risks set forth in this Agreement and in the Transaction
Documents with regard to this investment. Accordingly, although the
undersigned may consult an accountant, attorney, or other advisor,
the undersigned is relying in the main on his or its own judgment in
the decision to invest.
IN WITNESS WHEREOF, subject to acceptance of the Company, the undersigned
has completed this Agreement to evidence his or its subscription for Notes.
THE UNDERSIGNED SUBSCRIBES FOR A NOTE OF THE COMPANY IN A NOTE AMOUNT OF
$666,000.
<PAGE>
Robert Fishbein
-------------------------------------------
Print Name of Individual or Entity Investor
/s/ Robert Fishbein
-------------------------------------------
Signature
<PAGE>
525 W. 52nd Street
----------------------------------
Street Address
New York, NY 10019
----------------------------------
City, State, Zip Code
--------------------------------
Social Security Number
Workflow Management, Inc. has accepted this Subscription Agreement
as of the 19th day of January , 1999.
WORKFLOW MANAGEMENT, INC.
By: /s/ Steve Gibson
---------------------------------
Name: Steve Gibson
-------------------------------
Title: Vice President and CFO
------------------------------
<PAGE>
EXHIBIT A
(Form of Note)
<PAGE>
EXHIBIT A
THIS PROMISSORY NOTE, THE ATTACHED WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANTS HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH WARRANTS OR SHARES, NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH WARRANTS OR SHARES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH UNITS
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12% Subordinate Promissory Note
$__________________ January 19, 1999
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of
__________________________________, with an address to be provided to the
Company, or its registered assigns (the "Holder"), the principal amount of
_____________________________ Dollars ($________________) on the Maturity Date
(as defined below), and to pay interest on the unpaid principal balance hereof
at the rate of twelve percent (12%) per annum (calculated on the basis of a
360-day year consisting of twelve 30-day months) semi-annually on the first day
of each July and January commencing July 1, 1999, and on the Maturity Date (each
such date being an "Interest Payment Date") all as hereafter further provided.
Fifty percent (50%) of the interest payable hereunder on any Interest Payment
Date may, at the option of the Company, be paid in additional Notes in the form
hereof for such amount.
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
<PAGE>
1. Offering; Subscription Agreement. This Note was issued by the Company
in an offering of promissory notes (the "Offering") made pursuant to a
Subscription Agreement of even date herewith (the "Subscription Agreement")
between the Company and the original Holder hereof. The series of promissory
notes issued in connection with the Offering is referred to hereafter as the
"Notes."
2. Payments.
(a) To the extent not previously paid as provided herein,
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on January 18, 2009 (the "Maturity Date").
(b) Interest on this Note shall accrue from the date hereof to but
excluding the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date thereafter.
(c) If any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of Palm Beach,
Florida.
(d) The Company may not prepay this Note during the first twelve
(12) months following the date hereof. Thereafter, the Company may, at its
option prepay in whole, but not in part, the principal of this Note and any
Notes issued in lieu of the payment of interest hereon pursuant to the first
paragraph of this Note by paying to the holder hereof such principal plus any
accrued interest with respect thereto, plus the Optional Redemption Premium. The
Optional Redemption Premium shall be a premium equal to the following
percentages of the principal amount: 6.00% during the second year following the
date hereof, 3.00% during the third year following the date hereof, 2.00% during
the fourth year following the date hereof, 1.00% during the fifth year following
the date hereof, and 0.00% thereafter. All payments on this Note shall be
applied first to accrued interest hereon and the balance to the payment of
principal hereof. Except for such permitted prepayments, the Company may not
voluntarily prepay this Note without the consent of the Holder.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
<PAGE>
(f) On each anniversary of this Note (or, if not on a Business Day,
then on the next succeeding Business Day) Warrants for the purchase of Common
Stock of the Company in substantially the form attached as Exhibit A (the
"Warrants") will be issued to the holder of this Note sufficient to provide for
a Total Annual Return (as hereinafter defined) for such preceding year of 15%.
The value of such Warrants shall be the Fair Market Value of the Company's
common stock (the "Common Stock") issuable upon exercise of such Warrants. Upon
payment in full of all amounts due under this Note, or upon a Change of Control
(as hereinafter defined), the Warrant or Warrants previously issued to the
holder of this Note will be returned to the Company and Warrants will be
reissued to the holder of this Note for the purchase of a number of shares of
the Company's stock such that the holder's aggregate Total Annual Return is not
less than 15% per annum and not greater than 18% per annum.
For purposes of this Note, the term "Change of Control" means
if (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (i) is or
shall become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of 20% or more on a fully diluted
basis of the voting and economic interests of the Company or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the Board
of Directors of the Company or (b) the Board of Directors of the Company shall
cease to consist of a majority of "Continuing Directors" (as hereinafter
defined) or (c) the Company shall sell substantially all of its assets.
"Continuing Directors" shall mean the (A) directors serving on the Board of
Directors of the Company as of the date of issuance of this Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election). "Total Annual Return" means at any one time the return on the
investment in this Note by the holder hereof which shall include (i) the
annual interest obligations of the Company relating to this Note and any Notes
issued in lieu of interest thereon, (ii) the Fair Market Value of Common Stock
issuable upon exercise of the Warrants (based on the assumption that the
Warrants are exercised on said date), and (iii) any Optional Redemption
Premium paid to the holder hereof. The term "Fair Market Value" means the
current market price per share of the Common Stock at any date which shall be
deemed to be the average of the daily closing price for the 20 consecutive
days (which are not legal holidays) commencing 30 days (which are not legal
holidays) before the day in question. The closing price for each day shall be
the (i) mean between the closing high bid and low asked quotations of Common
<PAGE>
Stock on the National Association of Securities Dealers, Inc., Automated
Quotation System or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or if not
quoted as described in clause (i) the (ii) mean between the high bid and low
asked quotations for Common Stock as reported by the National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and
asked quotations for Common Stock on at least five (5) of the ten (10)
preceding days, or (iii) if the Common Stock is listed or admitted for trading
on any national securities exchange, the last sales price regular way, or the
closing bid price if no sale occurred, of Common Stock on the principal
securities exchange on which Common Stock is listed. If Common Stock is quoted
on a national securities or central market system, in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the Board of
Directors of the Company acting in good faith shall determine the Fair Market
Value of the Common Stock by determining the current market price on the basis
of such quotations and other information as they consider appropriate, in
their reasonable judgment or, lacking such determination, the current market
price shall be the fair market value per share of Common Stock as determined
by a member firm of the New York Stock Exchange, Inc. selected by the Company.
(g) Except as otherwise provided herein, the obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit and diligence in taking any action to
collect any amount called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
(h) Any amounts due hereunder which are not paid within ten (10)
days after their due date shall accrue a late charge equal to ten (10) percent
of the amount due.
3. Ranking of Note.
(a) The Company covenants and agrees, and the Holder, by accepting
this Note, also covenants and agrees, that the indebtedness represented by this
Note and the payment of principal and interest on, premium, if any, and all
other amounts owing in respect of, this Note (collectively, the "Subordinated
Obligations") shall be expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full in cash of all Senior Debt
(as hereinafter defined). Senior Debt shall mean all Indebtedness (as
<PAGE>
hereinafter defined) of the Company, whether outstanding on the date hereof or
hereafter arising or created, for principal, premium, interest (including any
interest accruing subsequent to an event of bankruptcy or similar proceeding
with respect to the Company at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees, reimbursements, indemnities, expenses, or
any other obligations due from the Company excluding promissory notes or
accounts payable due to shareholders, officers or affiliates of the Company
(other than any such shareholder or affiliate in its capacity as a lender to, or
creditor of, the Company under one or more other credit or similar facilities
with, or guaranteed by, the Company) and unsecured trade debt of the Company,
each of which shall be pari passu with the Note. The term "Indebtedness" shall
mean (A) any liability of the Company (v) for borrowed money, (w) evidenced by a
note, debenture, bond or other instrument of indebtedness (including, without
limitation, a purchase money obligation), including any given in connection with
the acquisition of property, assets or service, (x) for the payment of rent or
other amounts relating to capitalized lease obligations, (y) in respect of
letters of credit, bankers acceptances and similar facilities or (z) in respect
of interest rate protection agreements, currency agreements, commodity
agreements, hedging agreements and similar agreements and arrangements; (B) any
liability of others described in Section 3(a)(A) which the Company has
guaranteed or which is otherwise its legal liability; and (C) any modification,
renewal, extension, replacement, refinancing, restructuring or refunding of any
such liability; provided, that Indebtedness does not include unsecured trade
credit. The subordination provisions contained in this Note are for the benefit
of, and shall be directly enforceable by, the holders of Senior Debt, and each
holder of Senior Debt, whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance
upon the covenants and provisions contained in this Note.
(b) Payment of Subordinated Obligations due on this Note may be made
as scheduled or permitted so long as there shall not have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt. No
payment of any kind or character, whether in cash, property or securities
(including in the form of additional Notes in respect of in-kind interest
payments), on this Note shall be made by the Company, if, at the time of such
payment or after giving effect thereto, there shall have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt, and
such Default or Event of Default shall not have been cured or waived or shall
not have ceased to exist. In the event that, notwithstanding the foregoing, any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
<PAGE>
(c) Upon any distribution of the assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization, arrangement,
receivership or similar proceedings, whether voluntary or involuntary, or upon
any assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company or otherwise: (i) the holders of the
Senior Debt shall first be entitled to receive cash payment in full of all
amounts payable in respect of all Senior Debt (including, but not limited to,
principal, premium, interest (including any interest accruing subsequent to an
event of bankruptcy or similar proceeding with respect to the Company at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under any such proceeding or applicable law), fees,
reimbursements, indemnities, expenses and other amounts) before the Holder is
entitled to receive any payment of any kind or character in respect of the
Subordinated Obligations evidenced by this Note, whether in cash, property or
securities (including in the form of additional Notes which may be issued in
respect of in-kind interest payments); (ii) any payment by, or distribution of
the assets of, the Company of any kind or character, whether in cash, property
or securities, to which the Holder would be entitled, except for the provisions
of this Section 3, shall be paid or delivered by the person making such payment
or distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holder of Senior Debt or its agent or
other representative, to the extent necessary to make payment in full in cash of
all Senior Debt remaining unpaid, after giving effect to any concurrent payment
or distribution to the holder of such Senior Debt; and (iii) in the event that,
notwithstanding the foregoing, any payment by, or distribution of the assets of,
the Company of any kind or character, whether in cash, property or securities
shall be received by the Holder before all Senior Debt is paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over to the holder of, such Senior Debt or its agent or
representative, for application to the payment of all Senior Debt remaining
unpaid until all such Senior Debt shall have been paid in full in cash, after
giving effect to any concurrent payment or distribution to the holder of such
Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt, the
holder of this Note shall be subrogated to the rights of the holder of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on this Note shall
be paid in full, and, as between the Company, its creditors, other than the
holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holder of Senior Debt by virtue of this Section 3 which
otherwise would have been made to the Holder shall be deemed to be a payment by
the Company on account of this Note.
(e) Nothing contained in this Note is intended to or shall impair,
as between the Company, its creditors, other than the holder of Senior Debt, and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this Note
<PAGE>
as and when the same shall become due and payable in accordance with its terms,
or affect the relative rights of the Holder and the creditors of the Company,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Note of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending, or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holder of the Senior Debt and any other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed thereon and all other facts pertinent thereto or to this
Note.
(g) With or without notice to or further assent from the Holder, any
holder of Senior Debt may at any time or from time to time, in its discretion,
either prior to or after any default on the part of the Company, extend or
change any of the terms of the Senior Debt, waive any default, modify, rescind,
or waive any provision of any related agreement or collateral undertaking,
release, exchange, fail to resort to or realize upon any collateral security or
any part thereof available to it for the Senior Debt, and generally deal with
the Company in such manner as such holder of Senior Debt may see fit without
impairing or affecting its rights and remedies under this Note. The Holder, by
accepting this Note, waives any and all notice of the receipt of acceptance of
the terms of subordination contained herein by any holder of Senior Debt and
other creation, renewal, extension or accrual of any of the Senior Debt.
(h) In the event the Company is adjudged a bankrupt or insolvent by
a court having jurisdiction, or in the event such a court approves a petition
seeking reorganization, arrangement, adjustment, or compensation of, or in
respect of, the Company under Federal Bankruptcy Law, as now hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in the event the Company is otherwise subject to a
voluntary or involuntary case under Federal or state bankruptcy or insolvency
law, and a Holder does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then any of the holders of the Senior Debt or
their agent or representative is hereby authorized to file an appropriate claim
for and on behalf of the Holder of this Note. Nothing herein contained shall be
deemed to authorize the holders of Senior Debt or their agent or representative
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting this Note or
the rights of the Holder hereof, or to authorize the holders of Senior Debt or
their agent or representative to vote in respect of the claim of the Holder in
any such proceeding.
<PAGE>
(i) To the extent any payment of Senior Debt (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(j) Section 3 of this Note may not be amended without the prior written
consent of the holders of the Senior Debt or their agent.
4. Information. The Company shall make available to the Holder financial
or other information regarding the Company that the Holder may reasonably
require. The Company shall notify the Holder immediately upon the occurrence of
an Event of Default under Section 5(d), (e) or (f) hereof.
5. Events of Default. The occurrence of any of the following events shall
constitute an event of default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for
thirty (30) business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note and continuance of such default or
breach for a period of sixty (60) days after receipt of notice from the Holder
as to such breach.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
<PAGE>
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(e) The acceleration of Senior Debt in excess of $5,000,000.
(f) Any final judgment(s) for the payment of money in excess of the
sum of $5,000,000 in the aggregate shall be rendered against the Company (to the
extent not paid or covered by insurance) and such judgment or judgments shall
not be satisfied, discharged, vacated, stayed, or bonded pending appeal within
thirty (30) days after the entry of said judgment.
6. Remedies Upon Default.
(a) Subject to Section 6(c) hereof, upon the occurrence of an Event
of Default, the Holders of not less than 25% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company, it being understood and
agreed that such acceleration shall not be effective unless and until at least
ten (10) days prior written notice thereof has been given by the Holder to the
Company's senior credit facility lenders through their agent, which, as of the
date of this Note, is Banker's Trust Company. Notwithstanding the immediately
preceding sentence, subject to the terms of this Note (including the provisions
of Section 3 hereof), in the event of an Event of Default under Section 5(a) or
5(b), the Holder shall be entitled to pursue the Company for the unpaid
principal or interest then due and payable.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
(c) The provisions of Section 6(a) are subject to the condition that
if the principal of and accrued interest on all or any outstanding Notes have
been declared immediately due and payable by reason of the occurrence of any
Event of Default described in Section 5(a) through (f), inclusive, the holders
of 51% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that at the time such declaration is
<PAGE>
annulled and rescinded (i) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes; (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under 6(a)) shall have been duly paid or the payment
thereof as a condition precedent to such rescission or annulment shall have been
waived by the holders of more than 51% in aggregate principal amount of the
Notes then outstanding pursuant to Section 7(a) hereof; and (iii) each and every
other Default and Event of Default shall have been made good, cured or waived
pursuant to Section 7(a) hereof; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
7. Amendments, Waivers and Consents.
(a) Any term, covenant, agreement or condition contained in this
Note may, with the consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 51% in aggregate principal amount of the
Notes then outstanding; provided that, without the written consent of each
Holder affected thereby, no such waiver, modification, alteration or amendment
shall be effective (i) which will extend the maturity date of the Notes or
reduce the principal amount thereof or change the rate of interest thereon or
amend Section 4(d), or (ii) which will change the percentage of holders of the
Notes required to consent to any such amendment, alteration or modification or
any of the provisions of this Section 7.
(b) Except as otherwise provided in the proviso to Section 7(a), any
such amendment or waiver shall apply equally to all of the holders of the Notes
and shall be binding upon them, upon each future holder of any Note and upon the
Company, whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereto.
8. Transfer.
(a) Not more than fifty percent (50%) of the face amount of this
Note may be transferred, whether by assignment, participation or otherwise.
(b) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person, and shall not be liable for any registration or transfer of
Notes which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
<PAGE>
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Note shall be transferable only on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act of 1933 (the "Act") and the
rules and regulations thereunder.
(c) The Holder acknowledges that he has been advised by the Company
that neither this Note nor the Warrants nor the shares of Common Stock issuable
upon exercise of the Warrants issued to the Holder in connection with this Note
(the "Warrant Shares") have been registered under the Act, that the Note is
being or has been issued and the Warrant Shares may be issued on the basis of
the statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of the Note, the Warrants or Warrant Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note or Warrant Shares is registered under the Act, it being understood that
neither the Note nor the Warrant Shares are currently registered for sale and
that the Company has no obligation or intention to so register the Notes or
Warrants or Warrant Shares except as specifically provided herein, or (ii) the
Note or Warrant Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of the Note or the Warrant Shares and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or (iii)
such sale, assignment, or transfer is otherwise exempt from registration under
the Act.
(d) The Holder shall provide written notice to the Company at least
thirty (30) days advance written notice of any proposed sale or transfer of this
Note. Following the giving of such notice, the Company shall have a right of
first refusal for twenty (20) days to acquire this Note under the proposed terms
of transfer. Should the Company fail to exercise its right of first refusal, the
<PAGE>
Holder may transfer the Note under the proposed terms so long as such transfer
is effected within ninety (90) days of the giving of the notice.
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 240 Royal Palm
Way, Palm Beach, Florida 33480, Attention: President, with a copy to Kaufman &
Canoles, 2000 NationsBank Center, P.O. Box 3037, Norfolk, Virginia 23514-3037,
Attn: Gus J. James, II, Esq.; (ii) if to the Holder, at its address provided to
the Company; or (iii) in either case, to such other address the party shall have
furnished in writing in accordance with the provisions of this Section 9(a).
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9(a). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 9(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination. In the case of a lost or stolen Note,
the Company may require the Holder to execute an indemnity agreement or to
provide an indemnity bond.
<PAGE>
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) Subject to Section 7 hereof, this Note may be amended only by a
written instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the Jurisdiction of the
state courts of the State of New York located in New York City, New York, and of
any federal court located in such City in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Note, or a
breach of this Note or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 9(a). Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
(g) It is the intention of the parties that the provisions of this
Agreement shall be enforceable to the fullest extent permissible under the
applicable law. If any clause or provision of this Note is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, then the remainder of this Note shall not be affected thereby, and in
lieu of each clause or provision of this Note which is illegal, invalid or
unenforceable, there shall be added, as a part of this Note, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and as may be legal, valid, and enforceable.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
WORKFLOW MANAGEMENT, INC., a
Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXHIBIT 10.7
THIS PROMISSORY NOTE, THE ATTACHED WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANTS HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH WARRANTS OR SHARES, NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH WARRANTS OR SHARES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH UNITS
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12% Subordinate Promissory Note
$3,546,000 January 19, 1999
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of THOMAS B. and ELZBIETA
D'AGOSTINO 1997 CHARITABLE REMAINDER TRUST, with an address to be provided to
the Company, or its registered assigns (the "Holder"), the principal amount of
Three Million Five Hundred Forty-six Thousand and No/100 Dollars ($3,546,000.00)
on the Maturity Date (as defined below), and to pay interest on the unpaid
principal balance hereof at the rate of twelve percent (12%) per annum
(calculated on the basis of a 360-day year consisting of twelve 30-day months)
semi-annually on the first day of each July and January commencing July 1, 1999,
and on the Maturity Date (each such date being an "Interest Payment Date") all
as hereafter further provided. Fifty percent (50%) of the interest payable
hereunder on any Interest Payment Date may, at the option of the Company, be
paid in additional Notes in the form hereof for such amount.
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
<PAGE>
1. Offering; Subscription Agreement.
This Note was issued by the Company in an offering of promissory notes
(the "Offering") made pursuant to a Subscription Agreement of even date herewith
(the "Subscription Agreement") between the Company and the original Holder
hereof. The series of promissory notes issued in connection with the Offering is
referred to hereafter as the "Notes."
2. Payments.
(a) To the extent not previously paid as provided herein,
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on January 18, 2009 (the "Maturity Date").
(b) Interest on this Note shall accrue from the date hereof to but
excluding the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date thereafter.
(c) If any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of Palm Beach,
Florida.
(d) The Company may not prepay this Note during the first twelve
(12) months following the date hereof. Thereafter, the Company may, at its
option prepay in whole, but not in part, the principal of this Note and any
Notes issued in lieu of the payment of interest hereon pursuant to the first
paragraph of this Note by paying to the holder hereof such principal plus any
accrued interest with respect thereto, plus the Optional Redemption Premium. The
Optional Redemption Premium shall be a premium equal to the following
percentages of the principal amount: 6.00% during the second year following the
date hereof, 3.00% during the third year following the date hereof, 2.00% during
the fourth year following the date hereof, 1.00% during the fifth year following
the date hereof, and 0.00% thereafter. All payments on this Note shall be
applied first to accrued interest hereon and the balance to the payment of
principal hereof. Except for such permitted prepayments, the Company may not
voluntarily prepay this Note without the consent of the Holder.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
(f) On each anniversary of this Note (or, if not on a Business Day,
then on the next succeeding Business Day) Warrants for the purchase of Common
Stock of the Company in substantially the form attached as Exhibit A (the
"Warrants") will be issued to
<PAGE>
the holder of this Note sufficient to provide for a Total Annual Return (as
hereinafter defined) for such preceding year of 15%. The value of such Warrants
shall be the Fair Market Value of the Company's common stock (the "Common
Stock") issuable upon exercise of such Warrants. Upon payment in full of all
amounts due under this Note, or upon a Change of Control (as hereinafter
defined), the Warrant or Warrants previously issued to the holder of this Note
will be returned to the Company and Warrants will be reissued to the holder of
this Note for the purchase of a number of shares of the Company's stock such
that the holder's aggregate Total Annual Return is not less than 15% per annum
and not greater than 18% per annum.
For purposes of this Note, the term "Change of Control" means
if (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (i) is or
shall become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of 20% or more on a fully diluted
basis of the voting and economic interests of the Company or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the Board
of Directors of the Company or (b) the Board of Directors of the Company shall
cease to consist of a majority of "Continuing Directors" (as hereinafter
defined) or (c) the Company shall sell substantially all of its assets.
"Continuing Directors" shall mean the (A) directors serving on the Board of
Directors of the Company as of the date of issuance of this Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election). "Total Annual Return" means at any one time the return on the
investment in this Note by the holder hereof which shall include (i) the
annual interest obligations of the Company relating to this Note and any Notes
issued in lieu of interest thereon, (ii) the Fair Market Value of Common Stock
issuable upon exercise of the Warrants (based on the assumption that the
Warrants are exercised on said date), and (iii) any Optional Redemption
Premium paid to the holder hereof. The term "Fair Market Value" means the
current market price per share of the Common Stock at any date which shall be
deemed to be the average of the daily closing price for the 20 consecutive
days (which are not legal holidays) commencing 30 days (which are not legal
holidays) before the day in question. The closing price for each day shall be
the (i) mean between the closing high bid and low asked quotations of Common
Stock on the National Association of Securities Dealers, Inc., Automated
Quotation System or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or if not
quoted as described in clause (i) the (ii) mean between the high bid and low
asked quotations for
<PAGE>
Common Stock as reported by the National Quotation Bureau Incorporated if at
least two securities dealers have inserted both bid and asked quotations for
Common Stock on at least five (5) of the ten (10) preceding days, or (iii) if
the Common Stock is listed or admitted for trading on any national securities
exchange, the last sales price regular way, or the closing bid price if no
sale occurred, of Common Stock on the principal securities exchange on which
Common Stock is listed. If Common Stock is quoted on a national securities or
central market system, in lieu of a market or quotation system described
above, the closing price shall be determined in the manner set forth in clause
(i) of the preceding sentence if bid and asked quotations are reported but
actual transactions are not, and in the manner set forth in clause (iii) of
the preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the Board of Directors of the Company
acting in good faith shall determine the Fair Market Value of the Common Stock
by determining the current market price on the basis of such quotations and
other information as they consider appropriate, in their reasonable judgment
or, lacking such determination, the current market price shall be the fair
market value per share of Common Stock as determined by a member firm of the
New York Stock Exchange, Inc. selected by the Company.
(g) Except as otherwise provided herein, the obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit and diligence in taking any action to
collect any amount called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
(h) Any amounts due hereunder which are not paid within ten (10)
days after their due date shall accrue a late charge equal to ten (10) percent
of the amount due.
3. Ranking of Note.
(a) The Company covenants and agrees, and the Holder, by accepting
this Note, also covenants and agrees, that the indebtedness represented by this
Note and the payment of principal and interest on, premium, if any, and all
other amounts owing in respect of, this Note (collectively, the "Subordinated
Obligations") shall be expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full in cash of all Senior Debt
(as hereinafter defined). Senior Debt shall mean all Indebtedness (as
hereinafter defined) of the Company, whether outstanding on the date hereof or
hereafter arising or created, for principal, premium, interest (including any
interest accruing subsequent to an event of bankruptcy or similar proceeding
with respect to the Company at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees,
<PAGE>
reimbursements, indemnities, expenses, or any other obligations due from the
Company excluding promissory notes or accounts payable due to shareholders,
officers or affiliates of the Company (other than any such shareholder or
affiliate in its capacity as a lender to, or creditor of, the Company under one
or more other credit or similar facilities with, or guaranteed by, the Company)
and unsecured trade debt of the Company, each of which shall be pari passu with
the Note. The term "Indebtedness" shall mean (A) any liability of the Company
(v) for borrowed money, (w) evidenced by a note, debenture, bond or other
instrument of indebtedness (including, without limitation, a purchase money
obligation), including any given in connection with the acquisition of property,
assets or service, (x) for the payment of rent or other amounts relating to
capitalized lease obligations, (y) in respect of letters of credit, bankers
acceptances and similar facilities or (z) in respect of interest rate protection
agreements, currency agreements, commodity agreements, hedging agreements and
similar agreements and arrangements; (B) any liability of others described in
Section 3(a)(A) which the Company has guaranteed or which is otherwise its legal
liability; and (C) any modification, renewal, extension, replacement,
refinancing, restructuring or refunding of any such liability; provided, that
Indebtedness does not include unsecured trade credit. The subordination
provisions contained in this Note are for the benefit of, and shall be directly
enforceable by, the holders of Senior Debt, and each holder of Senior Debt,
whether now outstanding or hereafter created, incurred, assumed or guaranteed
shall be deemed to have acquired Senior Debt in reliance upon the covenants and
provisions contained in this Note.
(b) Payment of Subordinated Obligations due on this Note may be made
as scheduled or permitted so long as there shall not have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt. No
payment of any kind or character, whether in cash, property or securities
(including in the form of additional Notes in respect of in-kind interest
payments), on this Note shall be made by the Company, if, at the time of such
payment or after giving effect thereto, there shall have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt, and
such Default or Event of Default shall not have been cured or waived or shall
not have ceased to exist. In the event that, notwithstanding the foregoing, any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
(c) Upon any distribution of the assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization, arrangement,
receivership or similar proceedings, whether voluntary or involuntary, or upon
any assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company or otherwise:
<PAGE>
(i) the holders of the Senior Debt shall first be entitled to receive cash
payment in full of all amounts payable in respect of all Senior Debt (including,
but not limited to, principal, premium, interest (including any interest
accruing subsequent to an event of bankruptcy or similar proceeding with respect
to the Company at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees, reimbursements, indemnities, expenses and
other amounts) before the Holder is entitled to receive any payment of any kind
or character in respect of the Subordinated Obligations evidenced by this Note,
whether in cash, property or securities (including in the form of additional
Notes which may be issued in respect of in-kind interest payments); (ii) any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities, to which the Holder would be
entitled, except for the provisions of this Section 3, shall be paid or
delivered by the person making such payment or distribution, whether a trustee
in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holder of Senior Debt or its agent or other representative, to the extent
necessary to make payment in full in cash of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holder of
such Senior Debt; and (iii) in the event that, notwithstanding the foregoing,
any payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt, the
holder of this Note shall be subrogated to the rights of the holder of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on this Note shall
be paid in full, and, as between the Company, its creditors, other than the
holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holder of Senior Debt by virtue of this Section 3 which
otherwise would have been made to the Holder shall be deemed to be a payment by
the Company on account of this Note.
(e) Nothing contained in this Note is intended to or shall impair,
as between the Company, its creditors, other than the holder of Senior Debt, and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this Note
as and when the same shall become due and payable in accordance with its terms,
or affect the relative rights of the Holder and the creditors of the Company,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Note of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
<PAGE>
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending, or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holder of the Senior Debt and any other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed thereon and all other facts pertinent thereto or to this
Note.
(g) With or without notice to or further assent from the Holder, any
holder of Senior Debt may at any time or from time to time, in its discretion,
either prior to or after any default on the part of the Company, extend or
change any of the terms of the Senior Debt, waive any default, modify, rescind,
or waive any provision of any related agreement or collateral undertaking,
release, exchange, fail to resort to or realize upon any collateral security or
any part thereof available to it for the Senior Debt, and generally deal with
the Company in such manner as such holder of Senior Debt may see fit without
impairing or affecting its rights and remedies under this Note. The Holder, by
accepting this Note, waives any and all notice of the receipt of acceptance of
the terms of subordination contained herein by any holder of Senior Debt and
other creation, renewal, extension or accrual of any of the Senior Debt.
(h) In the event the Company is adjudged a bankrupt or insolvent by
a court having jurisdiction, or in the event such a court approves a petition
seeking reorganization, arrangement, adjustment, or compensation of, or in
respect of, the Company under Federal Bankruptcy Law, as now hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in the event the Company is otherwise subject to a
voluntary or involuntary case under Federal or state bankruptcy or insolvency
law, and a Holder does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then any of the holders of the Senior Debt or
their agent or representative is hereby authorized to file an appropriate claim
for and on behalf of the Holder of this Note. Nothing herein contained shall be
deemed to authorize the holders of Senior Debt or their agent or representative
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting this Note or
the rights of the Holder hereof, or to authorize the holders of Senior Debt or
their agent or representative to vote in respect of the claim of the Holder in
any such proceeding.
(i) To the extent any payment of Senior Debt (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
<PAGE>
(j) Section 3 of this Note may not be amended without the prior
written consent of the holders of the Senior Debt or their agent.
4. Information.
The Company shall make available to the Holder financial or other
information regarding the Company that the Holder may reasonably require. The
Company shall notify the Holder immediately upon the occurrence of an Event of
Default under Section 5(d), (e) or (f) hereof.
5. Events of Default.
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for
thirty (30) business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note and continuance of such default or
breach for a period of sixty (60) days after receipt of notice from the Holder
as to such breach.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(e) The acceleration of Senior Debt in excess of $5,000,000.
(f) Any final judgment(s) for the payment of money in excess of the
sum of $5,000,000 in the aggregate shall be rendered against the Company (to the
extent not paid or covered by insurance) and such judgment or judgments shall
not be satisfied, discharged, vacated, stayed, or bonded pending appeal within
thirty (30) days after the entry of said judgment.
<PAGE>
6. Remedies Upon Default.
(a) Subject to Section 6(c) hereof, upon the occurrence of an Event
of Default, the Holders of not less than 25% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company, it being understood and
agreed that such acceleration shall not be effective unless and until at least
ten (10) days prior written notice thereof has been given by the Holder to the
Company's senior credit facility lenders through their agent, which, as of the
date of this Note, is Banker's Trust Company. Notwithstanding the immediately
preceding sentence, subject to the terms of this Note (including the provisions
of Section 3 hereof), in the event of an Event of Default under Section 5(a) or
5(b), the Holder shall be entitled to pursue the Company for the unpaid
principal or interest then due and payable.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
(c) The provisions of Section 6(a) are subject to the condition that
if the principal of and accrued interest on all or any outstanding Notes have
been declared immediately due and payable by reason of the occurrence of any
Event of Default described in Section 5(a) through (f), inclusive, the holders
of 51% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that at the time such declaration is
annulled and rescinded (i) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes; (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under 6(a)) shall have been duly paid or the payment
thereof as a condition precedent to such rescission or annulment shall have been
waived by the holders of more than 51% in aggregate principal amount of the
Notes then outstanding pursuant to Section 7(a) hereof; and (iii) each and every
other Default and Event of Default shall have been made good, cured or waived
pursuant to Section 7(a) hereof; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
<PAGE>
7. Amendments, Waivers and Consents.
(a) Any term, covenant, agreement or condition contained in this
Note may, with the consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 51% in aggregate principal amount of the
Notes then outstanding; provided that, without the written consent of each
Holder affected thereby, no such waiver, modification, alteration or amendment
shall be effective (i) which will extend the maturity date of the Notes or
reduce the principal amount thereof or change the rate of interest thereon or
amend Section 4(d), or (ii) which will change the percentage of holders of the
Notes required to consent to any such amendment, alteration or modification or
any of the provisions of this Section 7.
(b) Except as otherwise provided in the proviso to Section 7(a), any
such amendment or waiver shall apply equally to all of the holders of the Notes
and shall be binding upon them, upon each future holder of any Note and upon the
Company, whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereto.
8. Transfer.
(a) Not more than fifty percent (50%) of the face amount of this
Note may be transferred, whether by assignment, participation or otherwise.
(b) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person, and shall not be liable for any registration or transfer of
Notes which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Note shall be transferable only on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act of 1933 (the "Act") and the
rules and regulations thereunder.
<PAGE>
(c) The Holder acknowledges that he has been advised by the Company
that neither this Note nor the Warrants nor the shares of Common Stock issuable
upon exercise of the Warrants issued to the Holder in connection with this Note
(the "Warrant Shares") have been registered under the Act, that the Note is
being or has been issued and the Warrant Shares may be issued on the basis of
the statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of the Note, the Warrants or Warrant Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note or Warrant Shares is registered under the Act, it being understood that
neither the Note nor the Warrant Shares are currently registered for sale and
that the Company has no obligation or intention to so register the Notes or
Warrants or Warrant Shares except as specifically provided herein, or (ii) the
Note or Warrant Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of the Note or the Warrant Shares and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or (iii)
such sale, assignment, or transfer is otherwise exempt from registration under
the Act.
(d) The Holder shall provide written notice to the Company at least
thirty (30) days advance written notice of any proposed sale or transfer of this
Note. Following the giving of such notice, the Company shall have a right of
first refusal for twenty (20) days to acquire this Note under the proposed terms
of transfer. Should the Company fail to exercise its right of first refusal, the
Holder may transfer the Note under the proposed terms so long as such transfer
is effected within ninety (90) days of the giving of the notice.
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier
<PAGE>
service or delivered (in person or by telecopy, telex or similar
telecommunications equipment) against receipt to the party to whom it is to be
given, (i) if to the Company, at its address at 240 Royal Palm Way, Palm Beach,
Florida 33480, Attention: President, with a copy to Kaufman & Canoles, 2000
NationsBank Center, P.O. Box 3037, Norfolk, Virginia 23514-3037, Attn: Gus J.
James, II, Esq.; (ii) if to the Holder, at its address provided to the Company;
or (iii) in either case, to such other address the party shall have furnished in
writing in accordance with the provisions of this Section 9(a). Notice to the
estate of any party shall be sufficient if addressed to the party as provided in
this Section 9(a). Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 9(a) shall be
deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination. In the case of a lost or stolen Note,
the Company may require the Holder to execute an indemnity agreement or to
provide an indemnity bond.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) Subject to Section 7 hereof, this Note may be amended only by a
written instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the Jurisdiction of the
state courts of the State of New York located in New York City, New York, and of
any federal court located in such City in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Note, or a
breach of this Note or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 9(a). Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
<PAGE>
(g) It is the intention of the parties that the provisions of this
Agreement shall be enforceable to the fullest extent permissible under the
applicable law. If any clause or provision of this Note is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, then the remainder of this Note shall not be affected thereby, and in
lieu of each clause or provision of this Note which is illegal, invalid or
unenforceable, there shall be added, as a part of this Note, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and as may be legal, valid, and enforceable.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
WORKFLOW MANAGEMENT, INC., a
Delaware corporation
By: /s/ Steve Gibson
--------------------------
Name: Steve Gibson
------------------------
Title: Vice President and CFO
----------------------
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION
OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: _________________, ______
WARRANT
To Purchase Shares
of Common Stock
WORKFLOW MANAGEMENT, INC.
THIS IS TO CERTIFY THAT, for value received, ________________________, or
registered assigns (the "Holder") is entitled to purchase from WORKFLOW
MANAGEMENT, INC., a Delaware corporation (the "Company"), at the Exercise Price,
________ shares of Common Stock of the Company (the "Shares"), all subject to
adjustment and upon the terms and conditions as hereinafter provided, and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter described. This warrant (the "Warrant") is attached to a promissory
note of the Company dated January 8, 1999 (the "Note") payable to the Holder of
this Warrant.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANTS; PUT RIGHT
1.1 Date of Exercise.
This Warrant may be exercised by the Holder, and the Shares acquired for
the Exercise Price, at any time after (but not before) (i) the payment by the
Company of all principal and accrued interest due and payable under the terms of
the Note ("Note Payment") or (ii) a Change of Control of the Company; provided,
however, that once a Note Payment has been made, this Warrant will expire (to
the extent not earlier exercised by the Holder) as of the day that is ten (10)
years and one (1) day after the date of the Note. Notwithstanding the foregoing
(or anything hereafter to the contrary), this Warrant is subject to forfeiture
in whole or in part under the specific terms and conditions set forth in the
Note.
<PAGE>
1.2 Method of Exercise.
To exercise this Warrant in whole or in part, the Holder shall deliver to
the Company, at the Warrant Agency, (a) this Warrant, (b) a written notice, in
substantially the form of the Subscription Notice attached hereto, of such
Holder's election to exercise this Warrant, which notice shall specify the
number of Shares to be purchased, and (c) payment of the Exercise Price with
respect to such Shares.
Notwithstanding the foregoing, this Warrant shall be exercisable only, to
the extent and at the time or times, that the Holder could legally take
possession and title of such Shares. Payment made pursuant to clause (c) must be
made by cash.
The Holder or any other person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of the Shares, as of
the date the aforementioned notice and other required documents and payments are
received by the Company.
1.3 Shares To Be Fully Paid and Nonassessable.
All Shares issued upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable and free from all preemptive rights of any
stockholder of the Company, and from all taxes, liens and charges with respect
to the issue thereof (other than transfer taxes) and, if the Shares are then
listed on any national securities exchanges or quoted on NASDAQ, be duly listed
or quoted thereon, as the case may be.
1.4 Reservation; Authorization.
The Company has reserved and will keep available for issuance upon
exercise of the Warrant the total number of Shares deliverable upon exercise of
the Warrant. The issuance of such Shares has been duly and validly authorized.
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE
AND REPLACEMENT OF WARRANTS
2.1 Warrant Agency.
If the Holder shall request appointment of an independent warrant agency
with respect to the Warrants, the Company shall promptly appoint and thereafter
maintain, at its own expense, an agency, which agency may be the Company's then
existing transfer agent (the "Warrant Agency"), for certain purposes specified
herein, and shall give prompt notice of such appointment (and appointment of any
successor Warrant Agency) to the Holder. Until an independent Warrant Agency is
so appointed, the Company shall perform the obligations of the Warrant Agency
provided herein at its address at 240 Royal Palm Way, Palm Beach, Florida 33480,
or such other address as the Company shall specify by notice to the Holder.
<PAGE>
2.2 Ownership of Warrant.
The Company may deem and treat the Person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by any person or entity other than the Warrant
Agency) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Article II.
2.3 Transfer of Warrant.
Subject to applicable state and federal securities laws, this Warrant is
transferable in whole but not in part, but may only be transferred with, and in
compliance with the terms of, the Note to which this Warrant attaches. The
Company agrees to maintain at the Warrant Agency books for the registration of
transfers of the Warrant, and transfer of this Warrant and all rights hereunder
shall be registered, on such books, upon surrender of this Warrant at the
Warrant Agency, together with a written assignment of this Warrant duly executed
by the Holder or his duly authorized agent or attorney, with (unless the Holder
is the original Holder of the Warrant) signatures guaranteed by a bank or trust
company or a broker or dealer registered with the NASD and funds sufficient to
pay any transfer taxes payable upon such transfer. Upon surrender, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignees
and in the denominations specified in the instrument of assignment, and this
Warrant shall promptly be cancelled. Notwithstanding the foregoing, a Warrant
may be exercised by a new Holder in accordance with the procedure set forth
herein without having a new Warrant issued. The Warrant Agency shall not be
required to register any transfers if the Holder fails to furnish to the
Company, after a request therefor, an opinion of counsel reasonably satisfactory
to the Company that such transfer is exempt from the registration requirements
of the Securities Act and applicable state securities laws.
2.4 Division or Combination of Warrants.
This Warrant may not be divided or combined with other Warrants.
2.5 Loss, Theft, Destruction or Mutilation of Warrants.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction upon receipt of indemnity or security reasonably
satisfactory to the Company (the original Warrant Holder's indemnity being
satisfactory indemnity in the event of loss, theft or destruction of any Warrant
owned by such Holder), or, in the case of any such mutilation, upon surrender
and cancellation of such Warrant, the Company will make and deliver, in lieu of
such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor
and representing the right to purchase the same aggregate number of Shares as
provided for in such lost, stolen, destroyed or mutilated Warrant.
2.6 Expenses of Delivery of Warrants.
The Company shall pay all expenses, taxes (other than transfer taxes or
income taxes of the Holder) and other charges payable in connection with the
preparation, issuance and delivery of this Warrant and Shares issuable upon
exercise of this Warrant.
<PAGE>
ARTICLE III
PIGGYBACK REGISTRATION RIGHTS
3.1 Incidental Registration.
(a) Right to Include Registrable Securities. If at any time or times
after the date hereof, the Company intends to file a registration statement on
Form S-1, S-2 or S-3 (or other appropriate form) for the registration with the
Commission of an underwritten offering by the Company on its behalf of the
Company's Common Stock, the Company shall notify each of the holders of record
of Registrable Securities at least 30 days prior to each such filing of the
Company's intention to file such a registration statement. Such notice shall
state the number of shares proposed to be registered thereby. If any holder of
Registrable Securities notifies the Company within ten days after receipt of
such notice from the Company of its desire to have included in such registration
statement any of its Registrable Securities, then the Company shall cause such
shares to be included in such registration statement. Notwithstanding the
foregoing, the Company shall not be obligated to effect any registration of
Registrable Securities under this Section 3.1 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans. All
reasonable expenses of registration and offering of the Company and the Holder
of this Warrant participating in the offering including, without limitation,
printing expenses, fees and disbursements of counsel and independent public
accountants, fees and expenses incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD and fees of transfer agents and
registrars, shall be borne by the Company, except that the Holder of this
Warrant shall bear underwriting commissions and discounts attributable to his or
its Registrable Securities being registered, selling commissions and the fees
and expenses of holder's own legal counsel. Notwithstanding the foregoing, if a
registration as it relates to holders of Registrable Securities pursuant to this
Article III is withdrawn at the request of the holder of Registrable Securities
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
holder after the date on which such registration was requested) and if the
requesting holder elects not to have such registration effectuated on his or its
behalf pursuant to this Article III, the requesting holder of Registrable
Securities shall pay the expenses of such registration pro rata in accordance
with the number of his or its Registrable Securities to have been included in
such registration.
(b) Withdrawal. The Company may in its discretion withdraw any
registration statement filed pursuant to this Section 3.1 subsequent to its
filing without liability to the holders of Registrable Securities.
<PAGE>
(c) Allocations. In the event that the managing underwriter for any
such offering described in this Section 3.1 notifies the Company that, in good
faith, it is able to proceed with the proposed offering only with respect to a
smaller number (the "Maximum Number") of securities and Registrable Securities
than the total number of Registrable Securities proposed to be offered and
securities proposed to be offered by the Company, and all others entitled to
registration rights under such registration statement, then the Maximum Number
shall be allocated pro rata in the registration statement for such offering in
accordance with the number of shares proposed to be offered by each such party.
3.2 Registration Procedures.
If and whenever the Company is required to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 3.1, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities and
other securities covered by such registration statement until the earlier
of such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement or the expiration
of nine months after such registration statement becomes effective, and
will furnish to each such seller at least five Business Days prior to the
filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any such amendment or
supplement to which any such seller shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment thereof and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, such documents, if any, incorporated by reference in such
registration statement or prospectus, and such other documents as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and do any
and all other acts and things which may be necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of
its Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this clause (iv) be
obligated to be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
<PAGE>
(v) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, of an opinion of counsel for the
Company, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), to the effect that the
Registrable Securities are legally and validly issued, fully paid and
non-assessable;
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first month of the first fiscal
quarter after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
<PAGE>
(viii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(ix) use its best efforts to list all shares covered by such
registration statement on each securities exchange on which any of the
shares of the related type are then listed or, if the Company's shares are
not then listed on any national securities exchange, use its best efforts
to have such shares covered by such registration statement quoted on
NASDAQ or, at the option of the Company, listed on a national securities
exchange.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
3.3 Underwritten Offerings.
(a) Underwritten Offerings. If any Registrable Securities to be
included in a registration statement as contemplated by Section 3.1 are to be
distributed by or through one or more underwriters, the holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of such holders of Registrable Securities, and the Company will
cooperate with such holders of Registrable Securities to the end that the
representations and warranties in the underwriting agreement and the conditions
precedent to the obligations of such holders of Registrable Securities under
such underwriting agreement shall not include representations, warranties or
conditions that are not customary in underwriting agreements with respect to
combined primary and secondary distributions and shall be otherwise satisfactory
to such holders, provided, however, that the Company shall not be required to
include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon by the Company, the
holders of Registrable Securities and the underwriter selected by the Company.
Such holders of Registrable Securities shall not be required by the Company to
make any representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method or methods of distribution and any other representation required
by law.
<PAGE>
(b) Holdback Agreements. If any registration pursuant to Section 3.1
shall be in connection with an underwritten public offering, each holder of
Registrable Securities agrees by acquisition of such Registrable Securities, if
so required by the managing underwriter, not to effect any public sales or
distribution of Registrable Securities (other than as part of such underwritten
public offering) within the period from seven days prior to the effective date
of such registration statement to 180 days after the effective date of such
registration statement.
3.4 Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified the Company's financial
statements as shall be reasonably necessary, in the opinion of such holders and
such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
3.5 Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act pursuant to Section
3.1, the Company will, and hereby does, indemnify and hold harmless the seller
of any Registrable Securities covered by such registration statement, its
directors and officers, if any, each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages, liabilities or expenses,
joint or several, to which such seller or any such director or officer or
participating or controlling Person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of or are based upon
(x) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment thereof or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer,
participating Person and controlling Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense (or action or proceeding in respect thereof) arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller or any such
director, officer, participating Person or controlling Person specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director, officer, participating Person or
controlling Person and shall survive the transfer of such securities by such
seller. The Company shall agree to a provision for contribution relating to such
indemnity as shall be reasonably requested by any seller of Registrable
Securities or the underwriters.
<PAGE>
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 3.1, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 3.5 the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement in or omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus included therein, or any amendment thereof or supplement
thereto, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer, participating Person or
controlling Person and shall survive the transfer of such securities by such
seller. Each prospective seller of Registrable Securities shall agree to a
provision for contribution relating to such indemnity as shall be reasonably
requested by the Company or the underwriters.
(c) Notice of Claims, etc. Promptly after receipt by an indemnified
party of notice the any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 3.5, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3.5 unless the failure to give such notice
materially prejudices the indemnifying party. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
<PAGE>
3.6 Rule 144.
The Company will file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
Commission thereunder, and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Warrant Shares Purchasable.
The number of Shares purchasable upon the exercise of this Warrant are
subject to adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 4.1.
(a) In case the Company shall (i) declare or pay a dividend on its
outstanding Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of the Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other business
combination in which the Company is the surviving corporation), the number and
kind of Shares purchasable upon exercise of this Warrant shall be adjusted so
that the Holder upon exercise of this Warrant shall be entitled to receive the
aggregate number and kind of Shares or other securities of the Company that the
Holder would have owned or have been entitled to receive after the happening of
any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or, if earlier, any record date with
respect thereto. An adjustment pursuant to this paragraph (a) shall become
effective on the date of the dividend payment, subdivision, combination or
issuance retroactively to the record date with respect thereto, if any, for such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
<PAGE>
(b) (i) In case the Company shall, after the date hereof, issue and
sell any shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (all of the foregoing being referred to in this Section 4.1(b)
individually as an "Additional Share" and collectively as "Additional Shares")
(excluding (i) shares issued in any of the transactions described in Section
4.1(a) and (ii) any Shares issuable pursuant to this Warrant), at a price per
share (determined in the case of rights, options, warrants or convertible or
exchangeable securities, by dividing (A) the total amount received or receivable
by the Company in consideration of the sale and issuance of such rights,
options, warrants or convertible or exchangeable securities plus the total
consideration payable to the Company upon exercise or conversion or exchange
thereof, by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) lower than
the then Fair Market Value per share of Common Stock in effect immediately prior
to such sale and issuance, then in each case the number of Shares thereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the number of Shares theretofore purchasable upon the exercise of this Warrant
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately after such sale and issuance and the
denominator of which shall be an amount equal to the sum of (A) the total number
of shares of Common Stock outstanding immediately prior to such sale and
issuance plus (B) the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at the then Fair Market Value per share of Common Stock in effect
immediately prior to such sale and issuance. Such adjustment shall be made
successively whenever such an issuance is made. For the purposes of such
adjustments, the shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of such sale and issuance, and the consideration received by the Company
therefor shall be deemed to be the consideration received by the Company (plus
any underwriting discounts or commissions in connection therewith) for such
rights, options, warrants or convertible or exchangeable securities plus the
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares of Common Stock
purchasable thereby. In case the Company shall (i) sell and issue Additional
Shares for a consideration consisting, in whole or in part, of property other
than cash or its equivalent or (ii) sell and issue Additional Shares together
with one or more other securities as a part of a unit at a price per unit, then
in determining the "price per share" and the "consideration received by the
Company for purposes of the first sentence and the immediately preceding
sentence of this Section 4.1(b)(i), the Board of Directors of the Company shall
determine, in its discretion, the fair value of said property or the Additional
Shares then being sold as part of such unit, as the case may be, and such
determinations, if made in good faith, shall be binding on the Holder. The
determination of whether any adjustment is required under this Section 4.1(b)(i)
by reason of the sale and issuance of any rights, options, warrants or
convertible or exchangeable securities and the amount of such adjustment, if
any, shall be made only at
<PAGE>
such time and not at the subsequent time of issuance of Additional Shares upon
the exercise of such rights to subscribe or purchase.
(ii) If the Company shall after the date of issuance of this
Warrant issue or distribute to all or substantially all holders of shares of
Common Stock, evidences of indebtedness, any other securities of the Company or
any property, assets or cash, and if such issuance or distribution is not a
transaction covered by Section 4.1(a) or 4.1(b)(i) above (any such nonexcluded
event a "Dividend"), the number of shares of Common Stock subject to purchase
upon exercise of this Warrant shall be increased (but not decreased), effective
immediately after the record date at which the holders of shares of Common Stock
are determined for purposes of such Dividend, to a number determined by
multiplying the number of Shares subject to purchase immediately before such
Dividend by a fraction, the numerator of which shall be the Fair Market Value
per share of Common Stock on such record date and the denominator of which shall
be the Fair Market Value per share of Common Stock determined as of a date which
is ten (10) Business Days after the date on which the distribution has been
effected. If after the date of issuance of this Warrant the Company repurchases
shares of Common Stock for consideration which exceeds the Fair Market Value per
share of Common Stock (as calculated immediately prior to such repurchase), then
the number of Shares purchasable upon exercise of this Warrant shall be adjusted
in accordance with the foregoing provisions, as if, in lieu of such repurchases,
the Company had (I) distributed a Dividend having a Fair Market Value equal to
the Fair Market Value of all property and cash expended in the repurchases, and
(II) effected a reverse split of the shares of Common Stock in the proportion
required to reduce the number of shares of Common Stock outstanding from (A) the
number of such shares outstanding immediately before such first repurchase to
(B) the number of such shares outstanding immediately following all the
repurchases. In lieu of the adjustments provided for in this Section 4.1(b)(ii)
as a result of a Dividend, at the option of the Company, the Company may instead
pay to the Holder a cash Dividend equal to the amount of consideration to which
the Holder would have been entitled if the Holder had fully exercised this
Warrant immediately prior to the record date at which the holders of shares of
Common Stock were determined for purposes of such Dividend.
(c) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges which resulted in adjustments pursuant to
paragraph (a) or (b) of this Section 4.1, if any thereof shall not have been
exercised, the number of Shares shall be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only shares of
Common Stock purchasable upon exercise of such rights, options, warrants or
conversion or exchange privileges for the shares of Common Stock, if any, were
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (B) such shares of Common Stock so issued
or sold, if any, were issuable for the consideration actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided that no
such readjustment shall have the effect of decreasing the number of Shares
purchasable upon the exercise of this Warrant by an amount in excess of the
amount of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options, warrants or conversion or exchange privileges.
<PAGE>
4.2 Notice of Adjustment.
Upon any adjustment of the number of Shares purchasable upon the exercise
of this Warrant as herein provided, the Company shall at the expense of the
Company, within ten days after such adjustment, mail by first class mail,
postage prepaid, to the Holder of this Warrant a notice of such adjustment(s),
accompanied by a report setting forth in reasonable detail (i) the number of
Shares purchasable upon the exercise of the Warrant, (ii) a brief statement of
the facts requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made.
4.3 No Adjustment for Dividends.
Except as otherwise provided in Section 4.1 hereof, no adjustment in
respect of any dividends or other payments or distributions made to holders of
securities upon exercise of this Warrant shall be made during the term of this
Warrant or upon the exercise of this Warrant.
4.4 No Rights as Stockholders.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder the right to vote or to receive dividends (except as provided in
Section 4.1) or to consent or to receive notice as stockholders in respect of
any meeting of stockholders of the Company for the election of the directors of
the Company or any other matter, or any rights whatsoever as stockholders of the
Company.
ARTICLE V
DEFINITIONS
The following terms, as used in this Warrant, have the following
respective meanings:
"Additional Shares" shall have the meaning set forth in Section 4.1(b)(i).
"Business Day" shall mean a day on which any New York Stock Exchange
member firm is open for business.
"Change of Control" shall mean if (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act) (i) is or shall
become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) directly or indirectly of 20% or more on a fully diluted basis of
the voting and economic interests of the Company or (ii) shall have obtained the
power (whether or not exercised) to elect a majority of the Company's directors,
or (b) the board of directors of the Company shall cease to consist of a
majority of Continuing Directors, or (c) the Company shall sell substantially
all of its assets.
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any
successor federal agency thereto.
"Common Stock" shall mean the common stock, $.01 par value, of the
Company.
"Company" shall have the meaning set forth in the first paragraph of
this Warrant.
"Continuing Directors" shall mean the (A) directors serving on the Board
of Directors of the Company as of the date of issuance of the Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors then
still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election.)
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Commission issued thereunder, all as the same shall be in effect at the
time.
"Exercise Price" shall mean $.01 in the aggregate.
"Fair Market Value" shall have the meaning given to such term in the Note.
"Holder" shall have the meaning set forth in the first paragraph of this
Warrant.
"Maximum Number" shall have the meaning set forth in Section 3.1(c).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The National Association of Securities Dealers, Inc.
Automated Quotation System.
"Note" shall have the meaning set forth in the first paragraph of this
Warrant.
"Note Payment" shall have the meaning set forth in Section 2.1.
"Person" shall mean an individual, an association, a partnership, a
corporation, a limited liability company, a trust or an unincorporated
organization or any other entity or organization.
<PAGE>
"Registrable Securities" shall mean a collective reference to the Shares
of Common Stock issuable upon exercise of this Warrant; provided, however, that
any particular Registrable Securities shall cease to be such when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then enforced or (iv) they shall have ceased to be
outstanding.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Commission issued thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning set forth in the first paragraph of this
Warrant.
"Warrant Agency" shall have the meaning set forth in Section 2.1.
"Warrant" shall have the meaning set forth in the first paragraph of
this Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 Notices.
All notices, requests, consents and other communications provided for
herein shall be in writing and shall be effective upon delivery in person,
faxed, or mailed by certified or registered mail, return receipt requested,
postage pre-paid, addressed as follows:
(i) if to the Company, to Workflow Management, Inc., 240 Royal
Palm Way, Palm Beach, Florida 33480;
(ii) if to any Holder, to it at such address as may have been
furnished to the Company in writing by such Holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a Holder) or to the Holder of this
Warrant (in the case of the Company) in accordance with the provisions of this
Section.
6.2 Waivers; Amendments.
No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
hereof or the exercise of any other right or power. The rights and remedies of
the Holder are cumulative and are not exclusive of any rights or remedies which
it would otherwise have. The provisions of this Warrant may be amended, modified
or waived with (and only with) the written consent of the Company and the
Holder.
<PAGE>
Any such amendment, modification or waiver effected pursuant to this
Section shall be binding upon the Holder, upon each future Holder thereof and
upon the Company.
No notice or demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other circumstances.
6.3 Governing Law.
This Warrant shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to principles of conflicts of law.
6.4 Survival of Agreements; Representations and Warranties etc.
All representations, warranties and covenants made by the Company herein
or in any certificate or other instrument delivered by or on behalf of it in
connection with the Warrant shall be considered to have been relied upon by the
Holder and shall survive the issuance and delivery of the Warrant, regardless of
any investigation made by the Holder, and shall continue in full force and
effect so long as Warrant is outstanding. All statements in any such certificate
or other instrument shall constitute representations and warranties hereunder.
6.5 Covenants to Bind Successor and Assigns.
All covenants, stipulations, promises and agreements in this Warrant
contained by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
6.6 Severability.
In case any one or more of the provisions contained in this Warrant shall
be invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
6.7 Section Heading.
The sections headings used herein are for convenience of reference only,
are not part of this Warrant and are not to affect the construction of or be
taken into consideration in interpreting this Warrant.
6.8 No Impairment.
The Company shall not by any action, including without limitation amending
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of the Holder against
impairment.
<PAGE>
6.9 Submission to Jurisdiction; Venue.
This Warrant shall be governed by Section 10(f) of the Note with respect
to jurisdiction and venue.
IN WITNESS WHEREOF, WORKFLOW MANAGEMENT, INC. has caused this Warrant to
be executed in its corporate name by one of its officers hereunto duly
authorized, and attested by its Secretary or an Assistant Secretary, all as of
the day and year first above written.
WORKFLOW MANAGEMENT, INC.
By: _____________________
Name: ___________________
Title: __________________
Attest:
_______________________
Name: _________________
Title: ________________
<PAGE>
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
TO WORKFLOW MANAGEMENT, INC.
The undersigned hereby irrevocably elects to exercise the right to
purchase represented by the attached Warrant for, and to purchase thereunder,
Shares, as provided for therein, and tenders herewith payment of the Exercise
Price in full in accordance with the terms of the attached Warrant.
Please issue the Shares in the following name or names and denominations:
Dated: ____________, 19__
--------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
--------------------------------------
Print Name Above
<PAGE>
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _________________________________ hereby sells,
assigns and transfers unto _______________________ the attached Warrant,
together with all rights, title and interest therein, and does hereby
irrevocably constitute and appoint _________________ attorney to transfer said
Warrant on the books of WORKFLOW MANAGEMENT, INC. with full power of
substitution in the premises.
--------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the attached Warrant.
--------------------------------------
Print Name Above
EXHIBIT 10.8
THIS PROMISSORY NOTE, THE ATTACHED WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANTS HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH WARRANTS OR SHARES, NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH WARRANTS OR SHARES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH UNITS
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12% Subordinate Promissory Note
$666,000 January 19, 1999
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of RICHARD M. SCHLANGER,
with an address to be provided to the Company, or its registered assigns (the
"Holder"), the principal amount of Six Hundred Sixty-six Thousand and No/100
Dollars ($666,000.00) on the Maturity Date (as defined below), and to pay
interest on the unpaid principal balance hereof at the rate of twelve percent
(12%) per annum (calculated on the basis of a 360-day year consisting of twelve
30-day months) semi-annually on the first day of each July and January
commencing July 1, 1999, and on the Maturity Date (each such date being an
"Interest Payment Date") all as hereafter further provided. Fifty percent (50%)
of the interest payable hereunder on any Interest Payment Date may, at the
option of the Company, be paid in additional Notes in the form hereof for such
amount.
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
<PAGE>
1. Offering; Subscription Agreement.
This Note was issued by the Company in an offering of promissory notes
(the "Offering") made pursuant to a Subscription Agreement of even date herewith
(the "Subscription Agreement") between the Company and the original Holder
hereof. The series of promissory notes issued in connection with the Offering is
referred to hereafter as the "Notes."
2. Payments.
(a) To the extent not previously paid as provided herein,
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on January 14, 2009 (the "Maturity Date").
(b) Interest on this Note shall accrue from the date hereof to but
excluding the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date thereafter.
(c) If any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of Palm Beach,
Florida.
<PAGE>
(d) The Company may not prepay this Note during the first twelve
(12) months following the date hereof. Thereafter, the Company may, at its
option prepay in whole, but not in part, the principal of this Note and any
Notes issued in lieu of the payment of interest hereon pursuant to the first
paragraph of this Note by paying to the holder hereof such principal plus any
accrued interest with respect thereto, plus the Optional Redemption Premium. The
Optional Redemption Premium shall be a premium equal to the following
percentages of the principal amount: 6.00% during the second year following the
date hereof, 3.00% during the third year following the date hereof, 2.00% during
the fourth year following the date hereof, 1.00% during the fifth year following
the date hereof, and 0.00% thereafter. All payments on this Note shall be
applied first to accrued interest hereon and the balance to the payment of
principal hereof. Except for such permitted prepayments, the Company may not
voluntarily prepay this Note without the consent of the Holder.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
(f) On each anniversary of this Note (or, if not on a Business Day,
then on the next succeeding Business Day) Warrants for the purchase of Common
Stock of the Company in substantially the form attached as Exhibit A (the
"Warrants") will be issued to the holder of this Note sufficient to provide for
a Total Annual Return (as hereinafter defined) for such preceding year of 15%.
The value of such Warrants shall be the Fair Market Value of the Company's
common stock (the "Common Stock") issuable upon exercise of such Warrants. Upon
payment in full of all amounts due under this Note, or upon a Change of Control
(as hereinafter defined), the Warrant or Warrants previously issued to the
holder of this Note will be returned to the Company and Warrants will be
reissued to the holder of this Note for the purchase of a number of shares of
the Company's stock such that the holder's aggregate Total Annual Return is not
less than 15% per annum and not greater than 18% per annum.
For purposes of this Note, the term "Change of Control" means
if (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (i) is or
shall become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of 20% or more on a fully diluted
basis of the voting and economic interests of the Company or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the Board
of Directors of the Company or (b) the Board of Directors of the Company shall
cease to consist of a majority of "Continuing Directors" (as hereinafter
defined) or (c) the Company shall sell substantially all of its assets.
"Continuing Directors" shall mean the (A) directors serving on the Board of
Directors of the Company as of the date of issuance of this Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election). "Total Annual Return" means at any one time the return on the
investment in this Note by the holder hereof which shall include (i) the
annual interest obligations of the Company relating to this Note and any Notes
issued in lieu of interest thereon, (ii) the Fair Market Value of Common Stock
issuable upon exercise of the Warrants (based on the assumption that the
Warrants are exercised on said date), and (iii) any Optional Redemption
Premium paid to the holder hereof. The term "Fair Market Value" means the
current market price per share of the Common Stock at any date which shall be
deemed to be the average of the daily closing price for the 20 consecutive
days (which are not legal holidays) commencing 30 days (which are not legal
holidays) before the day in question. The closing price
<PAGE>
for each day shall be the (i) mean between the closing high bid and low asked
quotations of Common Stock on the National Association of Securities Dealers,
Inc., Automated Quotation System or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or if not quoted as described in clause (i) the (ii) mean between the
high bid and low asked quotations for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities dealers have inserted
both bid and asked quotations for Common Stock on at least five (5) of the ten
(10) preceding days, or (iii) if the Common Stock is listed or admitted for
trading on any national securities exchange, the last sales price regular way,
or the closing bid price if no sale occurred, of Common Stock on the principal
securities exchange on which Common Stock is listed. If Common Stock is quoted
on a national securities or central market system, in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the Board of
Directors of the Company acting in good faith shall determine the Fair Market
Value of the Common Stock by determining the current market price on the basis
of such quotations and other information as they consider appropriate, in
their reasonable judgment or, lacking such determination, the current market
price shall be the fair market value per share of Common Stock as determined
by a member firm of the New York Stock Exchange, Inc. selected by the Company.
(g) Except as otherwise provided herein, the obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit and diligence in taking any action to
collect any amount called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
(h) Any amounts due hereunder which are not paid within ten (10)
days after their due date shall accrue a late charge equal to ten (10) percent
of the amount due.
3. Ranking of Note.
(a) The Company covenants and agrees, and the Holder, by accepting
this Note, also covenants and agrees, that the indebtedness represented by this
Note and the payment of principal and interest on, premium, if any, and all
other amounts owing in respect of, this Note (collectively, the "Subordinated
Obligations") shall be expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full in cash of all Senior Debt
(as hereinafter defined). Senior Debt shall mean all Indebtedness (as
hereinafter defined) of the Company, whether outstanding on the date hereof or
hereafter arising or created, for principal, premium, interest (including any
interest accruing subsequent to an event of bankruptcy or similar proceeding
with respect to the Company at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees, reimbursements, indemnities, expenses, or
any other obligations due from the Company excluding promissory notes or
accounts payable due to shareholders, officers or affiliates of the Company
(other than any such shareholder or affiliate in its capacity as a lender to, or
creditor of, the Company under one or more other credit or similar facilities
with, or guaranteed by, the Company) and unsecured trade debt of the Company,
each of which shall be pari passu with the Note. The term "Indebtedness" shall
mean (A) any liability of the Company (v) for borrowed money, (w) evidenced by a
note, debenture, bond or other instrument of indebtedness (including, without
limitation, a purchase money obligation), including any given in connection with
the acquisition of property, assets or service, (x) for the payment of rent or
other amounts relating to capitalized lease obligations, (y) in respect of
letters of credit, bankers acceptances and similar facilities or (z) in respect
of interest rate protection agreements, currency agreements, commodity
agreements, hedging agreements and similar agreements and arrangements; (B) any
liability of others described in Section 3(a)(A) which the Company has
guaranteed or which is otherwise its legal liability; and (C) any modification,
renewal, extension,
<PAGE>
replacement, refinancing, restructuring or refunding of any such liability;
provided, that Indebtedness does not include unsecured trade credit. The
subordination provisions contained in this Note are for the benefit of, and
shall be directly enforceable by, the holders of Senior Debt, and each holder of
Senior Debt, whether now outstanding or hereafter created, incurred, assumed or
guaranteed shall be deemed to have acquired Senior Debt in reliance upon the
covenants and provisions contained in this Note.
(b) Payment of Subordinated Obligations due on this Note may be made
as scheduled or permitted so long as there shall not have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt. No
payment of any kind or character, whether in cash, property or securities
(including in the form of additional Notes in respect of in-kind interest
payments), on this Note shall be made by the Company, if, at the time of such
payment or after giving effect thereto, there shall have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt, and
such Default or Event of Default shall not have been cured or waived or shall
not have ceased to exist. In the event that, notwithstanding the foregoing, any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
(c) Upon any distribution of the assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization, arrangement,
receivership or similar proceedings, whether voluntary or involuntary, or upon
any assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company or otherwise: (i) the holders of the
Senior Debt shall first be entitled to receive cash payment in full of all
amounts payable in respect of all Senior Debt (including, but not limited to,
principal, premium, interest (including any interest accruing subsequent to an
event of bankruptcy or similar proceeding with respect to the Company at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under any such proceeding or applicable law), fees,
reimbursements, indemnities, expenses and other amounts) before the Holder is
entitled to receive any payment of any kind or character in respect of the
Subordinated Obligations evidenced by this Note, whether in cash, property or
securities (including in the form of additional Notes which may be issued in
respect of in-kind interest payments); (ii) any payment by, or distribution of
the assets of, the Company of any kind or character, whether in cash, property
or securities, to which the Holder would be entitled, except for the provisions
of this Section 3, shall be paid or delivered by the person making such payment
or distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holder of Senior Debt or its agent or
other representative, to the extent necessary to make payment in full in cash of
all Senior Debt remaining unpaid, after giving effect to any concurrent payment
or distribution to the holder of such Senior Debt; and (iii) in the event that,
notwithstanding the foregoing, any payment by, or distribution of the assets of,
the Company of any kind or character, whether in cash, property or securities
shall be received by the Holder before all Senior Debt is paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over to the holder of, such Senior Debt or its agent or
representative, for application to the payment of all Senior Debt remaining
unpaid until all such Senior Debt shall have been paid in full in cash, after
giving effect to any concurrent payment or distribution to the holder of such
Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt, the
holder of this Note shall be subrogated to the rights of the holder of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on this Note shall
be paid in full, and, as between the Company, its creditors, other than the
holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holder of Senior Debt by virtue of this Section 3 which
otherwise would have been made to the Holder shall be deemed to be a payment by
the Company on account of this Note.
<PAGE>
(e) Nothing contained in this Note is intended to or shall impair,
as between the Company, its creditors, other than the holder of Senior Debt, and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this Note
as and when the same shall become due and payable in accordance with its terms,
or affect the relative rights of the Holder and the creditors of the Company,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Note of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending, or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holder of the Senior Debt and any other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed thereon and all other facts pertinent thereto or to this
Note.
(g) With or without notice to or further assent from the Holder, any
holder of Senior Debt may at any time or from time to time, in its discretion,
either prior to or after any default on the part of the Company, extend or
change any of the terms of the Senior Debt, waive any default, modify, rescind,
or waive any provision of any related agreement or collateral undertaking,
release, exchange, fail to resort to or realize upon any collateral security or
any part thereof available to it for the Senior Debt, and generally deal with
the Company in such manner as such holder of Senior Debt may see fit without
impairing or affecting its rights and remedies under this Note. The Holder, by
accepting this Note, waives any and all notice of the receipt of acceptance of
the terms of subordination contained herein by any holder of Senior Debt and
other creation, renewal, extension or accrual of any of the Senior Debt.
(h) In the event the Company is adjudged a bankrupt or insolvent by
a court having jurisdiction, or in the event such a court approves a petition
seeking reorganization, arrangement, adjustment, or compensation of, or in
respect of, the Company under Federal Bankruptcy Law, as now hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in the event the Company is otherwise subject to a
voluntary or involuntary case under Federal or state bankruptcy or insolvency
law, and a Holder does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then any of the holders of the Senior Debt or
their agent or representative is hereby authorized to file an appropriate claim
for and on behalf of the Holder of this Note. Nothing herein contained shall be
deemed to authorize the holders of Senior Debt or their agent or representative
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting this Note or
the rights of the Holder hereof, or to authorize the holders of Senior Debt or
their agent or representative to vote in respect of the claim of the Holder in
any such proceeding.
(i) To the extent any payment of Senior Debt (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(j) Section 3 of this Note may not be amended without the prior written
consent of the holders of the Senior Debt or their agent.
<PAGE>
4. Information.
The Company shall make available to the Holder financial or other
information regarding the Company that the Holder may reasonably require. The
Company shall notify the Holder immediately upon the occurrence of an Event of
Default under Section 5(d), (e) or (f) hereof.
5. Events of Default.
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for
thirty (30) business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note and continuance of such default or
breach for a period of sixty (60) days after receipt of notice from the Holder
as to such breach.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(e) The acceleration of Senior Debt in excess of $5,000,000.
(f) Any final judgment(s) for the payment of money in excess of the
sum of $5,000,000 in the aggregate shall be rendered against the Company (to the
extent not paid or covered by insurance) and such judgment or judgments shall
not be satisfied, discharged, vacated, stayed, or bonded pending appeal within
thirty (30) days after the entry of said judgment.
<PAGE>
6. Remedies Upon Default.
(a) Subject to Section 6(c) hereof, upon the occurrence of an Event
of Default, the Holders of not less than 25% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company, it being understood and
agreed that such acceleration shall not be effective unless and until at least
ten (10) days prior written notice thereof has been given by the Holder to the
Company's senior credit facility lenders through their agent, which, as of the
date of this Note, is Banker's Trust Company. Notwithstanding the immediately
preceding sentence, subject to the terms of this Note (including the provisions
of Section 3 hereof), in the event of an Event of Default under Section 5(a) or
5(b), the Holder shall be entitled to pursue the Company for the unpaid
principal or interest then due and payable.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
(c) The provisions of Section 6(a) are subject to the condition that
if the principal of and accrued interest on all or any outstanding Notes have
been declared immediately due and payable by reason of the occurrence of any
Event of Default described in Section 5(a) through (f), inclusive, the holders
of 51% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that at the time such declaration is
annulled and rescinded (i) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes; (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under 6(a)) shall have been duly paid or the payment
thereof as a condition precedent to such rescission or annulment shall have been
waived by the holders of more than 51% in aggregate principal amount of the
Notes then outstanding pursuant to Section 7(a) hereof; and (iii) each and every
other Default and Event of Default shall have been made good, cured or waived
pursuant to Section 7(a) hereof; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
7. Amendments, Waivers and Consents.
(a) Any term, covenant, agreement or condition contained in this
Note may, with the consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 51% in aggregate principal amount of the
Notes then outstanding; provided that, without the written consent of each
Holder affected thereby, no such waiver, modification, alteration or amendment
shall be effective (i) which will extend the maturity date of the Notes or
reduce the principal amount thereof or change the rate of interest thereon or
amend Section 4(d), or (ii) which will change the percentage of holders of the
Notes required to consent to any such amendment, alteration or modification or
any of the provisions of this Section 7.
(b) Except as otherwise provided in the proviso to Section 7(a), any
such amendment or waiver shall apply equally to all of the holders of the Notes
and shall be binding upon them, upon each future holder of any Note and upon the
Company, whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereto.
<PAGE>
8. Transfer.
(a) Not more than fifty percent (50%) of the face amount of this
Note may be transferred, whether by assignment, participation or otherwise.
(b) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person, and shall not be liable for any registration or transfer of
Notes which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Note shall be transferable only on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act of 1933 (the "Act") and the
rules and regulations thereunder.
(c) The Holder acknowledges that he has been advised by the Company
that neither this Note nor the Warrants nor the shares of Common Stock issuable
upon exercise of the Warrants issued to the Holder in connection with this Note
(the "Warrant Shares") have been registered under the Act, that the Note is
being or has been issued and the Warrant Shares may be issued on the basis of
the statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of the Note, the Warrants or Warrant Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note or Warrant Shares is registered under the Act, it being understood that
neither the Note nor the Warrant Shares are currently registered for sale and
that the Company has no obligation or intention to so register the Notes or
Warrants or Warrant Shares except as specifically provided herein, or (ii) the
Note or Warrant Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of the Note or the Warrant Shares and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or (iii)
such sale, assignment, or transfer is otherwise exempt from registration under
the Act.
(d) The Holder shall provide written notice to the Company at least
thirty (30) days advance written notice of any proposed sale or transfer of this
Note. Following the giving of such notice, the Company shall have a right of
first refusal for twenty (20) days to acquire this Note under the proposed terms
of transfer. Should the Company fail to exercise its right of first refusal, the
Holder may transfer the Note under the proposed terms so long as such transfer
is effected within ninety (90) days of the giving of the notice.
<PAGE>
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 240 Royal Palm
Way, Palm Beach, Florida 33480, Attention: President, with a copy to Kaufman &
Canoles, 2000 NationsBank Center, P.O. Box 3037, Norfolk, Virginia 23514-3037,
Attn: Gus J. James, II, Esq.; (ii) if to the Holder, at its address provided to
the Company; or (iii) in either case, to such other address the party shall have
furnished in writing in accordance with the provisions of this Section 9(a).
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9(a). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 9(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination. In the case of a lost or stolen Note,
the Company may require the Holder to execute an indemnity agreement or to
provide an indemnity bond.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) Subject to Section 7 hereof, this Note may be amended only by a
written instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the Jurisdiction of the
state courts of the State of New York located in New York City, New York, and of
any federal court located in such City in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Note, or a
breach of this Note or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 9(a). Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
(g) It is the intention of the parties that the provisions of this
Agreement shall be enforceable to the fullest extent permissible under the
applicable law. If any clause or provision of this Note is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, then the remainder of this Note shall not be affected thereby, and in
lieu of each clause or provision of this Note which is illegal, invalid or
unenforceable, there shall be added, as a part of this Note, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and as may be legal, valid, and enforceable.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
WORKFLOW MANAGEMENT, INC., a
Delaware corporation
By: /s/ Steve Gibson
--------------------------
Name: Steve Gibson
-----------------------
Title: Vice President and CFO
----------------------
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION
OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: _________________, ______
WARRANT
To Purchase Shares
of Common Stock
WORKFLOW MANAGEMENT, INC.
THIS IS TO CERTIFY THAT, for value received, ________________________, or
registered assigns (the "Holder") is entitled to purchase from WORKFLOW
MANAGEMENT, INC., a Delaware corporation (the "Company"), at the Exercise Price,
________ shares of Common Stock of the Company (the "Shares"), all subject to
adjustment and upon the terms and conditions as hereinafter provided, and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter described. This warrant (the "Warrant") is attached to a promissory
note of the Company dated January 8, 1999 (the "Note") payable to the Holder of
this Warrant.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANTS; PUT RIGHT
1.1 Date of Exercise.
This Warrant may be exercised by the Holder, and the Shares acquired for
the Exercise Price, at any time after (but not before) (i) the payment by the
Company of all principal and accrued interest due and payable under the terms of
the Note ("Note Payment") or (ii) a Change of Control of the Company; provided,
however, that once a Note Payment has been made, this Warrant will expire (to
the extent not earlier exercised by the Holder) as of the day that is ten (10)
years and one (1) day after the date of the Note. Notwithstanding the foregoing
(or anything hereafter to the contrary), this Warrant is subject to forfeiture
in whole or in part under the specific terms and conditions set forth in the
Note.
1.2 Method of Exercise.
To exercise this Warrant in whole or in part, the Holder shall deliver to
the Company, at the Warrant Agency, (a) this Warrant, (b) a written notice, in
substantially the form of the Subscription Notice attached hereto, of such
Holder's election to exercise this Warrant, which notice shall specify the
number of Shares to be purchased, and (c) payment of the Exercise Price with
respect to such Shares.
<PAGE>
Notwithstanding the foregoing, this Warrant shall be exercisable only, to
the extent and at the time or times, that the Holder could legally take
possession and title of such Shares. Payment made pursuant to clause (c) must be
made by cash.
The Holder or any other person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of the Shares, as of
the date the aforementioned notice and other required documents and payments are
received by the Company.
1.3 Shares To Be Fully Paid and Nonassessable.
All Shares issued upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable and free from all preemptive rights of any
stockholder of the Company, and from all taxes, liens and charges with respect
to the issue thereof (other than transfer taxes) and, if the Shares are then
listed on any national securities exchanges or quoted on NASDAQ, be duly listed
or quoted thereon, as the case may be.
1.4 Reservation; Authorization.
The Company has reserved and will keep available for issuance upon
exercise of the Warrant the total number of Shares deliverable upon exercise of
the Warrant. The issuance of such Shares has been duly and validly authorized.
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE
AND REPLACEMENT OF WARRANTS
2.1 Warrant Agency.
If the Holder shall request appointment of an independent warrant agency
with respect to the Warrants, the Company shall promptly appoint and thereafter
maintain, at its own expense, an agency, which agency may be the Company's then
existing transfer agent (the "Warrant Agency"), for certain purposes specified
herein, and shall give prompt notice of such appointment (and appointment of any
successor Warrant Agency) to the Holder. Until an independent Warrant Agency is
so appointed, the Company shall perform the obligations of the Warrant Agency
provided herein at its address at 240 Royal Palm Way, Palm Beach, Florida 33480,
or such other address as the Company shall specify by notice to the Holder.
2.2 Ownership of Warrant.
The Company may deem and treat the Person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by any person or entity other than the Warrant
Agency) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Article II.
2.3 Transfer of Warrant.
Subject to applicable state and federal securities laws, this Warrant is
transferable in whole but not in part, but may only be transferred with, and in
compliance with the terms of, the Note to which this Warrant attaches. The
Company agrees to maintain at the Warrant Agency books for the registration of
transfers of the Warrant, and transfer of this Warrant and all rights hereunder
shall be registered, on such books, upon surrender of this Warrant at the
Warrant Agency, together with a written assignment of this Warrant duly executed
by the Holder or his duly authorized agent or attorney, with (unless the Holder
is the original Holder of the Warrant) signatures guaranteed by a bank or trust
company or a broker or dealer registered with the NASD and funds sufficient to
pay any transfer taxes payable upon such transfer. Upon surrender, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignees
and in the denominations specified in the instrument of assignment, and this
Warrant shall promptly be cancelled. Notwithstanding the foregoing, a Warrant
may be exercised by a new Holder in accordance with the procedure set forth
herein without having a new Warrant issued. The Warrant Agency shall not be
required to register any transfers if the Holder fails to furnish to the
Company, after a request therefor, an opinion of counsel reasonably satisfactory
to the Company that such transfer is exempt from the registration requirements
of the Securities Act and applicable state securities laws.
<PAGE>
2.4 Division or Combination of Warrants.
This Warrant may not be divided or combined with other Warrants.
2.5 Loss, Theft, Destruction or Mutilation of Warrants.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction upon receipt of indemnity or security reasonably
satisfactory to the Company (the original Warrant Holder's indemnity being
satisfactory indemnity in the event of loss, theft or destruction of any Warrant
owned by such Holder), or, in the case of any such mutilation, upon surrender
and cancellation of such Warrant, the Company will make and deliver, in lieu of
such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor
and representing the right to purchase the same aggregate number of Shares as
provided for in such lost, stolen, destroyed or mutilated Warrant.
2.6 Expenses of Delivery of Warrants.
The Company shall pay all expenses, taxes (other than transfer taxes or
income taxes of the Holder) and other charges payable in connection with the
preparation, issuance and delivery of this Warrant and Shares issuable upon
exercise of this Warrant.
ARTICLE III
PIGGYBACK REGISTRATION RIGHTS
3.1 Incidental Registration.
(a) Right to Include Registrable Securities. If at any time or times
after the date hereof, the Company intends to file a registration statement on
Form S-1, S-2 or S-3 (or other appropriate form) for the registration with the
Commission of an underwritten offering by the Company on its behalf of the
Company's Common Stock, the Company shall notify each of the holders of record
of Registrable Securities at least 30 days prior to each such filing of the
Company's intention to file such a registration statement. Such notice shall
state the number of shares proposed to be registered thereby. If any holder of
Registrable Securities notifies the Company within ten days after receipt of
such notice from the Company of its desire to have included in such registration
statement any of its Registrable Securities, then the Company shall cause such
shares to be included in such registration statement. Notwithstanding the
foregoing, the Company shall not be obligated to effect any registration of
Registrable Securities under this Section 3.1 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans. All
reasonable expenses of registration and offering of the Company and the Holder
of this Warrant participating in the offering including, without limitation,
printing expenses, fees and disbursements of counsel and independent public
accountants, fees and expenses incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD and fees of transfer agents and
registrars, shall be borne by the Company, except that the Holder of this
Warrant shall bear underwriting commissions and discounts attributable to his or
its Registrable Securities being registered, selling commissions and the fees
and expenses of holder's own legal counsel. Notwithstanding the foregoing, if a
registration as it relates to holders of Registrable Securities pursuant to this
Article III is withdrawn at the request of the holder of Registrable Securities
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
holder after the date on which such registration was requested) and if the
requesting holder elects not to have such registration effectuated on his or its
behalf pursuant to this Article III, the requesting holder of Registrable
Securities shall pay the expenses of such registration pro rata in accordance
with the number of his or its Registrable Securities to have been included in
such registration.
(b) Withdrawal. The Company may in its discretion withdraw any
registration statement filed pursuant to this Section 3.1 subsequent to its
filing without liability to the holders of Registrable Securities.
<PAGE>
(c) Allocations. In the event that the managing underwriter for any
such offering described in this Section 3.1 notifies the Company that, in good
faith, it is able to proceed with the proposed offering only with respect to a
smaller number (the "Maximum Number") of securities and Registrable Securities
than the total number of Registrable Securities proposed to be offered and
securities proposed to be offered by the Company, and all others entitled to
registration rights under such registration statement, then the Maximum Number
shall be allocated pro rata in the registration statement for such offering in
accordance with the number of shares proposed to be offered by each such party.
3.2 Registration Procedures.
If and whenever the Company is required to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 3.1, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities and
other securities covered by such registration statement until the earlier
of such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement or the expiration
of nine months after such registration statement becomes effective, and
will furnish to each such seller at least five Business Days prior to the
filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any such amendment or
supplement to which any such seller shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment thereof and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, such documents, if any, incorporated by reference in such
registration statement or prospectus, and such other documents as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and do any
and all other acts and things which may be necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of
its Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this clause (iv) be
obligated to be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(v) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, of an opinion of counsel for the
Company, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), to the effect that the
Registrable Securities are legally and validly issued, fully paid and
non-assessable;
<PAGE>
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first month of the first fiscal
quarter after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(viii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(ix) use its best efforts to list all shares covered by such
registration statement on each securities exchange on which any of the
shares of the related type are then listed or, if the Company's shares are
not then listed on any national securities exchange, use its best efforts
to have such shares covered by such registration statement quoted on
NASDAQ or, at the option of the Company, listed on a national securities
exchange.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
3.3 Underwritten Offerings.
(a) Underwritten Offerings. If any Registrable Securities to be
included in a registration statement as contemplated by Section 3.1 are to be
distributed by or through one or more underwriters, the holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of such holders of Registrable Securities, and the Company will
cooperate with such holders of Registrable Securities to the end that the
representations and warranties in the underwriting agreement and the conditions
precedent to the obligations of such holders of Registrable Securities under
such underwriting agreement shall not include representations, warranties or
conditions that are not customary in underwriting agreements with respect to
combined primary and secondary distributions and shall be otherwise satisfactory
to such holders, provided, however, that the Company shall not be required to
include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon by the Company, the
holders of Registrable Securities and the underwriter selected by the Company.
Such holders of Registrable Securities shall not be required by the Company to
make any representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method or methods of distribution and any other representation required
by law.
<PAGE>
(b) Holdback Agreements. If any registration pursuant to Section 3.1
shall be in connection with an underwritten public offering, each holder of
Registrable Securities agrees by acquisition of such Registrable Securities, if
so required by the managing underwriter, not to effect any public sales or
distribution of Registrable Securities (other than as part of such underwritten
public offering) within the period from seven days prior to the effective date
of such registration statement to 180 days after the effective date of such
registration statement.
3.4 Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified the Company's financial
statements as shall be reasonably necessary, in the opinion of such holders and
such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
3.5 Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act pursuant to Section
3.1, the Company will, and hereby does, indemnify and hold harmless the seller
of any Registrable Securities covered by such registration statement, its
directors and officers, if any, each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages, liabilities or expenses,
joint or several, to which such seller or any such director or officer or
participating or controlling Person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of or are based upon
(x) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment thereof or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer,
participating Person and controlling Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense (or action or proceeding in respect thereof) arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller or any such
director, officer, participating Person or controlling Person specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director, officer, participating Person or
controlling Person and shall survive the transfer of such securities by such
seller. The Company shall agree to a provision for contribution relating to such
indemnity as shall be reasonably requested by any seller of Registrable
Securities or the underwriters.
<PAGE>
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 3.1, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 3.5 the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement in or omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus included therein, or any amendment thereof or supplement
thereto, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer, participating Person or
controlling Person and shall survive the transfer of such securities by such
seller. Each prospective seller of Registrable Securities shall agree to a
provision for contribution relating to such indemnity as shall be reasonably
requested by the Company or the underwriters.
(c) Notice of Claims, etc. Promptly after receipt by an indemnified
party of notice the any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 3.5, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3.5 unless the failure to give such notice
materially prejudices the indemnifying party. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
3.6 Rule 144.
The Company will file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
Commission thereunder, and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission.
<PAGE>
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Warrant Shares Purchasable.
The number of Shares purchasable upon the exercise of this Warrant are
subject to adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 4.1.
(a) In case the Company shall (i) declare or pay a dividend on its
outstanding Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of the Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other business
combination in which the Company is the surviving corporation), the number and
kind of Shares purchasable upon exercise of this Warrant shall be adjusted so
that the Holder upon exercise of this Warrant shall be entitled to receive the
aggregate number and kind of Shares or other securities of the Company that the
Holder would have owned or have been entitled to receive after the happening of
any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or, if earlier, any record date with
respect thereto. An adjustment pursuant to this paragraph (a) shall become
effective on the date of the dividend payment, subdivision, combination or
issuance retroactively to the record date with respect thereto, if any, for such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) (i) In case the Company shall, after the date hereof, issue and
sell any shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (all of the foregoing being referred to in this Section 4.1(b)
individually as an "Additional Share" and collectively as "Additional Shares")
(excluding (i) shares issued in any of the transactions described in Section
4.1(a) and (ii) any Shares issuable pursuant to this Warrant), at a price per
share (determined in the case of rights, options, warrants or convertible or
exchangeable securities, by dividing (A) the total amount received or receivable
by the Company in consideration of the sale and issuance of such rights,
options, warrants or convertible or exchangeable securities plus the total
consideration payable to the Company upon exercise or conversion or exchange
thereof, by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) lower than
the then Fair Market Value per share of Common Stock in effect immediately prior
to such sale and issuance, then in each case the number of Shares thereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the number of Shares theretofore purchasable upon the exercise of this Warrant
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately after such sale and issuance and the
denominator of which shall be an amount equal to the sum of (A) the total number
of shares of Common Stock outstanding immediately prior to such sale and
issuance plus (B) the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at the then Fair Market Value per share of Common Stock in effect
immediately prior to such sale and issuance. Such adjustment shall be made
successively whenever such an issuance is made. For the purposes of such
adjustments, the shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of such sale and issuance, and the consideration received by the Company
therefor shall be deemed to be the consideration received by the Company (plus
any underwriting discounts or commissions in connection therewith) for such
rights, options, warrants or convertible or exchangeable securities plus the
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares of Common Stock
purchasable thereby. In case the Company shall (i) sell and issue Additional
Shares for a consideration consisting, in whole or in part, of property other
than cash or its equivalent or (ii) sell and issue Additional Shares together
with one or more other securities as a part of a unit at a price per unit, then
in determining the "price per share" and the "consideration received by the
Company for purposes of the first sentence and the immediately preceding
sentence of this Section 4.1(b)(i), the Board of Directors of the Company shall
determine, in its discretion, the fair value of said property or the Additional
Shares then being sold as part of such unit, as the case may be, and such
determinations, if made in good faith, shall be binding on the Holder. The
determination of whether any adjustment is required under this Section 4.1(b)(i)
by reason of the sale and issuance of any rights, options, warrants or
convertible or exchangeable securities and the amount of such adjustment, if
any, shall be made only at such time and not at the subsequent time of issuance
of Additional Shares upon the exercise of such rights to subscribe or purchase.
(ii) If the Company shall after the date of issuance of this
Warrant issue or distribute to all or substantially all holders of shares of
Common Stock, evidences of indebtedness, any other securities of the Company or
any property, assets or cash, and if such issuance or distribution is not a
transaction covered by Section 4.1(a) or 4.1(b)(i) above (any such nonexcluded
event a "Dividend"), the number of shares of Common Stock subject to purchase
upon exercise of this Warrant shall be increased (but not decreased), effective
immediately after the record date at which the holders of shares of Common Stock
are determined for purposes of such Dividend, to a number determined by
multiplying the number of Shares subject to purchase immediately before such
Dividend by a fraction, the numerator of which shall be the Fair Market Value
per share of Common Stock on such record date and the denominator of which shall
be the Fair Market Value per share of Common Stock determined as of a date which
is ten (10) Business Days after the date on which the distribution has been
effected. If after the date of issuance of this Warrant the Company repurchases
shares of Common Stock for consideration which exceeds the Fair Market Value per
share of Common Stock (as calculated immediately prior to such repurchase), then
the number of Shares purchasable upon exercise of this Warrant shall be adjusted
in accordance with the foregoing provisions, as if, in lieu of such repurchases,
the Company had (I) distributed a Dividend having a Fair Market Value equal to
the Fair Market Value of all property and cash expended in the repurchases, and
(II) effected a reverse split of the shares of Common Stock in the proportion
required to reduce the number of shares of Common Stock outstanding from (A) the
number of such shares outstanding immediately before such first repurchase to
(B) the number of such shares outstanding immediately following all the
repurchases. In lieu of the adjustments provided for in this Section 4.1(b)(ii)
as a result of a Dividend, at the option of the Company, the Company may instead
pay to the Holder a cash Dividend equal to the amount of consideration to which
the Holder would have been entitled if the Holder had fully exercised this
Warrant immediately prior to the record date at which the holders of shares of
Common Stock were determined for purposes of such Dividend.
(c) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges which resulted in adjustments pursuant to
paragraph (a) or (b) of this Section 4.1, if any thereof shall not have been
exercised, the number of Shares shall be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only shares of
Common Stock purchasable upon exercise of such rights, options, warrants or
conversion or exchange privileges for the shares of Common Stock, if any, were
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (B) such shares of Common Stock so issued
or sold, if any, were issuable for the consideration actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided that no
such readjustment shall have the effect of decreasing the number of Shares
purchasable upon the exercise of this Warrant by an amount in excess of the
amount of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options, warrants or conversion or exchange privileges.
4.2 Notice of Adjustment.
Upon any adjustment of the number of Shares purchasable upon the exercise
of this Warrant as herein provided, the Company shall at the expense of the
Company, within ten days after such adjustment, mail by first class mail,
postage prepaid, to the Holder of this Warrant a notice of such adjustment(s),
accompanied by a report setting forth in reasonable detail (i) the number of
Shares purchasable upon the exercise of the Warrant, (ii) a brief statement of
the facts requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made.
<PAGE>
4.3 No Adjustment for Dividends.
Except as otherwise provided in Section 4.1 hereof, no adjustment in
respect of any dividends or other payments or distributions made to holders of
securities upon exercise of this Warrant shall be made during the term of this
Warrant or upon the exercise of this Warrant.
4.4 No Rights as Stockholders.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder the right to vote or to receive dividends (except as provided in
Section 4.1) or to consent or to receive notice as stockholders in respect of
any meeting of stockholders of the Company for the election of the directors of
the Company or any other matter, or any rights whatsoever as stockholders of the
Company.
ARTICLE V
DEFINITIONS
The following terms, as used in this Warrant, have the following
respective meanings:
"Additional Shares" shall have the meaning set forth in Section 4.1(b)(i).
"Business Day" shall mean a day on which any New York Stock Exchange
member firm is open for business.
"Change of Control" shall mean if (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act) (i) is or shall
become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) directly or indirectly of 20% or more on a fully diluted basis of
the voting and economic interests of the Company or (ii) shall have obtained the
power (whether or not exercised) to elect a majority of the Company's directors,
or (b) the board of directors of the Company shall cease to consist of a
majority of Continuing Directors, or (c) the Company shall sell substantially
all of its assets.
"Commission" shall mean the Securities and Exchange Commission or any
successor federal agency thereto.
"Common Stock" shall mean the common stock, $.01 par value, of
the Company.
"Company" shall have the meaning set forth in the first paragraph
of this Warrant.
"Continuing Directors" shall mean the (A) directors serving on the Board
of Directors of the Company as of the date of issuance of the Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election.)
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Commission issued thereunder, all as the same shall be in effect at the
time.
"Exercise Price" shall mean $.01 in the aggregate.
<PAGE>
"Fair Market Value" shall have the meaning given to such term in the Note.
"Holder" shall have the meaning set forth in the first paragraph
of this Warrant.
"Maximum Number" shall have the meaning set forth in Section
3.1(c).
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NASDAQ" shall mean The National Association of Securities
Dealers, Inc. Automated Quotation System.
"Note" shall have the meaning set forth in the first paragraph of
this Warrant.
"Note Payment" shall have the meaning set forth in Section 2.1.
"Person" shall mean an individual, an association, a partnership, a
corporation, a limited liability company, a trust or an unincorporated
organization or any other entity or organization.
"Registrable Securities" shall mean a collective reference to the Shares
of Common Stock issuable upon exercise of this Warrant; provided, however, that
any particular Registrable Securities shall cease to be such when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then enforced or (iv) they shall have ceased to be
outstanding.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Commission issued thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning set forth in the first paragraph
of this Warrant.
"Warrant Agency" shall have the meaning set forth in Section 2.1.
"Warrant" shall have the meaning set forth in the first paragraph
of this Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 Notices.
All notices, requests, consents and other communications provided for
herein shall be in writing and shall be effective upon delivery in person,
faxed, or mailed by certified or registered mail, return receipt requested,
postage pre-paid, addressed as follows:
(i) if to the Company, to Workflow Management, Inc., 240
Royal Palm Way, Palm Beach, Florida 33480;
(ii) if to any Holder, to it at such address as may have been
furnished to the Company in writing by such Holder;
<PAGE>
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a Holder) or to the Holder of this
Warrant (in the case of the Company) in accordance with the provisions of this
Section.
6.2 Waivers; Amendments.
No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
hereof or the exercise of any other right or power. The rights and remedies of
the Holder are cumulative and are not exclusive of any rights or remedies which
it would otherwise have. The provisions of this Warrant may be amended, modified
or waived with (and only with) the written consent of the Company and the
Holder.
Any such amendment, modification or waiver effected pursuant to this
Section shall be binding upon the Holder, upon each future Holder thereof and
upon the Company.
No notice or demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other circumstances.
6.3 Governing Law.
This Warrant shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to principles of conflicts of law.
6.4 Survival of Agreements; Representations and Warranties etc.
All representations, warranties and covenants made by the Company herein
or in any certificate or other instrument delivered by or on behalf of it in
connection with the Warrant shall be considered to have been relied upon by the
Holder and shall survive the issuance and delivery of the Warrant, regardless of
any investigation made by the Holder, and shall continue in full force and
effect so long as Warrant is outstanding. All statements in any such certificate
or other instrument shall constitute representations and warranties hereunder.
6.5 Covenants to Bind Successor and Assigns.
All covenants, stipulations, promises and agreements in this Warrant
contained by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
6.6 Severability.
In case any one or more of the provisions contained in this Warrant shall
be invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
6.7 Section Heading.
The sections headings used herein are for convenience of reference only,
are not part of this Warrant and are not to affect the construction of or be
taken into consideration in interpreting this Warrant.
6.8 No Impairment.
The Company shall not by any action, including without limitation amending
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of the Holder against
impairment.
<PAGE>
6.9 Submission to Jurisdiction; Venue.
This Warrant shall be governed by Section 10(f) of the Note with respect
to jurisdiction and venue.
IN WITNESS WHEREOF, WORKFLOW MANAGEMENT, INC. has caused this Warrant to
be executed in its corporate name by one of its officers hereunto duly
authorized, and attested by its Secretary or an Assistant Secretary, all as of
the day and year first above written.
WORKFLOW MANAGEMENT, INC.
By: _____________________
Name: ___________________
Title: __________________
Attest:
_______________________________
Name: _________________________
Title: ________________________
<PAGE>
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
TO WORKFLOW MANAGEMENT, INC.
The undersigned hereby irrevocably elects to exercise the right to
purchase represented by the attached Warrant for, and to purchase thereunder,
Shares, as provided for therein, and tenders herewith payment of the Exercise
Price in full in accordance with the terms of the attached Warrant.
Please issue the Shares in the following name or names and denominations:
Dated: ____________, 19__
--------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
--------------------------------------
Print Name Above
<PAGE>
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _________________________________ hereby sells,
assigns and transfers unto _______________________ the attached Warrant,
together with all rights, title and interest therein, and does hereby
irrevocably constitute and appoint _________________ attorney to transfer said
Warrant on the books of WORKFLOW MANAGEMENT, INC. with full power of
substitution in the premises.
--------------------------------------
Note: The above signature
should correspond exactly
with the name on the face of
the attached Warrant.
-------------------------------------
Print Name Above
EXIBIT 10.9
THIS PROMISSORY NOTE, THE ATTACHED WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANTS HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH WARRANTS OR SHARES, NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH WARRANTS OR SHARES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH UNITS
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12% Subordinate Promissory Note
$666,000 January 19, 1999
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of ROBERT FISHBEIN, with an
address to be provided to the Company, or its registered assigns (the "Holder"),
the principal amount of Six Hundred Sixty-six Thousand and No/100 Dollars
($666,000.00) on the Maturity Date (as defined below), and to pay interest on
the unpaid principal balance hereof at the rate of twelve percent (12%) per
annum (calculated on the basis of a 360-day year consisting of twelve 30-day
months) semi-annually on the first day of each July and January commencing July
1, 1999, and on the Maturity Date (each such date being an "Interest Payment
Date") all as hereafter further provided. Fifty percent (50%) of the interest
payable hereunder on any Interest Payment Date may, at the option of the
Company, be paid in additional Notes in the form hereof for such amount.
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
1. Offering; Subscription Agreement.
This Note was issued by the Company in an offering of promissory notes
(the "Offering") made pursuant to a Subscription Agreement of even date herewith
(the "Subscription Agreement") between the Company and the original Holder
hereof. The series of promissory notes issued in connection with the Offering is
referred to hereafter as the "Notes."
2. Payments.
(a) To the extent not previously paid as provided herein,
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on January 14, 2009 (the "Maturity Date").
(b) Interest on this Note shall accrue from the date hereof to but
excluding the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date thereafter.
(c) If any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of Palm Beach,
Florida.
<PAGE>
(d) The Company may not prepay this Note during the first twelve
(12) months following the date hereof. Thereafter, the Company may, at its
option prepay in whole, but not in part, the principal of this Note and any
Notes issued in lieu of the payment of interest hereon pursuant to the first
paragraph of this Note by paying to the holder hereof such principal plus any
accrued interest with respect thereto, plus the Optional Redemption Premium. The
Optional Redemption Premium shall be a premium equal to the following
percentages of the principal amount: 6.00% during the second year following the
date hereof, 3.00% during the third year following the date hereof, 2.00% during
the fourth year following the date hereof, 1.00% during the fifth year following
the date hereof, and 0.00% thereafter. All payments on this Note shall be
applied first to accrued interest hereon and the balance to the payment of
principal hereof. Except for such permitted prepayments, the Company may not
voluntarily prepay this Note without the consent of the Holder.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
(f) On each anniversary of this Note (or, if not on a Business Day,
then on the next succeeding Business Day) Warrants for the purchase of Common
Stock of the Company in substantially the form attached as Exhibit A (the
"Warrants") will be issued to the holder of this Note sufficient to provide for
a Total Annual Return (as hereinafter defined) for such preceding year of 15%.
The value of such Warrants shall be the Fair Market Value of the Company's
common stock (the "Common Stock") issuable upon exercise of such Warrants. Upon
payment in full of all amounts due under this Note, or upon a Change of Control
(as hereinafter defined), the Warrant or Warrants previously issued to the
holder of this Note will be returned to the Company and Warrants will be
reissued to the holder of this Note for the purchase of a number of shares of
the Company's stock such that the holder's aggregate Total Annual Return is not
less than 15% per annum and not greater than 18% per annum.
For purposes of this Note, the term "Change of Control" means
if (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (i) is or
shall become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of 20% or more on a fully diluted
basis of the voting and economic interests of the Company or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the Board
of Directors of the Company or (b) the Board of Directors of the Company shall
cease to consist of a majority of "Continuing Directors" (as hereinafter
defined) or (c) the Company shall sell substantially all of its assets.
"Continuing Directors" shall mean the (A) directors serving on the Board of
Directors of the Company as of the date of issuance of this Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors
then still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election). "Total Annual Return" means at any one time the return on the
investment in this Note by the holder hereof which shall include (i) the
annual interest obligations of the Company relating to this Note and any Notes
issued in lieu of interest thereon, (ii) the Fair Market Value of Common Stock
issuable upon exercise of the Warrants (based on the assumption that the
Warrants are exercised on said date), and (iii) any Optional Redemption
Premium paid to the holder hereof. The term "Fair Market Value" means the
current market price per share of the Common Stock at any date which shall be
deemed to be the average of the daily closing price for the 20 consecutive
days (which are not legal holidays) commencing 30 days (which are not legal
holidays) before the day in question. The closing price
<PAGE>
for each day shall be the (i) mean between the closing high bid and low asked
quotations of Common Stock on the National Association of Securities Dealers,
Inc., Automated Quotation System or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or if not quoted as described in clause (i) the (ii) mean between the
high bid and low asked quotations for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities dealers have inserted
both bid and asked quotations for Common Stock on at least five (5) of the ten
(10) preceding days, or (iii) if the Common Stock is listed or admitted for
trading on any national securities exchange, the last sales price regular way,
or the closing bid price if no sale occurred, of Common Stock on the principal
securities exchange on which Common Stock is listed. If Common Stock is quoted
on a national securities or central market system, in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the Board of
Directors of the Company acting in good faith shall determine the Fair Market
Value of the Common Stock by determining the current market price on the basis
of such quotations and other information as they consider appropriate, in
their reasonable judgment or, lacking such determination, the current market
price shall be the fair market value per share of Common Stock as determined
by a member firm of the New York Stock Exchange, Inc. selected by the Company.
(g) Except as otherwise provided herein, the obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit and diligence in taking any action to
collect any amount called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
(h) Any amounts due hereunder which are not paid within ten (10)
days after their due date shall accrue a late charge equal to ten (10) percent
of the amount due.
3. Ranking of Note.
(a) The Company covenants and agrees, and the Holder, by accepting
this Note, also covenants and agrees, that the indebtedness represented by this
Note and the payment of principal and interest on, premium, if any, and all
other amounts owing in respect of, this Note (collectively, the "Subordinated
Obligations") shall be expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full in cash of all Senior Debt
(as hereinafter defined). Senior Debt shall mean all Indebtedness (as
hereinafter defined) of the Company, whether outstanding on the date hereof or
hereafter arising or created, for principal, premium, interest (including any
interest accruing subsequent to an event of bankruptcy or similar proceeding
with respect to the Company at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under any such
proceeding or applicable law), fees, reimbursements, indemnities, expenses, or
any other obligations due from the Company excluding promissory notes or
accounts payable due to shareholders, officers or affiliates of the Company
(other than any such shareholder or affiliate in its capacity as a lender to, or
creditor of, the Company under one or more other credit or similar facilities
with, or guaranteed by, the Company) and unsecured trade debt of the Company,
each of which shall be pari passu with the Note. The term "Indebtedness" shall
mean (A) any liability of the Company (v) for borrowed money, (w) evidenced by a
note, debenture, bond or other instrument of indebtedness (including, without
limitation, a purchase money obligation), including any given in connection with
the acquisition of property, assets or service, (x) for the payment of rent or
other amounts relating to capitalized lease obligations, (y) in respect of
letters of credit, bankers acceptances and similar facilities or (z) in respect
of interest rate protection agreements, currency agreements, commodity
agreements, hedging agreements and similar agreements and arrangements; (B) any
liability of others described in Section 3(a)(A) which the Company has
guaranteed or which is otherwise its legal liability; and (C) any modification,
renewal, extension,
<PAGE>
replacement, refinancing, restructuring or refunding of any such liability;
provided, that Indebtedness does not include unsecured trade credit. The
subordination provisions contained in this Note are for the benefit of, and
shall be directly enforceable by, the holders of Senior Debt, and each holder of
Senior Debt, whether now outstanding or hereafter created, incurred, assumed or
guaranteed shall be deemed to have acquired Senior Debt in reliance upon the
covenants and provisions contained in this Note.
(b) Payment of Subordinated Obligations due on this Note may be made
as scheduled or permitted so long as there shall not have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt. No
payment of any kind or character, whether in cash, property or securities
(including in the form of additional Notes in respect of in-kind interest
payments), on this Note shall be made by the Company, if, at the time of such
payment or after giving effect thereto, there shall have occurred and be
continuing an event which constitutes a Default or an Event of Default as
defined in any instrument, document or agreement evidencing the Senior Debt, and
such Default or Event of Default shall not have been cured or waived or shall
not have ceased to exist. In the event that, notwithstanding the foregoing, any
payment by, or distribution of the assets of, the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
to the holder of, such Senior Debt or its agent or representative, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holder of such Senior Debt.
(c) Upon any distribution of the assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization, arrangement,
receivership or similar proceedings, whether voluntary or involuntary, or upon
any assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company or otherwise: (i) the holders of the
Senior Debt shall first be entitled to receive cash payment in full of all
amounts payable in respect of all Senior Debt (including, but not limited to,
principal, premium, interest (including any interest accruing subsequent to an
event of bankruptcy or similar proceeding with respect to the Company at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under any such proceeding or applicable law), fees,
reimbursements, indemnities, expenses and other amounts) before the Holder is
entitled to receive any payment of any kind or character in respect of the
Subordinated Obligations evidenced by this Note, whether in cash, property or
securities (including in the form of additional Notes which may be issued in
respect of in-kind interest payments); (ii) any payment by, or distribution of
the assets of, the Company of any kind or character, whether in cash, property
or securities, to which the Holder would be entitled, except for the provisions
of this Section 3, shall be paid or delivered by the person making such payment
or distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holder of Senior Debt or its agent or
other representative, to the extent necessary to make payment in full in cash of
all Senior Debt remaining unpaid, after giving effect to any concurrent payment
or distribution to the holder of such Senior Debt; and (iii) in the event that,
notwithstanding the foregoing, any payment by, or distribution of the assets of,
the Company of any kind or character, whether in cash, property or securities
shall be received by the Holder before all Senior Debt is paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over to the holder of, such Senior Debt or its agent or
representative, for application to the payment of all Senior Debt remaining
unpaid until all such Senior Debt shall have been paid in full in cash, after
giving effect to any concurrent payment or distribution to the holder of such
Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt, the
holder of this Note shall be subrogated to the rights of the holder of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on this Note shall
be paid in full, and, as between the Company, its creditors, other than the
holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holder of Senior Debt by virtue of this Section 3 which
otherwise would have been made to the Holder shall be deemed to be a payment by
the Company on account of this Note.
<PAGE>
(e) Nothing contained in this Note is intended to or shall impair,
as between the Company, its creditors, other than the holder of Senior Debt, and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this Note
as and when the same shall become due and payable in accordance with its terms,
or affect the relative rights of the Holder and the creditors of the Company,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Note of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending, or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holder of the Senior Debt and any other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed thereon and all other facts pertinent thereto or to this
Note.
(g) With or without notice to or further assent from the Holder, any
holder of Senior Debt may at any time or from time to time, in its discretion,
either prior to or after any default on the part of the Company, extend or
change any of the terms of the Senior Debt, waive any default, modify, rescind,
or waive any provision of any related agreement or collateral undertaking,
release, exchange, fail to resort to or realize upon any collateral security or
any part thereof available to it for the Senior Debt, and generally deal with
the Company in such manner as such holder of Senior Debt may see fit without
impairing or affecting its rights and remedies under this Note. The Holder, by
accepting this Note, waives any and all notice of the receipt of acceptance of
the terms of subordination contained herein by any holder of Senior Debt and
other creation, renewal, extension or accrual of any of the Senior Debt.
(h) In the event the Company is adjudged a bankrupt or insolvent by
a court having jurisdiction, or in the event such a court approves a petition
seeking reorganization, arrangement, adjustment, or compensation of, or in
respect of, the Company under Federal Bankruptcy Law, as now hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in the event the Company is otherwise subject to a
voluntary or involuntary case under Federal or state bankruptcy or insolvency
law, and a Holder does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then any of the holders of the Senior Debt or
their agent or representative is hereby authorized to file an appropriate claim
for and on behalf of the Holder of this Note. Nothing herein contained shall be
deemed to authorize the holders of Senior Debt or their agent or representative
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting this Note or
the rights of the Holder hereof, or to authorize the holders of Senior Debt or
their agent or representative to vote in respect of the claim of the Holder in
any such proceeding.
(i) To the extent any payment of Senior Debt (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(j) Section 3 of this Note may not be amended without the prior written
consent of the holders of the Senior Debt or their agent.
<PAGE>
4. Information.
The Company shall make available to the Holder financial or other
information regarding the Company that the Holder may reasonably require. The
Company shall notify the Holder immediately upon the occurrence of an Event of
Default under Section 5(d), (e) or (f) hereof.
5. Events of Default.
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for
thirty (30) business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note and continuance of such default or
breach for a period of sixty (60) days after receipt of notice from the Holder
as to such breach.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action.
(e) The acceleration of Senior Debt in excess of $5,000,000.
(f) Any final judgment(s) for the payment of money in excess of the
sum of $5,000,000 in the aggregate shall be rendered against the Company (to the
extent not paid or covered by insurance) and such judgment or judgments shall
not be satisfied, discharged, vacated, stayed, or bonded pending appeal within
thirty (30) days after the entry of said judgment.
<PAGE>
6. Remedies Upon Default.
(a) Subject to Section 6(c) hereof, upon the occurrence of an Event
of Default, the Holders of not less than 25% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company, it being understood and
agreed that such acceleration shall not be effective unless and until at least
ten (10) days prior written notice thereof has been given by the Holder to the
Company's senior credit facility lenders through their agent, which, as of the
date of this Note, is Banker's Trust Company. Notwithstanding the immediately
preceding sentence, subject to the terms of this Note (including the provisions
of Section 3 hereof), in the event of an Event of Default under Section 5(a) or
5(b), the Holder shall be entitled to pursue the Company for the unpaid
principal or interest then due and payable.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
(c) The provisions of Section 6(a) are subject to the condition that
if the principal of and accrued interest on all or any outstanding Notes have
been declared immediately due and payable by reason of the occurrence of any
Event of Default described in Section 5(a) through (f), inclusive, the holders
of 51% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that at the time such declaration is
annulled and rescinded (i) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes; (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under 6(a)) shall have been duly paid or the payment
thereof as a condition precedent to such rescission or annulment shall have been
waived by the holders of more than 51% in aggregate principal amount of the
Notes then outstanding pursuant to Section 7(a) hereof; and (iii) each and every
other Default and Event of Default shall have been made good, cured or waived
pursuant to Section 7(a) hereof; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
7. Amendments, Waivers and Consents.
(a) Any term, covenant, agreement or condition contained in this
Note may, with the consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 51% in aggregate principal amount of the
Notes then outstanding; provided that, without the written consent of each
Holder affected thereby, no such waiver, modification, alteration or amendment
shall be effective (i) which will extend the maturity date of the Notes or
reduce the principal amount thereof or change the rate of interest thereon or
amend Section 4(d), or (ii) which will change the percentage of holders of the
Notes required to consent to any such amendment, alteration or modification or
any of the provisions of this Section 7.
(b) Except as otherwise provided in the proviso to Section 7(a), any
such amendment or waiver shall apply equally to all of the holders of the Notes
and shall be binding upon them, upon each future holder of any Note and upon the
Company, whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereto.
<PAGE>
8. Transfer.
(a) Not more than fifty percent (50%) of the face amount of this
Note may be transferred, whether by assignment, participation or otherwise.
(b) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person, and shall not be liable for any registration or transfer of
Notes which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration or
transfer, or with the knowledge of such facts that its participation therein
amounts to bad faith. This Note shall be transferable only on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act of 1933 (the "Act") and the
rules and regulations thereunder.
(c) The Holder acknowledges that he has been advised by the Company
that neither this Note nor the Warrants nor the shares of Common Stock issuable
upon exercise of the Warrants issued to the Holder in connection with this Note
(the "Warrant Shares") have been registered under the Act, that the Note is
being or has been issued and the Warrant Shares may be issued on the basis of
the statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of the Note, the Warrants or Warrant Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note or Warrant Shares is registered under the Act, it being understood that
neither the Note nor the Warrant Shares are currently registered for sale and
that the Company has no obligation or intention to so register the Notes or
Warrants or Warrant Shares except as specifically provided herein, or (ii) the
Note or Warrant Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of the Note or the Warrant Shares and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or (iii)
such sale, assignment, or transfer is otherwise exempt from registration under
the Act.
(d) The Holder shall provide written notice to the Company at least
thirty (30) days advance written notice of any proposed sale or transfer of this
Note. Following the giving of such notice, the Company shall have a right of
first refusal for twenty (20) days to acquire this Note under the proposed terms
of transfer. Should the Company fail to exercise its right of first refusal, the
Holder may transfer the Note under the proposed terms so long as such transfer
is effected within ninety (90) days of the giving of the notice.
<PAGE>
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 240 Royal Palm
Way, Palm Beach, Florida 33480, Attention: President, with a copy to Kaufman &
Canoles, 2000 NationsBank Center, P.O. Box 3037, Norfolk, Virginia 23514-3037,
Attn: Gus J. James, II, Esq.; (ii) if to the Holder, at its address provided to
the Company; or (iii) in either case, to such other address the party shall have
furnished in writing in accordance with the provisions of this Section 9(a).
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9(a). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 9(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination. In the case of a lost or stolen Note,
the Company may require the Holder to execute an indemnity agreement or to
provide an indemnity bond.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) Subject to Section 7 hereof, this Note may be amended only by a
written instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the Jurisdiction of the
state courts of the State of New York located in New York City, New York, and of
any federal court located in such City in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Note, or a
breach of this Note or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 9(a). Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
(g) It is the intention of the parties that the provisions of this
Agreement shall be enforceable to the fullest extent permissible under the
applicable law. If any clause or provision of this Note is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, then the remainder of this Note shall not be affected thereby, and in
lieu of each clause or provision of this Note which is illegal, invalid or
unenforceable, there shall be added, as a part of this Note, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and as may be legal, valid, and enforceable.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
WORKFLOW MANAGEMENT, INC., a
Delaware corporation
By: /s/ Steve Gibson
-------------------------
Name: Steve Gibson
-----------------------
Title: Vice President and CFO
----------------------
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION
OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: _________________, ______
WARRANT
To Purchase Shares
of Common Stock
WORKFLOW MANAGEMENT, INC.
THIS IS TO CERTIFY THAT, for value received, ________________________, or
registered assigns (the "Holder") is entitled to purchase from WORKFLOW
MANAGEMENT, INC., a Delaware corporation (the "Company"), at the Exercise Price,
________ shares of Common Stock of the Company (the "Shares"), all subject to
adjustment and upon the terms and conditions as hereinafter provided, and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter described. This warrant (the "Warrant") is attached to a promissory
note of the Company dated January 8, 1999 (the "Note") payable to the Holder of
this Warrant.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANTS; PUT RIGHT
1.1 Date of Exercise.
This Warrant may be exercised by the Holder, and the Shares acquired for
the Exercise Price, at any time after (but not before) (i) the payment by the
Company of all principal and accrued interest due and payable under the terms of
the Note ("Note Payment") or (ii) a Change of Control of the Company; provided,
however, that once a Note Payment has been made, this Warrant will expire (to
the extent not earlier exercised by the Holder) as of the day that is ten (10)
years and one (1) day after the date of the Note. Notwithstanding the foregoing
(or anything hereafter to the contrary), this Warrant is subject to forfeiture
in whole or in part under the specific terms and conditions set forth in the
Note.
1.2 Method of Exercise.
To exercise this Warrant in whole or in part, the Holder shall deliver to
the Company, at the Warrant Agency, (a) this Warrant, (b) a written notice, in
substantially the form of the Subscription Notice attached hereto, of such
Holder's election to exercise this Warrant, which notice shall specify the
number of Shares to be purchased, and (c) payment of the Exercise Price with
respect to such Shares.
<PAGE>
Notwithstanding the foregoing, this Warrant shall be exercisable only, to
the extent and at the time or times, that the Holder could legally take
possession and title of such Shares. Payment made pursuant to clause (c) must be
made by cash.
The Holder or any other person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of the Shares, as of
the date the aforementioned notice and other required documents and payments are
received by the Company.
1.3 Shares To Be Fully Paid and Nonassessable.
All Shares issued upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable and free from all preemptive rights of any
stockholder of the Company, and from all taxes, liens and charges with respect
to the issue thereof (other than transfer taxes) and, if the Shares are then
listed on any national securities exchanges or quoted on NASDAQ, be duly listed
or quoted thereon, as the case may be.
1.4 Reservation; Authorization.
The Company has reserved and will keep available for issuance upon
exercise of the Warrant the total number of Shares deliverable upon exercise of
the Warrant. The issuance of such Shares has been duly and validly authorized.
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE
AND REPLACEMENT OF WARRANTS
2.1 Warrant Agency.
If the Holder shall request appointment of an independent warrant agency
with respect to the Warrants, the Company shall promptly appoint and thereafter
maintain, at its own expense, an agency, which agency may be the Company's then
existing transfer agent (the "Warrant Agency"), for certain purposes specified
herein, and shall give prompt notice of such appointment (and appointment of any
successor Warrant Agency) to the Holder. Until an independent Warrant Agency is
so appointed, the Company shall perform the obligations of the Warrant Agency
provided herein at its address at 240 Royal Palm Way, Palm Beach, Florida 33480,
or such other address as the Company shall specify by notice to the Holder.
2.2 Ownership of Warrant.
The Company may deem and treat the Person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by any person or entity other than the Warrant
Agency) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Article II.
2.3 Transfer of Warrant.
Subject to applicable state and federal securities laws, this Warrant is
transferable in whole but not in part, but may only be transferred with, and in
compliance with the terms of, the Note to which this Warrant attaches. The
Company agrees to maintain at the Warrant Agency books for the registration of
transfers of the Warrant, and transfer of this Warrant and all rights hereunder
shall be registered, on such books, upon surrender of this Warrant at the
Warrant Agency, together with a written assignment of this Warrant duly executed
by the Holder or his duly authorized agent or attorney, with (unless the Holder
is the original Holder of the Warrant) signatures guaranteed by a bank or trust
company or a broker or dealer registered with the NASD and funds sufficient to
pay any transfer taxes payable upon such transfer. Upon surrender, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignees
and in the denominations specified in the instrument of assignment, and this
Warrant shall promptly be cancelled. Notwithstanding the foregoing, a Warrant
may be exercised by a new Holder in accordance with the procedure set forth
herein without having a new Warrant issued. The Warrant Agency shall not be
required to register any transfers if the Holder fails to furnish to the
Company, after a request therefor, an opinion of counsel reasonably satisfactory
to the Company that such transfer is exempt from the registration requirements
of the Securities Act and applicable state securities laws.
<PAGE>
2.4 Division or Combination of Warrants.
This Warrant may not be divided or combined with other Warrants.
2.5 Loss, Theft, Destruction or Mutilation of Warrants. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction upon receipt of indemnity or security reasonably satisfactory to the
Company (the original Warrant Holder's indemnity being satisfactory indemnity in
the event of loss, theft or destruction of any Warrant owned by such Holder),
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of Shares as provided for in such
lost, stolen, destroyed or mutilated Warrant.
2.6 Expenses of Delivery of Warrants.
The Company shall pay all expenses, taxes (other than transfer taxes or
income taxes of the Holder) and other charges payable in connection with the
preparation, issuance and delivery of this Warrant and Shares issuable upon
exercise of this Warrant.
ARTICLE III
PIGGYBACK REGISTRATION RIGHTS
3.1 Incidental Registration.
(a) Right to Include Registrable Securities. If at any time or times
after the date hereof, the Company intends to file a registration statement on
Form S-1, S-2 or S-3 (or other appropriate form) for the registration with the
Commission of an underwritten offering by the Company on its behalf of the
Company's Common Stock, the Company shall notify each of the holders of record
of Registrable Securities at least 30 days prior to each such filing of the
Company's intention to file such a registration statement. Such notice shall
state the number of shares proposed to be registered thereby. If any holder of
Registrable Securities notifies the Company within ten days after receipt of
such notice from the Company of its desire to have included in such registration
statement any of its Registrable Securities, then the Company shall cause such
shares to be included in such registration statement. Notwithstanding the
foregoing, the Company shall not be obligated to effect any registration of
Registrable Securities under this Section 3.1 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans. All
reasonable expenses of registration and offering of the Company and the Holder
of this Warrant participating in the offering including, without limitation,
printing expenses, fees and disbursements of counsel and independent public
accountants, fees and expenses incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD and fees of transfer agents and
registrars, shall be borne by the Company, except that the Holder of this
Warrant shall bear underwriting commissions and discounts attributable to his or
its Registrable Securities being registered, selling commissions and the fees
and expenses of holder's own legal counsel. Notwithstanding the foregoing, if a
registration as it relates to holders of Registrable Securities pursuant to this
Article III is withdrawn at the request of the holder of Registrable Securities
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
holder after the date on which such registration was requested) and if the
requesting holder elects not to have such registration effectuated on his or its
behalf pursuant to this Article III, the requesting holder of Registrable
Securities shall pay the expenses of such registration pro rata in accordance
with the number of his or its Registrable Securities to have been included in
such registration.
(b) Withdrawal. The Company may in its discretion withdraw any
registration statement filed pursuant to this Section 3.1 subsequent to its
filing without liability to the holders of Registrable Securities.
<PAGE>
(c) Allocations. In the event that the managing underwriter for any
such offering described in this Section 3.1 notifies the Company that, in good
faith, it is able to proceed with the proposed offering only with respect to a
smaller number (the "Maximum Number") of securities and Registrable Securities
than the total number of Registrable Securities proposed to be offered and
securities proposed to be offered by the Company, and all others entitled to
registration rights under such registration statement, then the Maximum Number
shall be allocated pro rata in the registration statement for such offering in
accordance with the number of shares proposed to be offered by each such party.
3.2 Registration Procedures.
If and whenever the Company is required to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 3.1, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities and
other securities covered by such registration statement until the earlier
of such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement or the expiration
of nine months after such registration statement becomes effective, and
will furnish to each such seller at least five Business Days prior to the
filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any such amendment or
supplement to which any such seller shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment thereof and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, such documents, if any, incorporated by reference in such
registration statement or prospectus, and such other documents as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and do any
and all other acts and things which may be necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of
its Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this clause (iv) be
obligated to be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(v) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, of an opinion of counsel for the
Company, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), to the effect that the
Registrable Securities are legally and validly issued, fully paid and
non-assessable;
<PAGE>
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first month of the first fiscal
quarter after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(viii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(ix) use its best efforts to list all shares covered by such
registration statement on each securities exchange on which any of the
shares of the related type are then listed or, if the Company's shares are
not then listed on any national securities exchange, use its best efforts
to have such shares covered by such registration statement quoted on
NASDAQ or, at the option of the Company, listed on a national securities
exchange.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
3.3 Underwritten Offerings.
(a) Underwritten Offerings. If any Registrable Securities to be
included in a registration statement as contemplated by Section 3.1 are to be
distributed by or through one or more underwriters, the holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of such holders of Registrable Securities, and the Company will
cooperate with such holders of Registrable Securities to the end that the
representations and warranties in the underwriting agreement and the conditions
precedent to the obligations of such holders of Registrable Securities under
such underwriting agreement shall not include representations, warranties or
conditions that are not customary in underwriting agreements with respect to
combined primary and secondary distributions and shall be otherwise satisfactory
to such holders, provided, however, that the Company shall not be required to
include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon by the Company, the
holders of Registrable Securities and the underwriter selected by the Company.
Such holders of Registrable Securities shall not be required by the Company to
make any representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method or methods of distribution and any other representation required
by law.
<PAGE>
(b) Holdback Agreements. If any registration pursuant to Section 3.1
shall be in connection with an underwritten public offering, each holder of
Registrable Securities agrees by acquisition of such Registrable Securities, if
so required by the managing underwriter, not to effect any public sales or
distribution of Registrable Securities (other than as part of such underwritten
public offering) within the period from seven days prior to the effective date
of such registration statement to 180 days after the effective date of such
registration statement.
3.4 Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified the Company's financial
statements as shall be reasonably necessary, in the opinion of such holders and
such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
3.5 Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act pursuant to Section
3.1, the Company will, and hereby does, indemnify and hold harmless the seller
of any Registrable Securities covered by such registration statement, its
directors and officers, if any, each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages, liabilities or expenses,
joint or several, to which such seller or any such director or officer or
participating or controlling Person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of or are based upon
(x) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment thereof or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer,
participating Person and controlling Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense (or action or proceeding in respect thereof) arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller or any such
director, officer, participating Person or controlling Person specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director, officer, participating Person or
controlling Person and shall survive the transfer of such securities by such
seller. The Company shall agree to a provision for
<PAGE>
contribution relating to such indemnity as shall be reasonably requested by any
seller of Registrable Securities or the underwriters.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 3.1, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 3.5 the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement in or omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus included therein, or any amendment thereof or supplement
thereto, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer, participating Person or
controlling Person and shall survive the transfer of such securities by such
seller. Each prospective seller of Registrable Securities shall agree to a
provision for contribution relating to such indemnity as shall be reasonably
requested by the Company or the underwriters.
(c) Notice of Claims, etc. Promptly after receipt by an indemnified
party of notice the any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 3.5, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3.5 unless the failure to give such notice
materially prejudices the indemnifying party. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
3.6 Rule 144.
The Company will file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
Commission thereunder, and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission.
<PAGE>
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Warrant Shares Purchasable.
The number of Shares purchasable upon the exercise of this Warrant are
subject to adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 4.1.
(a) In case the Company shall (i) declare or pay a dividend on its
outstanding Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of the Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other business
combination in which the Company is the surviving corporation), the number and
kind of Shares purchasable upon exercise of this Warrant shall be adjusted so
that the Holder upon exercise of this Warrant shall be entitled to receive the
aggregate number and kind of Shares or other securities of the Company that the
Holder would have owned or have been entitled to receive after the happening of
any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or, if earlier, any record date with
respect thereto. An adjustment pursuant to this paragraph (a) shall become
effective on the date of the dividend payment, subdivision, combination or
issuance retroactively to the record date with respect thereto, if any, for such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) (i) In case the Company shall, after the date hereof, issue and
sell any shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (all of the foregoing being referred to in this Section 4.1(b)
individually as an "Additional Share" and collectively as "Additional Shares")
(excluding (i) shares issued in any of the transactions described in Section
4.1(a) and (ii) any Shares issuable pursuant to this Warrant), at a price per
share (determined in the case of rights, options, warrants or convertible or
exchangeable securities, by dividing (A) the total amount received or receivable
by the Company in consideration of the sale and issuance of such rights,
options, warrants or convertible or exchangeable securities plus the total
consideration payable to the Company upon exercise or conversion or exchange
thereof, by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) lower than
the then Fair Market Value per share of Common Stock in effect immediately prior
to such sale and issuance, then in each case the number of Shares thereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the number of Shares theretofore purchasable upon the exercise of this Warrant
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately after such sale and issuance and the
denominator of which shall be an amount equal to the sum of (A) the total number
of shares of Common Stock outstanding immediately prior to such sale and
issuance plus (B) the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at the then Fair Market Value per share of Common Stock in effect
immediately prior to such sale and issuance. Such adjustment shall be made
successively whenever such an issuance is made. For the purposes of such
adjustments, the shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of such sale and issuance, and the consideration received by the Company
therefor shall be deemed to be the consideration received by the Company (plus
any underwriting discounts or commissions in connection therewith) for such
rights, options, warrants or convertible or exchangeable securities plus the
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares of Common Stock
purchasable thereby. In case the Company shall (i) sell and issue Additional
Shares for a consideration consisting, in whole or in part, of property other
than cash or its equivalent or (ii) sell and issue Additional Shares together
with one or more other securities as a part of a unit at a price per unit, then
in determining the "price per share" and the "consideration received by the
Company for purposes of the first sentence and the immediately preceding
sentence of this Section 4.1(b)(i), the Board of Directors of the Company shall
<PAGE>
determine, in its discretion, the fair value of said property or the Additional
Shares then being sold as part of such unit, as the case may be, and such
determinations, if made in good faith, shall be binding on the Holder. The
determination of whether any adjustment is required under this Section 4.1(b)(i)
by reason of the sale and issuance of any rights, options, warrants or
convertible or exchangeable securities and the amount of such adjustment, if
any, shall be made only at such time and not at the subsequent time of issuance
of Additional Shares upon the exercise of such rights to subscribe or purchase.
(ii) If the Company shall after the date of issuance of this
Warrant issue or distribute to all or substantially all holders of shares of
Common Stock, evidences of indebtedness, any other securities of the Company or
any property, assets or cash, and if such issuance or distribution is not a
transaction covered by Section 4.1(a) or 4.1(b)(i) above (any such nonexcluded
event a "Dividend"), the number of shares of Common Stock subject to purchase
upon exercise of this Warrant shall be increased (but not decreased), effective
immediately after the record date at which the holders of shares of Common Stock
are determined for purposes of such Dividend, to a number determined by
multiplying the number of Shares subject to purchase immediately before such
Dividend by a fraction, the numerator of which shall be the Fair Market Value
per share of Common Stock on such record date and the denominator of which shall
be the Fair Market Value per share of Common Stock determined as of a date which
is ten (10) Business Days after the date on which the distribution has been
effected. If after the date of issuance of this Warrant the Company repurchases
shares of Common Stock for consideration which exceeds the Fair Market Value per
share of Common Stock (as calculated immediately prior to such repurchase), then
the number of Shares purchasable upon exercise of this Warrant shall be adjusted
in accordance with the foregoing provisions, as if, in lieu of such repurchases,
the Company had (I) distributed a Dividend having a Fair Market Value equal to
the Fair Market Value of all property and cash expended in the repurchases, and
(II) effected a reverse split of the shares of Common Stock in the proportion
required to reduce the number of shares of Common Stock outstanding from (A) the
number of such shares outstanding immediately before such first repurchase to
(B) the number of such shares outstanding immediately following all the
repurchases. In lieu of the adjustments provided for in this Section 4.1(b)(ii)
as a result of a Dividend, at the option of the Company, the Company may instead
pay to the Holder a cash Dividend equal to the amount of consideration to which
the Holder would have been entitled if the Holder had fully exercised this
Warrant immediately prior to the record date at which the holders of shares of
Common Stock were determined for purposes of such Dividend.
(c) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges which resulted in adjustments pursuant to
paragraph (a) or (b) of this Section 4.1, if any thereof shall not have been
exercised, the number of Shares shall be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only shares of
Common Stock purchasable upon exercise of such rights, options, warrants or
conversion or exchange privileges for the shares of Common Stock, if any, were
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (B) such shares of Common Stock so issued
or sold, if any, were issuable for the consideration actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided that no
such readjustment shall have the effect of decreasing the number of Shares
purchasable upon the exercise of this Warrant by an amount in excess of the
amount of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options, warrants or conversion or exchange privileges.
4.2 Notice of Adjustment.
Upon any adjustment of the number of Shares purchasable upon the exercise
of this Warrant as herein provided, the Company shall at the expense of the
Company, within ten days after such adjustment, mail by first class mail,
postage prepaid, to the Holder of this Warrant a notice of such adjustment(s),
accompanied by a report setting forth in reasonable detail (i) the number of
Shares purchasable upon the exercise of the Warrant, (ii) a brief statement of
the facts requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made.
<PAGE>
4.3 No Adjustment for Dividends.
Except as otherwise provided in Section 4.1 hereof, no adjustment in
respect of any dividends or other payments or distributions made to holders of
securities upon exercise of this Warrant shall be made during the term of this
Warrant or upon the exercise of this Warrant.
4.4 No Rights as Stockholders.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder the right to vote or to receive dividends (except as provided in
Section 4.1) or to consent or to receive notice as stockholders in respect of
any meeting of stockholders of the Company for the election of the directors of
the Company or any other matter, or any rights whatsoever as stockholders of the
Company.
ARTICLE V
DEFINITIONS
The following terms, as used in this Warrant, have the following
respective meanings:
"Additional Shares" shall have the meaning set forth in Section 4.1(b)(i).
"Business Day" shall mean a day on which any New York Stock Exchange
member firm is open for business.
"Change of Control" shall mean if (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act) (i) is or shall
become the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) directly or indirectly of 20% or more on a fully diluted basis of
the voting and economic interests of the Company or (ii) shall have obtained the
power (whether or not exercised) to elect a majority of the Company's directors,
or (b) the board of directors of the Company shall cease to consist of a
majority of Continuing Directors, or (c) the Company shall sell substantially
all of its assets.
"Commission" shall mean the Securities and Exchange Commission or any
successor federal agency thereto.
"Common Stock" shall mean the common stock, $.01 par value, of the
Company.
"Company" shall have the meaning set forth in the first paragraph
of this Warrant.
"Continuing Directors" shall mean the (A) directors serving on the Board
of Directors of the Company as of the date of issuance of the Note (the
"Original Directors") or (B) directors who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election, to
the Board was approved by a vote of at least 2/3 of the Original Directors then
still in office (such directors becoming "Additional Original Directors")
immediately following their election or (C) directors who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election.)
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Commission issued thereunder, all as the same shall be in effect at the
time.
"Exercise Price" shall mean $.01 in the aggregate.
<PAGE>
"Fair Market Value" shall have the meaning given to such term in the Note.
"Holder" shall have the meaning set forth in the first paragraph
of this Warrant.
"Maximum Number" shall have the meaning set forth in Section 3.1(c).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The National Association of Securities
Dealers, Inc. Automated Quotation System.
"Note" shall have the meaning set forth in the first paragraph of
this Warrant.
"Note Payment" shall have the meaning set forth in Section 2.1.
"Person" shall mean an individual, an association, a partnership, a
corporation, a limited liability company, a trust or an unincorporated
organization or any other entity or organization.
"Registrable Securities" shall mean a collective reference to the Shares
of Common Stock issuable upon exercise of this Warrant; provided, however, that
any particular Registrable Securities shall cease to be such when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then enforced or (iv) they shall have ceased to be
outstanding.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Commission issued thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning set forth in the first paragraph
of this Warrant.
"Warrant Agency" shall have the meaning set forth in Section 2.1.
"Warrant" shall have the meaning set forth in the first paragraph
of this Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 Notices.
All notices, requests, consents and other communications provided for
herein shall be in writing and shall be effective upon delivery in person,
faxed, or mailed by certified or registered mail, return receipt requested,
postage pre-paid, addressed as follows:
(i) if to the Company, to Workflow Management, Inc., 240
Royal Palm Way, Palm Beach, Florida 33480;
(ii) if to any Holder, to it at such address as may have been
furnished to the Company in writing by such Holder;
<PAGE>
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a Holder) or to the Holder of this
Warrant (in the case of the Company) in accordance with the provisions of this
Section.
6.2 Waivers; Amendments.
No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
hereof or the exercise of any other right or power. The rights and remedies of
the Holder are cumulative and are not exclusive of any rights or remedies which
it would otherwise have. The provisions of this Warrant may be amended, modified
or waived with (and only with) the written consent of the Company and the
Holder.
Any such amendment, modification or waiver effected pursuant to this
Section shall be binding upon the Holder, upon each future Holder thereof and
upon the Company.
No notice or demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other circumstances.
6.3 Governing Law.
This Warrant shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to principles of conflicts of law.
6.4 Survival of Agreements; Representations and Warranties etc.
All representations, warranties and covenants made by the Company herein
or in any certificate or other instrument delivered by or on behalf of it in
connection with the Warrant shall be considered to have been relied upon by the
Holder and shall survive the issuance and delivery of the Warrant, regardless of
any investigation made by the Holder, and shall continue in full force and
effect so long as Warrant is outstanding. All statements in any such certificate
or other instrument shall constitute representations and warranties hereunder.
6.5 Covenants to Bind Successor and Assigns.
All covenants, stipulations, promises and agreements in this Warrant
contained by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
6.6 Severability.
In case any one or more of the provisions contained in this Warrant shall
be invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
6.7 Section Heading.
The sections headings used herein are for convenience of reference only,
are not part of this Warrant and are not to affect the construction of or be
taken into consideration in interpreting this Warrant.
6.8 No Impairment.
The Company shall not by any action, including without limitation amending
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of the Holder against
impairment.
<PAGE>
6.9 Submission to Jurisdiction; Venue.
This Warrant shall be governed by Section 10(f) of the Note with respect
to jurisdiction and venue.
IN WITNESS WHEREOF, WORKFLOW MANAGEMENT, INC. has caused this Warrant to
be executed in its corporate name by one of its officers hereunto duly
authorized, and attested by its Secretary or an Assistant Secretary, all as of
the day and year first above written.
WORKFLOW MANAGEMENT, INC.
By: _____________________
Name: ___________________
Title: __________________
Attest:
________________________________
Name: __________________________
Title: _________________________
<PAGE>
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
TO WORKFLOW MANAGEMENT, INC.
The undersigned hereby irrevocably elects to exercise the right to
purchase represented by the attached Warrant for, and to purchase thereunder,
Shares, as provided for therein, and tenders herewith payment of the Exercise
Price in full in accordance with the terms of the attached Warrant.
Please issue the Shares in the following name or names and denominations:
Dated: ____________, 19__
--------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
--------------------------------------
Print Name Above
<PAGE>
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _________________________________ hereby sells,
assigns and transfers unto _______________________ the attached Warrant,
together with all rights, title and interest therein, and does hereby
irrevocably constitute and appoint _________________ attorney to transfer said
Warrant on the books of WORKFLOW MANAGEMENT, INC. with full power of
substitution in the premises.
--------------------------------------
Note: The above signature
should correspond exactly
with the name on the face of
the attached Warrant.
--------------------------------------
Print Name Above
EXHIBIT 10.10
THIS LEASE AGREEMENT ("Lease") is dated as of the 21st day of December,
1998 for reference purposes only, and is made by and between D&C LLC, a Virginia
limited liability company ("Landlord"); and SFI OF DELAWARE, LLC, a Delaware
limited liability company ("Tenant").
1. DEFINITIONS: Any term that is given a special meaning by this Section 1 or by
any other provision of this Lease (including any exhibits attached hereto) shall
have such meaning when used in this Lease or any addendum or amendment hereto.
1.1 Agreed Interest Rate: "Agreed Interest Rate" means an interest rate of
ten percent (10%) per annum.
1.2 Building: "Building" means that building together with the real
property upon which the Building is located, located at 225 West Olney Road,
Norfolk, Virginia. The Building is located upon the land more particularly
described on Exhibit A.
1.3 Effective Date: "Effective Date" means the date by which the last
signatory to this Lease whose execution is required to make it binding on the
parties hereto shall have executed this Lease, provided that the executed Lease
has been mutually delivered.
1.4 Hazardous Material: "Hazardous Material" means any material or
substance that is now or hereafter prohibited or regulated by any Law or that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
1.5 Law: "Law" means any judicial decision, statute, constitution,
ordinance, resolution, order, or other requirement of any municipal, county,
state, federal, or other government agency or authority having jurisdiction over
the parties to this Lease or the Premises or both, in effect either at the
Effective Date of this Lease or any time during the Lease Term.
1.6 Lease: "Lease" means this lease and Exhibits A and B attached hereto
and made a part hereof, as the same may be amended in accordance with this Lease
from time to time.
1.7 Lease Term: "Lease Term" means that period of time commencing on
December 21, 1998, and ending on December 20, 2008, unless extended or sooner
terminated as provided herein.
1.8 Leasehold Improvements: "Leasehold Improvements" means all
improvements, additions, alterations, and fixtures installed in or on the
Premises by Tenant at its expense which are not Trade Fixtures.
1.9 Lender: "Lender" means (i) any beneficiary, mortgagee, secured party,
or other holder of any deed of trust, mortgage or other written security
instrument or agreement affecting the Premises, and the note or other
obligations secured by it, and (ii) the Landlord under any underlying ground
lease under which Landlord holds an interest in the Premises.
<PAGE>
1.10 Outside Areas: "Outside Areas" means all areas and facilities within
the Premises, other than the Building (including the parking areas, driveways,
pedestrian sidewalk, landscaped areas, trash enclosures, and the like).
1.11 Premises: "Premises" initially means that certain square feet of
space, consisting of the first floor of the Building and containing 10,677
square feet of office space. Tenant also desires to lease from Landlord the
second floor of the Building containing approximately 10,498 square feet
("Second Floor") and the third floor of the Building containing approximately
10,498 square feet ("Third Floor"). The Second Floor and the Third Floor are
presently leased to a third party. Landlord and Tenant desire this Lease to
become effective with respect to the Second Floor and the Third Floor upon
expiration of the existing lease for the Second Floor and the Third Floor. Upon
written notice ("Landlord's Notice") from Landlord to Tenant advising Tenant of
the expiration of the lease on the Second Floor, or the Third Floor, as the case
may be, this Lease shall become effective with respect to the Second Floor
and/or the Third Floor and from and after the date of Landlord's Notice(s), the
Landlord shall lease to Tenant and the Tenant shall lease from Landlord the
Second Floor and the Third Floor, as the case may be, in accordance with the
terms set forth herein. The existing lease on the Second Floor and the Third
Floor expire with respect to the different floors on different dates and
therefore the Landlord's Notice for the Second Floor will be different from the
Landlord's Notice for the Third Floor. From and after the date of the Landlord's
Notice for the Second Floor the term "Premises" shall be deemed to include the
Second Floor and from and after the Landlord's Notice for the Third Floor the
term "Premises" shall be deemed to include the Third Floor.
1.12 Permitted Use: "Permitted Use" means the use of the Premises for
general office, and all other legal uses.
1.13 Real Property Taxes: "Real Property Taxes" means all real property
taxes, assessments, and other charges imposed by any governmental or
quasi-governmental authority, which are levied or assessed against the Premises.
Notwithstanding the foregoing, the term "Real Property Taxes" shall not include
estate, inheritance, transfer, gift or franchise taxes of Landlord or any
federal or state income tax.
1.14 Tenant's Minimum Liability Insurance Coverage: "Tenant's Minimum
Liability Insurance Coverage" means One Million Dollars ($1,000,000).
1.15 Trade Fixtures: "Trade Fixtures" means anything affixed to the
Building or Outside Areas by Tenant at its expense for purposes of trade,
manufacture, ornament, or domestic use (except replacement of similar work or
material owned and installed by Landlord) which can be removed without injury to
the Building or Outside Areas.
<PAGE>
2. DEMISE AND TERM
2.1 Demise of Premises: Landlord hereby leases to Tenant and Tenant leases
from Landlord, for the Lease Term upon the terms and conditions of this Lease,
the Premises subject to the modification thereof pursuant to Section 1.11.
Landlord warrants that (i) the Premises are only subject to those exceptions to
title disclosed in Exhibit "B" hereto, (ii) the Premises are presently in
compliance with all Laws, and (iii) Tenant's conduct of its intended business
operations on the Premises will not violate any Laws. Landlord further covenants
that Tenant shall have the exclusive use of twelve (12) parking spaces to be
determined and designated by Landlord, inclusive as part of the spaces provided
in paragraph 4.3 below.
3. RENT:
3.1 Rent: Commencing on January 1, 1999 and continuing on the first day of
each subsequent month throughout the Lease Term, Tenant shall pay to Landlord
without offset or deduction of any type whatsoever except as expressly provided
herein, monthly rent as described below. While the Premises is comprised of only
the first floor of the Building, the annual rent will be $12.75 per square foot
x 10,677 square feet = $136,132 per annum or $11,344.33 per month. The per annum
rent will increase by 3% over the prior year's annual rent for each year during
the term of this Lease beginning with the second lease year of this Lease. From
and after the Landlord's Notice with respect to the Third Floor, the annual rent
shall increase to reflect the inclusion of the Third Floor as part of the
Premises by adding $133,850 ($12.75 per square foot x 10,498 square feet) to the
existing annual rent for the Premises (as comprised of the first floor);
provided, however, that the amount of $12.75 per square foot shall be increased
by three percent (3%) per annum for each year that passes prior to the date of
the Landlord's Notice for the Third Floor. From and after the Landlord's Notice
with respect to the Second Floor, the annual rent shall increase to reflect the
inclusion of the Second Floor as part of the Premises by adding $133,850 ($12.75
per square foot x 10,498 square feet) to the existing annual rent for the
Premises (as comprised of the first floor and the Third Floor); provided,
however, that the amount of $12.75 per squarefoot shall be increased by three
percent (3%) per annum for each lease year after the first lease year that
passes prior to the date of the Landlord's Notice for the Second Floor. For
instance, if the Landlord's Notice with respect to the Second Floor is sent
between December 21, 2000 and December 20, 2001 (i.e. the third lease year), the
annual rent, subject to proration for the actual portion of the third lease year
during which the Third Floor constitutes a portion of the Premises, would be
$141, 933 (or $13.52 per square foot ($12.75 x 1.03 x 1.03) x 10,498 square
feet, plus the existing rent for the Premises (comprised of the first floor and
the Third Floor, if applicable).
3.2 Payment of Rent: Annual rent will be prorated and paid monthly in
advance on the first day of each calendar month during the Lease Term. All Rent
shall be paid in lawful money of the United States, to Landlord at its address
for notices as set forth below or at such other place as Landlord may designate
from time to time by written notice to Tenant. Tenant's obligation to pay Rent
shall be prorated during any partial month of the Lease Term.
<PAGE>
4. USE OF PREMISES:
4.1 Compliance with Laws: Tenant shall not use or permit any person to use
the Premises in any manner which violates any Laws. At the commencement of the
Lease Term, the Premises shall conform to all requirements of covenants,
conditions, restrictions and encumbrances ("CC&R's"), all underwriter's
requirements, and all Laws applicable thereto. Notwithstanding anything to the
contrary set forth in this Lease, Tenant shall not be required to construct or
pay the cost of complying with any CC&R's, underwriter's requirements, or Laws
requiring construction of improvements in the Premises which are property
capitalized under general accounting principles, unless such compliance is
necessitated solely because of Tenant's particular use of the Premises.
4.2 Use of Premises: Tenant may use the Premises for any Permitted Use.
Landlord represents and warrants that Tenant's use of the Premises is and will
be permitted by all Laws, CC&R's, and fire underwriter's requirements and that
electricity, water, janitorial, heating, ventilating, air conditioning and other
services, at the levels generally provided for office uses in comparable
buildings in the vicinity of the Premises, will be available to Tenant at all
times during the Lease Term, subject to reimbursement as provided in paragraph 7
below.
4.3 Parking and Reservation of Rights: Without charge, Tenant shall have
the nonexclusive use of three parking spaces for every 1,000 square feet leased
in the Building.
4.4 Hazardous Materials:
4.4.1 Tenant's Responsibility: Tenant, at its sole cost, shall
comply with all Laws relating to the storage, use, disposal, emission, or
release of any Hazardous Material by Tenant or its agents, employees or
contractors. If Hazardous Materials stored, used, disposed of, emitted, or
released on or about the Premises by Tenant or its agents, employees or
contractors result in contamination or deterioration of water or soil on or
about the Premises, then Tenant shall promptly take any and all action necessary
to clean up such contamination as required by Law. At any time prior to the
expiration of the Lease Term, Tenant shall have the right to conduct appropriate
tests of water and soil and to deliver to Landlord the results of such tests to
demonstrate that no contamination has occurred as a result of Tenant's use of
the Premises. Tenant shall be solely responsible for, and shall defend,
indemnify and hold Landlord and its shareholders, officers, and directors
harmless from and against, all claims, costs and liabilities, including
attorney's fees and costs, to the extent arising out of or the disposal or
release of Hazardous Materials on or about the Premises by Tenant or its agents,
employees, or contractors.
4.4.2 Landlord's Obligation: Except as stated in subparagraph 4.4.1,
above, and notwithstanding anything to the contrary in any other section of this
Lease, Tenant shall have no responsibility for and Landlord shall be solely
responsible for, and shall defend, indemnify and hold Tenant and its
shareholders, officers, directors, successors and assigns, harmless from and
against, all claims, costs and liabilities, including attorneys' fees and costs,
arising out of the presence at any time of any Hazardous Material on or about
the Premises during the Lease Term. Upon demand by Tenant, Landlord shall
promptly take any and all action necessary to investigate and remediate any such
Hazardous Material contamination as required by Law.
<PAGE>
5. TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS:
5.1 Leasehold Improvements: Tenant may construct any Leasehold Improvement
which does not affect the structural parts or exterior of the Building without
Landlord's prior approval. Any other Leasehold Improvements may be made only
after obtaining Landlord's consent, which consent shall not be unreasonably
withheld or delayed. Landlord shall be deemed to have consented to any Leasehold
Improvement, if Landlord has not reasonably withheld its consent to any
Leasehold Improvement within fifteen (15) days of Tenant's request for
Landlord's consent to the Leasehold Improvement. All Leasehold Improvements
constructed at Tenant's cost shall remain the property of Tenant during the
Lease Term and may be removed from the Premises at any time. Landlord shall have
no lien or other interest whatsoever in any Leasehold Improvement and within ten
(10) days following Tenant's request, Landlord shall execute documents in
reasonable form to evidence Landlord's waiver of any right, title, lien, or
interest in Tenant's Leasehold Improvements located in the Premises. Tenant
shall restore all damage to the Premises caused by any removal of Tenant's
Leasehold Improvements. Within ten (10) days following a request by Tenant,
Landlord shall inform Tenant whether it reserves the right to have any Leasehold
Improvement installed by Tenant removed from the Premises by Tenant upon
termination of this Lease.
5.2 Liens: Tenant shall keep the Premises free from any liens arising out
of any work performed, material furnished, or obligations incurred by Tenant,
its agents, employees or contractors relating to the Premises. If any claim of
lien is recorded, Tenant shall bond against or discharge the same within twenty
(20) days after Tenant's receipt of written notice that the same has been
recorded against the Premises.
6. REPAIR AND MAINTENANCE:
6.1 Tenant's Obligation to Maintain: Except as otherwise provided in
Section 11 (restoration of damage caused by fire and other perils) and in
paragraph 6.2 (Landlord's maintenance obligations), Tenant shall, at all times
during the Lease Term, keep and maintain the Premises in good order, condition
and repair.
6.2 Landlord's Obligation to Maintain: Landlord shall perform and
construct at its sole cost and expense, and Tenant shall have no responsibility
to perform or construct, any repair, maintenance or improvement (i) necessitated
by the acts or omissions of Landlord or its agents, employees or contractors,
(ii) occasioned by fire, acts of God or other casualty or by the exercise of the
power of eminent domain, (iii) required as a consequence of any violation of Law
or construction defect in the Premises as of the Effective Date, (iv) for which
Landlord has a right of reimbursement from others, (v) which could be treated as
a "capital expenditure" under generally accepted accounting principles, (vi) to
the structural parts of the Premises and the Building (including the walls,
floors, ceilings, roof, bearing walls, demising walls and foundations),
necessary to maintain a water-tight roof membrane and to all utility and other
building systems serving the Premises, including, without limitation, the HVAC,
plumbing and electrical systems, and (vii) to any and all of the Outside Areas.
<PAGE>
7. UTILITIES AND JANITORIAL SERVICE: Tenant shall reimburse to Landlord
one-third of all charges for water, gas, electricity, sewer service, waste
pick-up, and any other utilities, materials and janitorial services furnished at
the request of or used by Tenant in the Premises while the Premises are
comprised of only the first floor, two-thirds of such amount when the Third
Floor becomes part of the Premises and the entire amount when the Second Floor
becomes part of the Premises. Tenant shall be solely responsible for the costs
of any utility services which serve just the Premises, such as telephone and
cable television.
8. TAXES:
8.1 Landlord's Obligation: Landlord shall pay before delinquency any and
all Real Property Taxes imposed against the Premises or Landlord's interest in
the Premises. Notwithstanding the foregoing, Tenant shall reimburse to Landlord
all increases in real property which arise as a result of an increase in the
real property tax assessment above the 1997 real property tax assessment of
$1,963,100.00 which occur during the Lease Term. Tenant's reimbursement
obligation for such increase shall be prorated as follows: (i) one-third of the
increase while the Premises are just the first floor; (ii) two-thirds of the
increase when the Third Floor is added; and (iii) the entire amount of the
increase when the Second Floor is added.
8.2 Taxes on Tenant's Property: Tenant shall pay before delinquency any
and all taxes, assessments, license fees, and public charges levied, assessed,
or imposed against the Trade Fixtures or other personal property of Tenant
situated within the Premises.
9. INSURANCE:
9.1 Tenant's Insurance: Tenant shall maintain in full force and effect at
all times during the Lease Term the policies of insurance described below.
Copies of duly executed certificates for such policies shall be provided to
Landlord upon Landlord's request.
9.1.1 Liability Insurance: A policy or policies of commercial
general liability insurance, including property damage, against liability for
personal injury, bodily injury, death, and damage to property occurring in or
about, or resulting from an occurrence in or about, the Premises with combined
single limit coverage of not less than $1,000,000, naming Landlord as an
additional insured, containing a cross liability endorsement.
9.1.2 Casualty Insurance: A policy or policies of fire and property
damage insuring the personal property, inventory, and trade fixtures of Tenant
within the Premises. The proceeds from any of such policies shall be used for
the repair or replacement of such items so insured if the Lease is not
terminated, or to Tenant if the Lease is terminated.
9.2 Landlord's Insurance: Landlord shall maintain in full force and effect
at all times during the Lease Term:
9.2.1 A policy or policies of fire and property damage insurance in
standard "all risk" form insuring Landlord against loss from physical damage to
the Building and the Premises with coverage of not less than one hundred percent
(100%) of the full replacement cost thereof.
<PAGE>
9.3 Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in this Lease, the parties hereto release each other, and their
respective agents, employees, subtenants, and contractors, from any liability
for injury to any person or damage to property that arises out of or incident to
any peril covered by property insurance carried by the parties or out of a peril
of the type that would normally be covered by the insurance required to be
carried under the terms of this Lease, whether due to the negligence of Landlord
or Tenant or their respective agents, employees, contractors, or invitees, or
any other cause. Each party shall cause each insurance policy obtained by it to
provide that the insurer waives all right of recovery by way of subrogation
against the other party and its agents and employees in connection with any
injury or damage covered by such policy.
10. INDEMNITY:
10.1 Indemnification of Landlord: Tenant shall hold harmless, indemnify
and defend Landlord and its employees and agents from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage to the extent resulting from the negligent act or omission of Tenant, its
agents, contractors, or employees, a breach by Tenant of this Lease, or a
violation by Tenant of any Law or Private Restriction.
10.2 Indemnification of Tenant: Landlord shall hold harmless, indemnify
and defend Tenant and its employees and agents, with competent counsel
reasonably satisfactory to Tenant, from all liability, penalties, losses,
damages, costs, expenses, cause of action, claims and/or judgments arising by
reason of any death, bodily injury, personal injury or property damage to the
extent resulting from the negligent act or omission of Landlord or its agents,
contractors, or employees, a breach by Landlord of this Lease, or a violation by
Landlord of any Law or Private Restriction.
11. DAMAGE & DESTRUCTION:
11.1 Landlord's Duty to Restore: If the Premises or the Building is
damaged by any peril, Landlord shall restore the same to substantially the same
condition existing immediately prior to such damage, unless the Lease is
terminated by Landlord pursuant to paragraph 11.2 or by Tenant pursuant to
paragraph 11.3.
11.2 Landlord's Right to Terminate: Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within sixty (60) days after the date of such damage:
11.2.1 The Building is damaged by any peril both (i) not covered by
the type of insurance Landlord is required to carry pursuant to paragraph 9.2
and (ii) not actually covered by valid and collectible insurance actually
carried by Landlord and in force at the time of such damage or destruction, to
such an extent that the estimated cost to restore the Building exceeds ten
percent (10%) of the then actual replacement cost thereof; or
<PAGE>
11.2.2 The Premises are damaged by any peril during the last six (6)
months of the Lease Term and the restoration of the Premises cannot be
substantially completed within sixty (60) days after the date of such damage;
provided, however, that Landlord may not terminate this Lease pursuant to this
subparagraph 11.2.2 if Tenant, at the time of such damage, has an express
written option to further extend the term of this Lease and Tenant exercises
such option to so further extend the Lease Term within thirty (30) days
following the delivery to Tenant of Landlord's written termination notice.
11.3 Tenant's Right to Abatement and Termination: If all or any portion of
the Premises should become unsuitable for Tenant's use as a consequence of fire,
casualty, cessation of utilities or other services required to be provided to
the Premises by Landlord, or the presence of any Hazardous Material which does
not result from Tenant's use, storage or disposal of such material in violation
of applicable Law in or about the Premises, then Tenant shall be entitled to an
abatement of all Monthly Rent payable hereunder to the extent of the
interference with Tenant's use of the Premises occasioned thereby and, if such
interference cannot be corrected or the damage resulting therefrom repaired so
that the Premises will be reasonably suitable for Tenant's intended use within
ninety (90) days following the occurrence of such event, then Tenant also shall
be entitled to terminate this Lease by delivery of written notice of termination
to Landlord at any time prior to cessation of the interfering event or
restoration of the Premises.
12. CONDEMNATION:
12.1 Taking of Premises: If all or any part of the Premises or the
Building is taken by means of (i) any taking by the exercise of the power of
eminent domain, whether by legal proceedings or otherwise, (ii) a voluntary sale
or transfer by Landlord to any condemnor under threat of condemnation or while
legal proceedings for condemnation are pending, or (iii) any taking by inverse
condemnation (a "Condemnation"), and any material portion of the Premises or the
Building cannot be reconstructed within a reasonable period of time and thereby
made reasonably suitable for Tenant's continued occupancy for the Permitted Use,
then Tenant shall have the option to terminate this Lease. Any such option to
terminate by Tenant must be exercised within a reasonable period of time, to be
effective as of the date that possession of the Premises is taken by the
condemning authority.
12.2 Restoration Following the Taking: If any part of the Premises or the
Building is taken by Condemnation and this Lease is not terminated, then
Landlord shall make all repairs and alterations that are reasonably necessary to
make that which is not taken a complete architectural unit reasonably suitable
for Tenant's occupancy for the Permitted Use.
12.3 Abatement of Rent: If any portion of the Premises is taken by
Condemnation and this Lease is not terminated, then as of the date possession is
taken, the rent shall be reduced in the same proportion that the square footage
of the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the square footage of the remainder of the Premises.
12.4 Temporary Taking: If any portion of the Premises is temporarily taken
by Condemnation and such taking affects Tenant's ability to use the Premises for
the Permitted Use, then Tenant shall have to option to terminate this Lease,
effective on the date possession is taken by the condemnor.
<PAGE>
12.5 Division of Condemnation Award: Tenant shall be entitled to receive
any damages awarded by the court in connection with a Condemnation for leasehold
improvements installed in the Premises at Tenant's expense and Tenant's moving
costs. The entire balance of the award shall be the property of Landlord.
13. DEFAULT AND REMEDIES:
13.1 Events of Tenant's Default: Tenant shall be in default of its
obligations under this Lease if any of the following events occurs:
13.1.1 Tenant fails to pay any rent or other amounts due hereunder
when due and such failure is not cured within five (5) days after Landlord
notifies Tenant in writing that such nonpayment was not made when due; or
13.1.2 Tenant fails to perform any term, covenant, or condition of
this Lease (except those requiring the payment of money to Landlord) and Tenant
fails to cure such default within thirty (30) days after delivery of written
notice from Landlord specifying the nature of such default where such default
could reasonably be cured within said thirty (30)- day period, or fails to
commence such cure within said thirty (30)-day period and thereafter
continuously with due diligence prosecute such cure to completion where such
default could not reasonably be cured within said thirty (30)-day period; or
13.1.3 Tenant shall have made a general assignment of its assets
for the benefit of its creditors; or
13.1.4 A court shall have made or entered any decree or order with
respect to Tenant, or Tenant shall have submitted to or sought a decree or order
(or a petition or pleading shall have been filed in connection therewith) which:
(i) grants or constitutes (or seeks) an order for relief, appointment of a
trustee, or confirmation of a reorganization plan under the bankruptcy laws of
the United States; (ii) approves as properly filed (or seeks such approval of) a
petition seeking liquidation or reorganization under said bankruptcy laws or any
other debtor's relief law or statute of the United States or any state thereof;
or (iii) otherwise directs (or seeks) the winding up or liquidation of Tenant;
and such petition, decree or order shall have continued in effect for a period
of thirty (30) or more days.
13.2 Landlord's Remedies: In the event of any default by Tenant, Landlord
may, at Landlord's election, terminate this lease by giving Tenant written
notice of termination, in which event this Lease shall terminate on the date set
forth for termination in such notice. Any termination under this subparagraph
shall not relieve Tenant from its obligation to pay sums then due Landlord or
from any claim against Tenant for damages or rent previously accrued or then
accruing. In no event shall any one or more of the following actions by
Landlord, in the absence of a written election by Landlord to terminate this
Lease, constitute a termination of this Lease:
<PAGE>
13.2.1 Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;
13.2.2 Consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to the provisions hereof or otherwise; or
13.2.3 Any other action by Landlord or Landlord's agents intended to
mitigate the adverse effects of any breach of this Lease by Tenant, including
without limitation any action taken to maintain and preserve the Premises or any
action taken to relet the Premises or any portion thereof, for the account of
Tenant and in the name of Tenant.
13.3 Rights Upon Termination: In the event Landlord terminates this Lease,
Landlord shall be entitled, at Landlord's election, to actual damages in an
amount not to exceed:
13.3.1 The value at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the prime rate published in the Wall
Street Journal at the time of award plus one percent (1%); and
13.3.2 Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom.
13.3.3 Notwithstanding anything to the contrary set forth in this
Lease, Landlord shall use its best efforts to mitigate any damages resulting
from any default by Tenant, and Tenant shall not in any event be liable for any
damages reasonably mitigable by Landlord. Landlord waives any right of
distraint, distress for rent or landlord's lien that may arise at law.
13.4 Landlord's Default and Tenant's Remedies: In the event Landlord fails
to perform any of its obligations under this Lease and fails to cure such
default within thirty (30) days after written notice from Tenant specifying the
nature of such default where such default could reasonably be cured within said
thirty (30)-day period, or fails to commence such cure within said thirty
(30)-day period and thereafter continuously with due diligence prosecute such
cure to completion where such default could not reasonably be cured within said
thirty (30)-day period, then Tenant shall have the following remedies:
13.4.1 Tenant may proceed in equity or at law to compel Landlord to
perform its obligations and/or to recover damages proximately caused by such
failure to perform (except to the extent Tenant has waived its right to damages
resulting from injury to person or damage to property as paragraph 9.3).
13.4.2 Tenant may cure any default of Landlord at Landlord's cost.
If Tenant at any time by reason of Landlord's default reasonably pays any sum or
does any act that requires the payment of any sum, the sum paid by Tenant shall
be immediately due from Landlord to Tenant at the time the sum is paid, and
shall bear interest at the Agreed Interest Rate from the date the sum is paid by
<PAGE>
Tenant until Tenant is reimbursed by Landlord. Any such amount shall be payable
by Landlord to Tenant within ten (10) days following Tenant's written demand for
payment and if not so paid, may be offset against the next installments of rent
payable by Tenant to Landlord under this Lease.
13.5 Waiver: One party's consent or approval of any act by the other party
requiring the first party's consent or approval shall not be deemed to waive or
render unnecessary the first party's consent to or approval of any subsequent
similar act by the other party. The receipt by Landlord of any rent or payment
with or without knowledge of the breach of any other provisions hereof shall not
be deemed a waiver of any such breach unless such waiver is in writing and
signed by Landlord. No delay or omission in the exercise of any right or remedy
accruing to either party upon any breach by the other party under this Lease
shall impair such right or remedy or be construed as a waiver of any such breach
theretofore or thereafter occurring. The waiver by either party of any breach of
any provision of this Lease shall not be deemed to be a waiver of any subsequent
breach of the same or any other provisions herein contained.
14. ASSIGNMENT AND SUBLETTING:
14.1 By Tenant: The following provisions shall apply to any assignment or
subletting by Tenant:
14.1.1 Tenant shall not sublet the Premises or assign or encumber
its interest in this Lease, without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed. Landlord shall be deemed
to have consented to any proposed assignment or subletting if it has not
reasonably withheld its consent to any such proposed assignment or subletting
within fifteen (15) days of Tenant's request for consent.
14.1.2 Consent by Landlord to one or more assignments or
encumbrances of this Lease or to one or more sublettings of the Premises shall
not be deemed to be a consent to any subsequent assignment, encumbrance, or
subletting.
14.1.3 Notwithstanding the foregoing, Tenant may assign this Lease
or sublet all or a portion of the Premises without Landlord's consent (i) to a
parent, subsidiary, or an entity under common control with Tenant, (ii) in
connection with the transfer of substantially all of the stock of Tenant, or
(iii) in connection with the sale of substantially all of Tenant's assets
located in the Premises.
14.2 By Landlord: Landlord and his successors in interest shall have the
right to transfer their interest in the Building. As used herein, the term
"Landlord" shall mean the Landlord originally named herein, but following any
transfer of its interest in the Premises and the Property, the term "Landlord"
shall thereafter mean the transferee of such interest.
15. TERMINATION:
15.1 Surrender of Premises: Immediately prior to the expiration or upon
the earlier termination of this Lease, Tenant shall remove all Leasehold
Improvements installed in the Premises by Tenant (which Landlord has not agreed
may remain in the Premises), trade fixtures and other personal property, repair
<PAGE>
all damage caused by the installation and removal of such property, and vacate
and surrender the Premises to Landlord in the same condition as received,
reasonable wear and tear, condemnations, perils and Hazardous Materials not
placed on or about the Premises by Tenant, its agents, employees or contractors
excepted.
15.2 Holding Over: Any holding over after the expiration of the Lease Term
and with the written consent of Landlord shall be construed to be a tenancy from
month to month on the same terms and conditions herein specified insofar as
applicable.
16. GENERAL PROVISIONS:
16.1 Landlord's Right to Enter: Landlord or its agents may enter the
Premises at any reasonable time for the purpose of (i) inspecting the same, (ii)
posting notices of nonresponsibility, (iii) supplying any service to be provided
by Landlord to Tenant, (iv) making necessary alterations, additions or repairs,
(v) performing Tenant's obligations when Tenant has failed to do so within
thirty (30) days after written notice from Landlord, and/or (vi) in case of an
emergency. However, Landlord may not so enter the Premises until it has first
given Tenant at least forty-eight (48) hours prior written notice of its
intention to do so (except in case of an emergency) and complies with all of
Tenant's security regulations. If Tenant so elects, Landlord shall be
accompanied by a representative of Tenant during any such entry. Landlord shall
not have the right to open or inspect confidential files or safes, and Landlord
shall not disclose to others any confidential information regarding Tenant's
business learned by Landlord during any such entry into the Premises.
16.2 Estoppel Certificates: Each party agrees, following any request by
the other, promptly to execute and deliver an estoppel certificate upon which
the requesting party and any others it designates may rely (i) certifying that
this Lease is unmodified and in full force and effect, or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect, (ii) stating the date to which the Monthly Rent and
other charges are paid in advance, if any, (iii) acknowledging that there are
not, to the certifying party's knowledge, any uncured defaults on the part of
the other party hereunder, or if there are, stating their nature, and (iv)
certifying such other information about the Lease as may be reasonably required
by the requesting party.
16.3 Reimbursable Expenditures: Any expenditure by a party permitted or
required under this Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the actual cost
to the demanding party of the goods and/or services giving rise to such
expenditure, which cost shall not exceed the fair market value of such goods
and/or services; shall be reasonably incurred; and shall be substantiated by
documentary evidence available for inspection and review by the other party or
its representative during normal business hours.
16.4 Notices: Any notice required or desired to be given regarding this
Lease shall be in writing and may be personally served, or in lieu of personal
service may be given by mail. If given by mail, such notice shall be deemed to
have been given (i) on the third business day after mailing if such notice was
<PAGE>
deposited in the United States mail, certified and postage prepaid, addressed to
the party to be served at its address set forth below its signature, and (ii) in
all other cases when actually received. Either party may change its address by
giving notice of same in accordance with this paragraph.
16.5 Attorneys' Fees: In the event either party shall bring any action or
legal proceeding for an alleged breach of any provision of this Lease, to
recover Rent, to terminate this Lease or to otherwise enforce, protect or
establish any term or covenant of this Lease or right of either party, the
prevailing party shall be entitled to recover as a part of such action or
proceedings, or in a separate action brought for the purpose, reasonable
attorneys' fees and court costs as may be fixed by the court.
16.6 Authority to Execute: Each individual executing this Lease on behalf
of a corporation represents and warrants that he or she is duly authorized to
execute and deliver this Lease on behalf of the entity on behalf of which this
Lease was executed and that this Lease is binding upon the entity on behalf of
which this Lease was executed in accordance with its terms.
16.7 Miscellaneous: Should any provision of this Lease prove to be invalid
or illegal, such invalidity or illegality shall in no way affect, impair or
invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. This Lease shall be governed by the laws of the
Commonwealth of Virginia. Time is of the essence with respect to the performance
of every provision of this Lease in which time of performance is a factor. Any
executed copy of this Lease shall be deemed an original for all purposes. This
Lease shall, subject to the provisions regarding assignment, apply to and bind
the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. The language in all parts of this Lease shall in all cases
be construed as a whole according to its fair meaning, and not strictly for or
against either Landlord or Tenant. The captions used in this Lease are for
convenience only and shall not be considered in the construction or
interpretation of any provision hereof. When the context of this Lease requires,
the neuter gender includes the masculine, the feminine, a partnership or
corporation or joint venture, and the singular includes the plural. The terms
"shall," "will," and "agree" are mandatory. The term "may" is permissive. When a
party is required to do something by this Lease, it shall do so at its sole cost
and expense without right of reimbursement from the other party unless specific
provision is made therefor. Whenever one party's consent or approval is required
to be given as a condition to the other party's right to take an action pursuant
to this Lease, then such consent or approval shall not be unreasonably withheld
or delayed. Landlord shall not become or be deemed a partner or a joint venturer
of Tenant by reason of this Lease.
16.8 Brokerage Commissions: Each party warrants to the other that it has
not had any dealings with any real estate brokers or salesmen or incurred any
obligations for the payment of real estate brokerage commissions or finder's
fees which would be earned or due and payable by reason of the execution of this
Lease.
16.9 Memorandum of Lease: At Tenant's request, Landlord shall execute in
recordable form, a "Memorandum of Lease" referencing the Lease and setting forth
the true and complete legal description and assessor's parcel number of the
Property in a form reasonably acceptable to Tenant, and which Memorandum of
Lease shall be recorded in the Clerk's Office of the City of Norfolk, Virginia.
<PAGE>
16.10 Subordination: The following provisions shall govern the
relationship of this Lease and any underlying lease, mortgage or deed of trust
which now or hereafter affects the Premises, and any renewal, modification,
consolidation, replacement or extension thereof (collectively, "Security
Instruments"), which have been or may hereafter be executed affecting the
Premises:
16.10.1 This Lease shall not be subject or subordinate to any
existing or future Security Instruments unless the holder of the Security
Instrument in question executes a recognition and nondisturbance agreement which
(i) provides that this Lease shall not be terminated so long as Tenant is not in
default under this Lease and (ii) recognizes all of Tenant's rights hereunder.
Landlord agrees to use diligent efforts to obtain a recognition and
non-disturbance agreement from the holders of any existing (or future) Security
Instruments in a form reasonably acceptable to Tenant as soon as reasonably
practicable.
16.10.2 Tenant shall execute and deliver, from time to time, as may
be requested by Landlord estoppel certificates in form reasonably acceptable to
Landlord. Tenant's failure to so execute an estoppel certificate shall be deemed
to be a default under the terms of this Lease.
16.11 Quiet Possession: Tenant shall peacefully have, hold and enjoy the
Premises, subject to the other terms of this Lease, provided that Tenant pays
the Monthly Rent and performs all of Tenant's covenants and agreements contained
in this Lease. This covenant and the other covenants of Landlord contained in
this Lease shall be binding upon Landlord and its successors only with respect
to breaches occurring during its and their respective ownerships of Landlord's
interest hereunder.
16.12 Entire Agreement: The Lease and the documents referred to herein
constitute the entire agreement between the parties, and there are no binding
agreements or representations between the parties except as expressed herein. No
subsequent change or addition to this Lease shall be binding unless in writing
and signed by the parties hereto. This Lease supersedes and cancels any prior
leases or agreements, oral or written, between Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date of
this Lease.
TENANT:
SFI OF DELAWARE, LLC, a Delaware
limited liability company
By: /s/ Michael Feldman
--------------------------------------
Michael Feldman, Senior Vice President
<PAGE>
Address for Notices:
Post Office Box 12635
Norfolk, VA 23541
LANDLORD:
D&C LLC, a Virginia limited liability
company
By: /s/ Thomas B. D'Agostino
--------------------------------
Thomas B. D'Agostino, Manager
By: /s/ Thomas B. D'Agostino, Jr.
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Thomas B. D'Agostino, Jr., Manager
Address for Notices:
______________________________________
______________________________________
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EXHIBIT "A"
All that certain piece or parcel of land, together with the building and
improvements thereon, situate, lying and being in the City of Norfolk, Virginia
and bounded and described as follows:
Beginning at the intersection of the dividing line between the property shown on
the plat hereinafter specified as owned by the City of Norfolk and as the
property owned by Real Estate Investment Group of Virginia and the new northern
line of Grace Street, said point being distant 156.00 feet westwardly from the
northwestern corner of Grace Street and Boush Street as now established; thence
along the aforesaid dividing line N 6(Degree)-26'-43" W, 172.73 feet to the
center line of a 30 foot wide drainage easement, thence along said line N
75(Degree)-58'-18" E, 54.43 feet to the dividing line between the property shown
on said plat as owned by the City of Norfolk and as the property owned by Frank
Batten and the Virginia National Bank, Executors and Trustees of the Estate of
Alvah H. Martin, deceased; thence along said line N17(Degree)-06'-43" W, 69.66
feet to the southern line of Olney Road; thence along said line N
63(Degree)-15'-43" W, 82.53 feet to a point; thence continuing northwestwardly,
westwardly and southwestwardly along said line which follows the arc of a curve
to the left, the radius of which is 50.00 feet, an arc distance of 65.43 feet to
the new eastern line of Virginia Beach Boulevard extended; thence continuing
southwestwardly along last-mentioned line which follows the arc of a curve to
the left, the radius of which is 803.41 feet, an arc distance of 78.87 feet to a
point; thence continuing southwestwardly along said line which follows the arc
of a curve to the left, the radius of which is 50.00 feet, an arc distance of
35.84 feet to the eastern line of Duke Street; thence along said line S
4(Degree)-55'-43" E, 191.54 feet to a point; thence southeastwardly and
eastwardly along the arc of a curve to the left, the radius of which is 10.00
feet, an arc distance of 15.98 feet to the new northern line of Grace Street;
thence along said line N 83(Degree)-31'-17" E, 153.61 feet to the point of
Beginning, all of which is shown on a plat entitled "Plat Showing Property of
City of Norfolk, Scale 1" = 50', April, 1966, Division of Surveys, Department of
Public Works, Norfolk, Virginia", which plat is duly recorded in the Clerk's
Office of the Circuit Court of the City of Norfolk, Virginia, in Map Book 23, at
page 65.
PARCEL 2
ALL THAT certain lot, piece or parcel of land, lying, situate and being in
the City of Norfolk, Virginia and being the shaded parcel bearing the legend
"This area to be vacated 6060 square feet or 0.13912 acre" as shown on that
certain plat entitled "PLAT OF PROPERTY PROPOSED TO BE VACATED BY THE CITY OF
NORFOLK FOR MUTUAL FEDERAL SAVINGS & LOAN" Scale: 1" = 40', dated July 28, 1978,
and made by Baldwin and Gregg, Engineers-Planners-Surveyors,
Norfolk-Portsmouth-Fairfax, Virginia, a copy of which is attached to a quitclaim
deed dated February 13, 1979, between the City of Norfolk and Mutual Federal
Savings and Loan Association and recorded in the Clerk's Office of the Circuit
Court of the City of Norfolk, Virginia, in Deed Book 1484, at page 710, and with
reference to which plat said property is more particularly bounded and described
as follows:
Beginning at the intersection of the eastern line of Duke Street extended with
the northern line of Grace Street extended, and from said point along the
eastern line of Duke Street N. 04(Degree) 55' 43" W., a distance of 201.27 feet
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to a point which marks the true point of beginning; thence from said point of
beginning N. 04(Degree) 55' 43" W., a distance of 48.54 feet to a point; thence
along the arc of a curve to the right having a radius of 266.15 feet, an arc
distance of 89.82 feet to a point; thence along the arc of a curve to the right
having a radius of 15 feet, an arc distance of 25 feet to a point; thence along
the southerly line of Olney Road along the arc of a curve to the right having a
radius of 877.53 feet, an arc distance of 104.54 feet to a point; thence turning
and running along the arc of a curve to the left having a radius of 50 feet and
an arc distance of 65.43 feet to a point; thence along the arc of a curve to the
left having a radius of 803.41 feet, an arc distance of 78.88 feet to a point;
thence along the arc of a curve to the left having a radius of 50 feet, an arc
distance of 35.84 feet to the point of beginning, said parcel containing .13912
acres, more or less.
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EXHIBIT "B"
P I O N E E R T I T L E
Agent for OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
Part II, Schedule B
Commitment No. A45033-26,597
II. Schedule B of the policy or policies to be issued will contain exceptions to
the following matters unless the same are disposed of to the satisfaction of the
Company:
1. Defects, liens, encumbrances, adverse claims, or other matters, if
any, created, first appearing in the public records or attaching
subsequent to the effective date hereof but prior to the date the
proposed Insured acquires for value of record the estate or interest
or mortgage thereon covered by this Commitment.
2. Special Exceptions:
(1) Real Estate taxes accruing from the beginning of the
third quarter of the fiscal year 1998/1999 and
subsequent quarterly payments are not yet due and
payable as to both Parcels.
(2) Storm water taxes not yet due and payable as to both
Parcels.
(3) Easement to Virginia Electric and Power Company as
recorded in the Clerk's office of the Circuit Court of
Norfolk in Deed Book 1095, at page 551 as to Parcel 1.
(4) Thirty (30) foot easement for drainage easement to the
City of Norfolk as shown on the recorded plat of the
subdivision and by instrument recorded in the aforesaid
Clerk's Office in Deed Book 1080, at page 148 as to
Parcel 1.
(5) The following are as shown on physical survey dated
August 10, 1998 and made by Lee S. Rood, P.C.
(a) Light Pole along the northern lot line.
(b) Bus Stop sign along the northern lot line.
(c) Telephone manholes along the north western
corner.
EXHIBIT 10.11
LEASE AND OPTION AGREEMENT
This LEASE AND OPTION AGREEMENT is made as of this 8th day of January,
1999, by and between FJK TEEYJAY LIMITED, a Florida limited partnership
("Landlord"), and WORKFLOW MANAGEMENT, INC., a Delaware corporation ("Tenant").
RECITALS:
Landlord is the owner of certain improved real property (the "Premises")
located at 241 Royal Palm Way, Palm Beach, Florida, the legal description of
which is attached to, and incorporated in, this Lease as Exhibit A. Landlord
desires to lease the Premises to Tenant and Tenant desires to lease and rent the
Premises from Landlord under the following terms and conditions.
NOW, THEREFORE, WITNESSETH:
Landlord leases to Tenant, and Tenant rents and hires from Landlord, the
Premises subject to the terms and provisions set forth in this Lease. Tenant may
use the Premises for any lawful purpose subject to the provisions of paragraph
21 below.
This Lease shall be upon the following terms and conditions, which the
respective parties covenant and agree to perform and fulfill:
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1. Term:
(a) Initial and Renewal Term. The initial term of this Lease shall
commence January 8, 1999 ("Lease Commencement Date"), and ending November 30,
2009. Tenant shall have the option to extend and renew the term of this Lease,
subject to all of the terms and conditions hereof, at the end of the initial
term for two (2) additional periods of five (5) years each provided (a) Tenant
gives Landlord at least six (6) months prior written notice of its election to
extend and renew the term and (b) Tenant is not in default under the terms
hereof at the time such notice is given or on the last day of the preceding
term.
(b) Option. Tenant shall have the option ("Option") to purchase the
Premises at anytime during the term of this Lease and during any renewals of the
term of this Lease, subject to the terms and provisions set forth below. Tenant
shall exercise the Option by giving Landlord written notice ("Exercise Notice")
of its election to exercise the Option setting forth the date for closing not to
exceed thirty (30) days from the date of the Exercise Notice. Except as provided
below, Tenant may exercise the Option for a purchase price ("Option Purchase
Price") equal to the current "Annual Per Square Foot Rental Rate" (defined
below) multiplied by the "Building Square Footage" (defined below) multiplied by
12.5. Notwithstanding the preceding provisions of this subparagraph in the event
(i) Tenant receives a "Purchase Notice" as defined in an agreement ("Put
Agreement") dated January 8, 1998, by and among Landlord, Tenant and
NationsBank, N.A. ("NationsBank"), the form of which is attached to and
incorporated in this Lease as Exhibit B and (ii) Tenant is not in default under
this Lease with respect to payment of "Base Rent" (defined below) beyond any
applicable cure period, then Tenant shall have the right to exercise the Option
for the following purchase price ("Discounted Purchase Price") for the following
periods:
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Period Discounted Purchase Price
Option Year 1 January 8, 1999 through January 7, $3,000,000
2000
Option Year 2 January 8, 2000 through January 7, $3,250,000
2001
Option Year 3 January 8, 2001 through January 7, $3,500,000
2002
Option Year 4 January 8, 2002 through January 7, $3,780,000
2003
Option Year 5 January 8, 2003 through January 7, $4,082,000
2004
Notwithstanding the foregoing, Landlord and Tenant agree (i) that if Tenant
receives a Purchase Notice from NationsBank during Option Year 1 and Tenant has
defaulted under this Lease with respect to the payment of Base Rent beyond the
applicable cure period set forth in this Lease, the Discounted Purchase Price
during Option Year 1 shall be increased to $3,250,000 and (ii) Tenant shall only
have the right to exercise the Option during Option Year 1 and the first 10
months of Option Year 2 if and only if Tenant has received the Purchase Notice.
Tenant shall have the right to exercise the Option at it sole discretion at any
time after the end of the 10th month of Option Year 2 (October 8, 2000).
(c) Terms of Purchase. In the event Tenant exercises the Option,
this Lease shall become a binding agreement for the purchase and sale of the
Premises subject to the terms and conditions set forth below. Landlord shall
convey title to the Premises by general warranty deed ("Deed") free and clear of
all liens and encumbrances and subject only to such current taxes, easements and
matters of survey as shall exist as of December 30, 1998, or such additional
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matters of title or survey as may be subsequently approved by Tenant or which do
not render title unmarketable and prevent the continued use of the Premises as a
commercial office building. This Lease shall terminate as of the date of
delivery of the Deed and Base Rent shall be prorated as of such date. Closing
shall occur within thirty (30) days of the date of the Exercise Notice. Landlord
shall deliver an Owner's Affidavit with respect to the absence of mechanic's
lien and parties in possession, evidence of the good standing of Landlord under
the laws of the State of Florida, a resolution of the partners of Landlord
evidencing their agreement to convey the Premises, a FIRPTA Affidavit, a 1099-S
form and such other documents as may be reasonably required by Tenant's title
insurance company or Tenant. Landlord shall be responsible for the costs and
expenses incurred under all service contracts which Landlord maintains affecting
the Premises prior to the date of closing and shall terminate all such contracts
as of the date of closing. Any service contracts which Tenant maintains with
respect to the Premises under this Lease shall remain Tenant's obligation to pay
here. Landlord shall pay for all documentary stamps related to the delivery of
the Deed and shall pay for Tenant's owner's title insurance policy. Landlord
shall not be responsible for the payment of real property taxes and other costs
and expenses typically prorated in similar transactions in Florida. Tenant shall
pay to Landlord the Purchase Price, or Discounted Price, as the case may be, in
either cash or other certified funds upon delivery of the Deed and the other
documents described in this paragraph.
(d) Right of First Refusal. Landlord hereby grants to Tenant a right
of first refusal with respect to any offer to purchase the Premises (acceptable
to Landlord) during the term of this Lease. Landlord shall give Tenant written
notice and a copy of the offer to purchase the Premises. Tenant shall have
fifteen (15) days in which to respond to Landlord with respect to such offer.
<PAGE>
Tenant shall have the right to purchase the Premises on the same terms and
conditions as are set forth in the offer to purchase by giving Landlord written
notice of its exercise of its right of first refusal during such fifteen (15)
day period or be deemed to have waived its right with respect to such offer in
which event Landlord may convey the Premises on the same terms and conditions as
are set forth in the offer to purchase (acceptable to Landlord), subject to the
terms and conditions set forth in this Lease, including the Option contained
herein. The right of first refusal granted under this Lease shall apply to each
offer made to Landlord and any prior waiver of its right of first refusal by
Tenant shall not apply to any subsequent offer made to Landlord.
(e) Landlord covenants and agrees to pay to NationsBank when due all
amounts owed to NationsBank under the "Loan" (as defined in the Put Agreement).
In the event Landlord fails to pay each monthly payment due under the note
("Note") evidencing the Loan on the first day of each month while the Loan
remains unpaid, Landlord shall give written notice to Tenant not later than the
second (2nd) day of such month and Tenant shall have the right to render to
NationsBank the amount then due under the Note. Any amount paid by Tenant on
Landlord's behalf shall (i) bear interest at the "Default Rate" (defined below)
until repaid, (ii) shall be repaid by Landlord within ten (10) days of notice
from Tenant to Landlord and (iii) if not repaid as provided above shall be
subject to offset against future "Base Rent" (defined below) owed by Tenant to
Landlord.
<PAGE>
2. Rent:
(a) Base Rent. Tenant covenants to pay to Landlord as base rent
("Base Rent") the following amounts for the following years:
Lease Year Annual Per Square Foot Rental Rate Annual Rent
---------- ---------------------------------- -----------
Lease Year 1 $37.00 370,000
Lease Year 2 $37.00 370,000
Lease Year 3 $38.48 384,800
Lease Year 4 $38.48 384,800
Lease Year 5 $40.00 400,000
Lease Year 6 $40.00 400,000
Lease Year 7 $41.61 416,100
Lease Year 8 $43.27 432,700
Lease Year 9 $45.00 456,000
Lease Year 10 $46.80 468,000
For purposes of the calculation of Annual Rent and subject to the provisions
hereof concerning the Rent Commencement Date, Lease Year 1 shall be deemed to
mean a period of time beginning on the Rent Commencement Date and concluding on
the date which is twelve (12) full calendar months following the last day of the
month in which the Rent Commencement Date occurs. Each successive Lease Year
shall be the same twelve (12) month beginning on the first day of the first
month next succeeding the expiration of Lease Year 1 and concluding twelve (12)
full calendar months later.
<PAGE>
Base Rent shall be payable in equal monthly installments without demand or
offset, in advance, on the first day of each month during the term hereof. The
Base Rent for any partial month shall be prorated. For purposes of this Lease,
Landlord and Tenant agree that the Building Square Footage shall be deemed to be
10,000. The Annual Per Square Foot Rental Rate shall be increased each year
during the renewal term(s) by four percent (4%) on each anniversary of the Rent
Commencement Date during the renewal term(s).
(b) Rent Commencement Date. Tenant shall commence payment of Base
Rent and "Additional Rent" (defined below) on the date ("Rent Commencement
Date") which is the earlier of (i) the date on which Tenant moves into the
Premises following completion of the "Tenant Improvements" as defined below or
(ii) December 1, 1999. Landlord acknowledges that the tenant's occupancy of the
Premises to undertake and complete the "Tenant Improvements" (defined below) is
separate and distinct from its occupancy of the Premises to begin to operate its
business.
(c) Building Improvements and Tenant Improvements. Tenant shall have
the right, from and after the Lease Commencement Date, to occupy the Premises
for the purposes of completing renovations to the interior thereof ("Tenant
Improvements") and to the exterior thereof ("Building Improvements"). Except as
expressly provided in this subparagraph, Tenant covenants and agrees to complete
the Tenant Improvements and Building Improvements without expense to Landlord
and so that no contractors, subcontractors or materialmen shall have any right
to file any mechanic's lien against the Premises. Tenant covenants to obtain all
<PAGE>
permits and licenses and to pay all fees in connection therewith and to complete
the Tenant Improvements and Building Improvements in accordance with all
applicable laws, ordinances and regulations, including applicable building
codes. Tenant shall indemnify, defend and save Landlord harmless from and
against all claims, damages, suits, actions and causes of action of any kind or
nature arising from or related to Tenant's undertaking and completing the Tenant
Improvements and Building Improvements, including legal fees in connection
therewith. Notwithstanding anything in this subparagraph to the contrary,
Landlord agrees to reimburse to Tenant (i) up to the first $200,000 incurred by
Tenant in the completion of the Tenant Improvements and only to the extent of
amounts actually incurred by Tenant in connection with the completion of the
tenant improvements paid for by Tenant at the property which it currently leases
at 240 Royal Palm Way, Palm Beach, Florida, and (ii) up to the first $100,000
incurred by Tenant in the completion of the Building Improvements. Tenant shall
submit to Landlord monthly copies of the invoices it receives from contractors,
subcontractors and materialmen and Landlord shall reimburse all amounts shown on
such invoices within thirty (30) days of its receipt of such invoices up to a
maximum of $200,000 for Tenant Improvements and a maximum of $100,000 for
Building Improvements. Amounts not reimbursed to Tenant by Landlord within such
thirty (30) day period shall bear interest at the "Default Rate" (defined below)
and to the extent not paid may be offset against Tenant's future payment of Base
Rent.
(d) Additional Rent. All amounts payable hereunder by Tenant
including, but not limited to, real estate taxes and other impositions,
insurance premiums and maintenance repair and replacement obligations, shall be
<PAGE>
additional rent ("Additional Rent") and all of Landlord's remedies with respect
to the payment of Base Rent shall be equally applicable to the payment of
Additional Rent. Tenant shall have no obligation to pay Additional Rent until
after the Rent Commencement Date. Payment of the amounts which constitute
Additional Rent shall be prorated as of the Rent Commencement Date.
(e) Payment. The Base Rent and Additional Rent or other amounts
payable by Tenant to Landlord shall be payable at 240 Royal Palm Way, Palm
Beach, Florida or at such other place as Landlord notifies Tenant in writing.
(f) Late Payment. Tenant agrees to pay a late charge in the amount
of five percent (5%) of the amount of the payment, but in no event less than one
hundred dollars ($100), for any payment of Base Rent or Additional Rent not paid
within five (5) days after it becomes due. Tenant also agrees to pay interest at
the rate (the "Default Rate") equal to the prime rate at BankAmerica, N.A., or
its successors, as it may vary from time to time, plus four percent (4%), on all
delinquent payments of Base Rent and Additional Rent payable by Tenant under
this Lease from the thirtieth day after such payment is due until the date
payment is received by Landlord. Landlord expressly reserves all other rights
and remedies provided in this Lease or by law with respect to such late
payments.
<PAGE>
3. Net Lease, Quiet Enjoyment:
(a) As an inducement to enter into this Lease, it is agreed that other
than as expressly provided in this Lease the sole obligation of Landlord shall
be limited to non-interference by Landlord, or by anyone claiming title through
Landlord, with Tenant's quiet and peaceful enjoyment of the Premises.
(b) So long as Tenant pays all Base Rent and Additional Rent
reserved under this Lease and Tenant fully and faithfully fulfills the
obligations on its part to be performed hereunder and no event of default occurs
hereunder, then Tenant shall peaceably hold and quietly enjoy the Premises
subject to the terms of this Lease without interruption by Landlord, or any
person, firm or corporation claiming by, through or under Landlord.
4. Real Estate Taxes and Other Impositions:
From and after the Rent Commencement Date, Tenant covenants to pay or cause
to be paid, as Additional Rent for the Premises, on or before any interest,
penalty or cost may be added thereto for the nonpayment thereof:
(a) all taxes, assessments, charges and impositions, general and
special, ordinary and extraordinary, foreseen and unforeseen, of every name,
kind and nature whatsoever which may be taxed, charged, levied, confirmed,
imposed or assessed during the term of this Lease upon all or any part of the
Premises or any interest of Landlord or Tenant in and to this Lease, or upon the
rents payable under this Lease, or on account of Tenant's use, occupancy or
operation of the Premises or the business conducted thereon or therein,
including but not limited to real estate and personal property taxes, insurance
premiums as described below and maintenance expenses described below;
<PAGE>
(b) all taxes and charges of every kind and nature which may accrue
or become payable during the term of this Lease on account of ownership, use,
occupancy, or occupation of the Premises, including, but not limited to, all
rental, sales, use, occupation and personal property taxes, all permit and
inspection fees, occupation and license fees, and all water, gas, telephone,
electric, light and power charges assessed or charged on or against the Premises
or charged with respect to the use or consumption of utility services on the
Premises. Any general taxes levied against the Premises shall be prorated
between Landlord and Tenant for the first and last years of the term of this
Lease; and
(c) notwithstanding the foregoing, Tenant shall have no obligation
to pay federal or state income taxes with respect to Base Rent or Additional
Rent to Landlord by Tenant.
5. Indemnity; Insurance:
(a) Except as a result of Landlord's negligence or willful acts,
Landlord shall not be liable for any damage to property or any injury to
persons, sustained by Tenant or others, caused by conditions or activities on
the Premises. After the Rent Commencement Date, Tenant shall indemnify Landlord
against all claims, liability and expenses (including attorneys' fees at trial
and upon appeal) arising therefrom and shall, at all times during the term of
this Lease, carry a policy of commercial liability insurance insuring Tenant and
Landlord against any claims for personal injury, death and property damage with
<PAGE>
an insurer approved by Landlord. Such policy shall initially have a combined
single limit of not less than Two Million Dollars ($2,000,000) per
occurrence/aggregate and shall contain a contractual liability endorsement
covering Tenant's indemnification of Landlord set forth in the preceding
sentence. Landlord shall have the right to raise the minimum coverage amount
from time to time in order to keep the amount of coverage consistent with
regional business practices.
(b) After the Rent Commencement Date, Tenant shall at all times
during the term of this Lease keep the building or buildings and improvements on
the Premises insured against loss or damage by such casualties as are covered by
an "all risks" or "special risks" (whichever is more comprehensive) policy of
insurance in an amount not less than 100% of the full replacement cost of such
buildings and improvements, with an "agreed amount" clause and a replacement
cost endorsement. Such policy shall also contain demolition and increased cost
of construction coverage and, if a sprinkler system is located within any
building which is a part of the Premises, sprinkler leakage insurance. Landlord
shall be named as the insured on such policy and any lender secured by a first
lien deed of trust on Landlord's interest in the Premises shall be named as a
mortgagee.
(c) After the Rental Commencement Date, Tenant shall also provide
and keep in force (i) rent loss insurance for a period not less than eighteen
(18) months in an amount of not less than the applicable Base Rent hereunder and
(ii) such other insurance with respect to the Premises, in such amounts as may,
from time to time be required by Landlord or its lender, against such other
insurable
<PAGE>
hazards, such as flood or loss and liability resulting from property damage
caused by explosion of boilers, heating apparatus or other pressure vessels, as
at the time are commonly insured against in the case of premises similarly
situated.
(d) Tenant shall, after the Rent Commencement Date, and from time to
time thereafter at Landlord's request (but, in any event, not less than thirty
(30) days prior to the expiration of the term of each such policy), furnish
Landlord with certificates evidencing that all insurance required by this Lease
is in effect, full premiums have been paid, and that with respect to liability
policies Landlord and any mortgagee are named as insureds or additional insureds
as required by the terms hereof. All insurance policies required to be obtained
as provided by the terms of this Lease shall be effected with insurance
companies approved by Landlord and authorized to do business in the State of
Florida. All such policies shall provide that they shall not be canceled without
at least thirty (30) days' prior written notice to Landlord and any mortgagee.
Tenant shall be liable for the payment of any deductible amounts with respect to
any such policies of insurance. No policy shall have a deductible in excess of
$5,000.00.
6. Casualty Damage or Injury:
(a) In the event of damage to, or destruction of, any improvements
on the Premises, or of the fixtures and equipment therein, by fire or other
casualty, Tenant shall give Landlord prompt written notice thereof and shall,
subject to the mortgagee making insurance proceeds available, at its sole cost
and expense, repair, restore and rebuild the same to the condition existing
prior to the
<PAGE>
happening of such fire or other casualty. If mortgagee fails to make insurance
proceeds available, Tenant shall have no obligation to repair, restore or
rebuild, unless Tenant so elects to do so. If the Premises are untenantable and
insurance proceeds are not made available by mortgagee, Tenant shall have the
right to terminate this Lease. Notwithstanding the foregoing, in the event of
destruction or damage to more than one-half of the floor space of the
improvements on the Premises which occurs at any time within the last twelve
(12) months of the term of this Lease, then Landlord, at its election,
exercisable by written notice to Tenant within thirty (30) days following such
destruction or damage, shall have the right to cancel this Lease, effective as
of the date of such fire or the casualty.
(b) Prior to Tenant's commencing such repair, restoration or
rebuilding involving an estimated cost of more than $50,000, Tenant shall submit
to Landlord for its approval: (i) plans and specifications therefor, (ii) all
required governmental permits, (iii) a fixed price construction contract from a
reputable and experienced general contractor, and (iv) satisfactory evidence of
the contractor's general liability insurance covering Landlord, builder's risk
insurance and workmen's compensation insurance.
(c) To the extent insurance proceeds are available, Landlord shall
make such proceeds available to Tenant for use in reconstruction or restoration
of the damaged improvements, subject to such controls as Landlord may impose
upon the disbursement of such proceeds, including, but not limited to the
following:
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(i) At no time shall any disbursement be made such that the
remaining balance of proceeds shall exceed the remaining unpaid cost of the
work;
(ii) Tenant shall provide to Landlord lien waivers and other
evidence to verify that the amounts disbursed from time to time are represented
by completed and in-place work and that said work is free and clear of possible
mechanics' liens;
(iii) No payment made prior to final completion of the work
shall exceed 90% of the value of the work completed and in place from time to
time. Landlord may, if it so elects, place such funds with an institutional
lender, including, but not limited to the first mortgagee of the Premises, who
shall act as a depository and shall disburse the insurance proceeds as provided
above.
(d) Tenant shall commence the repair or rebuilding of the
improvements within a period of sixty (60) days after the occurrence of the fire
or other casualty and prosecute the same thereafter with such dispatch as may be
necessary to complete the same within a reasonable period thereafter not to
exceed 270 days from the date of commencement of such repair or rebuilding.
(e) There shall be no abatement of rent following the occurrence of
a casualty or other damage to the improvements which are a part of the Premises,
regardless of the tenantability of the improvements.
<PAGE>
7. Alternations, Additions, Maintenance, Repairs and Services.
(a) Tenant shall keep and maintain the Premises in good condition and
repair and shall be responsible for all janitorial service, window washing and
cleaning services. Tenant shall perform same in full compliance with all health
and police regulations in force.
(b) Tenant shall make all necessary repairs to the electrical, plumbing
and elevator systems which serve the Premises and, except as provided below, all
non-capital repairs to the improvements on the Premises of whatever nature or
kind, ordinary and extra-ordinary, and whether now foreseeable or not
foreseeable. Landlord shall be responsible for maintenance and repair of the
exterior of the Building, roof, all structural portions of the improvements on
the Premises, the HVAC systems and items which would constitute capital repairs
or replacements. Replacements and repairs related to the exterior of the
improvements on the Premises, structural components, parking lot and driveways,
floor slab, foundation, structural portions of the roof or load bearing and
exterior walls, roof, roof membrane, HVAC and other items which would constitute
capital repairs or replacements shall be separately paid for by Landlord. Tenant
shall replace all broken glass within the Premises. Costs associated with the
routine repair and maintenance of the parking lot shall be deemed to be expenses
paid by Tenant (for purposes of this paragraph, seal coating, patching,
striping, crack filling, repair and partial overlays (not to exceed fifteen
percent (15%) of the Premises' asphalt area in any given calendar year) of the
parking lot asphalt surface, as opposed to complete replacement of such surface,
shall be deemed routine repair and maintenance).
<PAGE>
8. Compliance with Laws:
Tenant covenants that throughout the term of this Lease, it will promptly comply
with all statutes, codes, laws, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations, directives,
and requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, companies or associations, and all recorded
and unrecorded agreements, easements and declarations, foreseen and unforeseen,
ordinary and extraordinary, which now or at any time hereafter may be effective
or applicable to Tenant, Landlord or any other person with respect to the
Premises or any part thereof. Tenant shall likewise observe and comply with the
provisions and requirements of all policies of liability, fire and all other
insurance at any time in force with respect to the improvements on the Premises.
Tenant shall be responsible for all costs associated with compliance with the
Americans with Disabilities Act, as amended.
9. Alterations, Additions, or Improvements:
Tenant shall have the unrestricted right to make any alterations, additions or
improvements to the interior of the improvements on the Premises. All
alterations, additions and improvements shall be made shall be at the sole
expense of Tenant and shall become the property of Landlord and shall remain on
and be surrendered with the Premises as a part thereof at the termination of
this Lease without disturbance, molestation or injury. Nothing contained in this
provision shall prevent Tenant from removing all office machines, equipment and
trade fixtures owned by Tenant and customarily used in the business of Tenant,
subject to Landlord's right of distraint.
10. Liens and Encumbrances.
Except for liens arising from the Exterior Building Improvements, Tenant will
not permit any mechanics', laborers', or materialmen's liens to stand against
the Premises for any labor or material furnished to Tenant or claimed to have
been furnished to Tenant in connection with work of
<PAGE>
any character performed or claimed to have been performed on said Premises by or
at the direction or sufferance of Tenant. Tenant shall have the right to contest
the validity or amount of any such lien or claimed lien if Tenant shall give to
Landlord such reasonable security as may be demanded by Landlord to insure
payment thereof and to prevent any sale, foreclosure or forfeiture of the
Premises by reason by nonpayment thereof, which security shall not exceed one
hundred percent (100%) of the amount of the lien claimed plus the interest,
costs, and plaintiff's attorney fees estimated to accrue thereon during the
pendency of such contest proceedings. On final determination of the lien or
claim for lien, Tenant will immediately pay any judgment rendered with all
proper costs and charges and shall have the lien released or judgment satisfied
at Tenant's own expense and upon Tenant furnishing adequate evidence to Landlord
of the release of said lien and satisfaction of any judgment, Landlord will
forthwith return to Tenant any security in Landlord's possession with respect to
the lien or judgment involved. In the event Tenant shall fail to contest the
validity of any lien or claimed lien and give security to Landlord to insure
payment thereof, or having commenced to contest the same, and having given such
security, shall fail to prosecute such contest with diligence, or shall fail in
due course to have the same released and satisfy any judgment rendered thereon,
then Landlord may, at its election (but shall not be required so to do), remove
or discharge such lien or claim for lien (with the right in its discretion to
settle or compromise the same) and any amounts advanced by Landlord for such
purposes shall be Additional Rent due from Tenant to Landlord at the next rent
day after any such payment, with interest at the Default Rate from the date of
payment thereof by Landlord until the repayment thereof to Landlord by Tenant.
<PAGE>
11. Sales, Assignments and Subleases:
Except for divisions, subdivisions, or business units of Tenant, subsidiaries or
affiliates thereof, or assignees succeeding to all or a portion of the assets of
Tenant or any division, subdivision or business unit thereof or all or
substantially all of the capital stock of Tenant (collectively, "Related
Parties"), Tenant shall not, without the written consent of Landlord, assign
this Lease or sublet the whole or part of the Premises, or allow the Premises or
any part thereof to be occupied by any person other than Tenant. In the case of
Related Parties, Landlord shall be given written notice of any assignment or
sublease. Any lawful levy or sale on execution or other legal process, or any
assignment or sale in bankruptcy or insolvency or under any compulsory
procedure, shall be deemed an assignment within the meaning of this Lease. Any
consent by Landlord to any assignment or subletting shall be held to apply only
to the specific transaction thereby authorized, and such consent shall not be
construed as a waiver of the duty of Tenant to obtain such consent to any other
assignment or subletting. Any violation of any provision of this Lease, whether
by act or omission by any assignee, subtenant or other occupant under Tenant
shall be deemed a violation of such provision by Tenant.
12. Public Utility Charges:
Tenant shall, during the term hereof, pay or cause to be paid all charges for
gas, electricity, light, heat or power, telephone or other communication or
utility services, which are used, rendered or supplied to, upon or in connection
with the Premises, and all water rents, stormwater management fees and sewer
service charges levied or charged against the Premises throughout the term of
this Lease and shall indemnify Landlord and save it harmless from and against
any and all losses, claims, liabilities, costs or damages (including reasonable
attorneys' fees) on such account.
<PAGE>
13. Condemnation:
If the Premises or any portion thereof are taken under the power of eminent
domain, or sold under the threat of the exercise of said power (all of which are
herein called "condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If a portion of the Premises is so taken such that the
remaining balance of the Premises is inadequate for the reasonable conduct of
Tenant's business as the same was conducted immediately prior to such taking,
Tenant may, at Tenant's option, to be exercised in writing within ten (10) days
after Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Tenant does not terminate this Lease in
accordance with the foregoing, the Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the proportion that the value of the portion of the improvements on
the Premises taken bears to the total value of the Premises. No reduction of
rent shall occur if the only area taken is that which does not have a building
located thereon. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Landlord, whether such award
shall be made as compensation for diminution in value of the leasehold for the
taking of the fee, or as severance damages; provided, however, that Tenant shall
be entitled to any award for loss or damage to Tenant's trade fixtures,
removable personal property or any other amount payable to Tenant as an
<PAGE>
independent award under Florida law. In the event that this Lease is not
terminated by reason of such condemnation, Tenant shall repair any damage to the
remaining improvements caused by the condemnation and Landlord shall to the
extent of severance damages relating to improvements received by Landlord,
reimburse Tenant for the cost of such repairs, in accordance with the procedures
for disbursement of insurance proceeds set forth in paragraph 6 (c) above.
Tenant shall pay any amount in excess of such severance damages required to
complete such repair. Any rental paid in advance beyond the time that the
Premises has been taken from Tenant shall be returned by Landlord to Tenant on
demand.
14. Landlord's Right to Perform Tenant's Covenants:
Tenant covenants and agrees that if it shall, at any time, fail to perform any
obligation, agreement or other act on its part to be made or performed
hereunder, then Landlord may (but shall not be obligated so to do), without
further demand upon Tenant and without waiving any of Landlord's rights under
this Lease, perform such obligation, agreement or other act. All sums paid by
Landlord, and all necessary and incidental costs and expenses (including
reasonable attorneys' fees) in connection with the performance of any act by
Landlord as provided in the preceding sentence, together with interest thereon,
at the Default Rate, shall be deemed Additional Rent and shall be payable to
Landlord on demand, and Landlord shall have the same rights and remedies in the
event of nonpayment thereof by Tenant as in the case of default by Tenant in the
payment of the Base Rent.
15. Default of Tenant:
If any Base Rent or Additional Rent reserved, or any part thereof, shall be and
remain unpaid for ten (10) days after the date such payment is due, or if Tenant
violates or defaults in any of the other provisions of this Lease, which
violation or default continues for a period of thirty (30) days after written
notice thereof has been given by Landlord to Tenant, then
<PAGE>
Landlord may re-enter the Premises with or without legal process, by force if
necessary, and either terminate this Lease or Tenant's right of possession. No
such re-entry shall terminate this Lease unless Landlord gives Tenant a written
notice of termination. Notwithstanding any re-entry, the liability of Tenant for
Base Rent and Additional Rent shall not be extinguished for the balance of the
term hereof, and Tenant shall continue to make payments of Base Rent and
Additional Rent and all other sums due hereunder as and when due, except that if
Landlord relets the Premises, which it shall be under no obligation to do,
Tenant shall be entitled to receive a credit against the payments otherwise due
hereunder in the amount of the net proceeds of such reletting. The net proceeds
of any reletting shall be determined by deducting from the gross rentals
received the costs of any such reletting, including, but not limited to,
brokerage fees, alterations , rent concessions, and legal fees. The foregoing
remedies shall not be exclusive and, in addition to the rights reserved pursuant
to paragraph 14 above, Landlord reserves the right to exercise any other remedy
provided for at law or in equity. In addition, Tenant shall be liable for
Landlord's costs and expenses, including legal fees, incurred in enforcing its
rights under this Lease.
16. Waiver of Breach:
The waiver of any of the provisions of this Lease by any party shall be limited
to the particular instance involved and shall not be deemed to waive any other
rights of the same or any other terms of this Lease.
17. Interest of Successors:
The covenants and agreements of this Lease shall be binding on the successors
and assigns of Landlord and Tenant.
<PAGE>
18. Notices:
Except where otherwise required by statute, all notices given pursuant to the
provisions hereof may be sent by certified mail, postage prepaid, to the mailing
address of the party for whom the notice is intended, as follows:
If to Landlord: FJK-TeeJay LTD
c/o Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Office of General Counsel
with a copy to: Fred Cohen, Esq.
Cohen, Norris, Scherer & Weinberger
712 U. S. Highway One, Suite 400
North Palm Beach, FL 33408
with a copy to: Gus J. James, Esq.
Kaufman & Canoles, P.C.
One Commercial Place
Norfolk, VA 23510
If to Tenant: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Office of General Counsel
with a copy to: Gus J. James, Esq.
Kaufman & Canoles, P.C.
One Commercial Place
Norfolk, VA 23510
19. Subordination of Lease:
This Lease is subject and subordinate to all mortgages which may now or
hereafter encumber the Premises and to all renewals, modifications, replacements
and extensions thereof, provided that if Tenant is not in default hereof beyond
any applicable cure period, Tenant's possession of the Premises shall not be
disturbed nor shall the interest of Tenant created by this Lease be terminated
by any foreclosure of such mortgage. In confirmation of
<PAGE>
such subordination Tenant shall, upon request of Landlord, execute and deliver,
in recordable form, any instrument of subordination requested by Landlord.
Anything in the foregoing to the contrary notwithstanding, in the event of a
foreclosure under any such mortgage, the holder of the note secured thereby or
the purchaser at such foreclosure sale shall have the option to recognize this
Lease, in which event this Lease shall continue in full force and effect, in
which event Tenant agrees to attorn, by written instrument, to such holder or
purchaser. Any subordination and attornment agreement shall require that such
mortgagee provide non-disturbance to Tenant in the event of foreclosure. Any
such mortgage may, at any time, at the request of the holder of the note secured
thereby be subordinate to this Lease.
20. Amendments to Lease:
All the terms, understandings and agreements binding upon Landlord and Tenant
are herein set forth; and this instrument shall not be amended or modified
except in writing signed by both of the parties hereto.
21. Hazardous Substances:
(a) Landlord represents, warrants and covenants to the Tenant as
follows:
(i) To the best of Landlord's current actual knowledge, the
Premises and the Property are in full compliance with all applicable laws, rules
and regulations regarding any "Hazardous Material" (as defined below) or any
"Environmental Requirements" (as defined below) and Landlord represents that, to
its current actual knowledge, there does not, and did not, exist in, on, under,
<PAGE>
about, emanate from or originate the Premises, now or in the past, any Hazardous
Materials in violation of any Environmental Requirements; and
(ii) To its current actual knowledge, Landlord is not in
violation of any Environmental Requirements concerning or relating to the use,
generation, storage, handling or disposal of Hazardous Materials at the
Premises.
(b) Landlord agrees to indemnity, defend and save Tenant harmless
from and against any and all "Environmental Damages" defined below incurred by
Tenant arising or accruing during the Term, or any renewals or extensions
thereof, resulting from the inaccuracy of any representation of Landlord
contained in this paragraph 21 or any contamination of the Premises during
Landlord's ownership of the Premises caused by Landlord, unless and to the
extent such Environmental Damages are caused by any breach by Tenant of its
representations, covenants or warranties set forth below. The obligation of
Landlord under this paragraph 21 shall include the burden and expense of
defending all claims, suits, and administrative proceedings (with counsel
reasonably approved by Tenant), conducting all negotiations of any description,
and paying and discharging, when and as the same become due, all Environmental
Damages subject to Landlord's indemnity. Tenant, at its sole expense, may employ
additional counsel of its choice to associate with counsel representing
Landlord. The obligations of Landlord under this section shall survive the
expiration or earlier termination of this Lease and the discharge of all other
obligations
<PAGE>
owed by Landlord to Tenant. Tenant agrees to indemnify, defend and save Landlord
harmless from and against any and all Environmental Damages incurred by Landlord
arising or accruing during the Term, or any renewals or extensions thereof,
resulting from the inaccuracy of any representation or warranty of Tenant
contained in this paragraph 21 or any contamination of the Premises caused by
Tenant, unless and to the extent such Environmental Damages are caused by any
breach by Landlord of its representations, warranties or covenants set forth
herein. The obligation of Tenant under this paragraph 21 shall include the
burden and expense of defending all claims, suits, administrative proceedings
(with counsel reasonably approved by Landlord), conducting all negotiations of
any description, and paying and discharging, when and as the same become due,
all Environmental Damages subject to Tenant's indemnity. Landlord, at its sole
expense, may employ additional counsel of its choice to associate with counsel
representing Tenant. The obligations of Tenant under this section shall survive
the expiration or earlier termination of this Lease and the discharge of all the
obligations owed by Tenant to Landlord.
(c) Tenant shall comply with all Environmental Requirements relating to
the Premises (excluding the application thereof to Hazardous Materials present
at, or under the Premises, either (i) as a result of acts of Landlord, at or
under the Premises or any third party not an employee, agent or contractor of
Tenant, or (ii) prior to Tenant's possession of the Premises) and shall not
cause or permit any Hazardous Materials to be brought upon, kept or used in, on,
under or about the Premises in violation of Environmental Requirements. Without
limiting the foregoing, if the presence of any Hazardous Materials on the
Premises in violation of any Environmental Requirement brought upon, kept or
used by Tenant or any of Tenant's employees, agents, contractors or customers,
results in any contamination of the Premises, Tenant shall promptly take all
actions at its sole costs as are necessary to comply with all applicable
Environmental Requirements. Tenant shall promptly notify Landlord of its receipt
of any report, citation, notice or other writing ("Environmental Notice") and
deliver a copy thereof to the other party (except to the extent such
Environmental Notice contains trade secrets, proprietary information as
<PAGE>
determined under the law of the State of Florida, or privileged information) by
or from any governmental authority in any way related to the unlawful presence
or suspected unlawful presence of Hazardous Materials at, or under the Premises.
Tenant shall upon request of Landlord, but not more than once annually,
represent in writing, that to the best of its current actual knowledge its
operations in the Premises as of the time of such representation, have not
resulted in the unlawful presence of any Hazardous Materials in, upon or under
the Premises arising out of Tenant's occupancy or operation. At the request of
the Landlord, Tenant shall make available for inspection and copying upon
reasonable notice and at reasonable times, any documents, reports or other data
related to the Premises other than those pertaining to trade secrets,
proprietary information as determined under the law of the State of Florida or
privileged information as required by, or submitted to a government authority
pursuant to an Environmental Requirement. Notwithstanding the foregoing,
Landlord shall have the right in the event Landlord reasonably suspects the
unlawful presence of Hazardous Materials in, upon or under the Premises arising
out of Tenant's occupancy or operation, to enter the Premises to perform soil or
ground water tests to confirm such unlawful presence, and in the event such
tests disclose such an unlawful presence of Hazardous Materials caused by
Tenant's occupancy or operations, Tenant shall be responsible for the costs of
performing such tests. In the event that no such unlawful presence is found,
Landlord shall be responsible for any tests performed at Landlord's direction.
The provisions within this paragraph shall survive termination of this Lease for
a period of twelve (12) months and shall be binding upon and shall inure to the
benefit of the parties hereto, their respective successors and assigns, and
mortgagees thereof.
<PAGE>
(d) Definitions. The following definitions shall apply:
(i) "Hazardous Material" means any substance:
(a) the presence of which requires investigation or
remediation under any applicable federal, state or local statute,
regulations, ordinance, order, action, policy or common law; or
(b) which is or becomes defined as a "hazardous waste,"
"hazardous substance," pollutant or contaminant under any federal,
state or local statute, regulation, rule or ordinance now or
hereafter in effect, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C.
ss. 9601 et seq.) and/or the Resource Conservation and Recovery
Act (42 U.S.C. ss. 6901 et seq.).
(ii) "Environmental Requirements" mean all applicable present and future
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises and similar items of
all governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political subdivisions
thereof and all applicable judicial, administrative and regulatory decrees,
judgments and orders relating to the protection of human health or the
environment, including, without limitation: (1) all applicable requirements,
including but not limited to those pertaining to reporting, licensing,
permitting, investigation and remediation of emissions, discharges, released or
threatened releases of Hazardous Materials, chemical substances, pollutants,
<PAGE>
contaminants or hazardous or toxic substances, materials or wastes whether
solid, liquid or gaseous in nature into the air, surface water, groundwater or
land; or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, chemical
substances, pollutants, contaminants or hazardous or toxic substances,
materials, or wastes, whether solid, liquid or gaseous in nature; and (2) all
applicable requirements pertaining to the protection of the health sand safety
of employees or the public.
(iii) "Environmental Damages" means all claims, judgments, damages
(including punitive damages), losses, penalties, fines, liabilities (including
strict liability), encumbrances, liens, costs and expenses of investigation and
defense of any claim, and of any good faith settlement or judgment, of whatever
kind or nature, contingent or otherwise, matured or unmatured, foreseeable or
unforeseeable, which are incurred at any time as a result of the existence of
Hazardous Materials upon, about or beneath the Premises or migrating or
threatening to migrate to or from the Premises, or the existence of a violation
of Environmental Requirements pertaining to the Premises, and including, without
limitation:
(a) Damages for personal injury or injury to property or
natural resources occurring upon or off of the Premises, foreseeable
or unforeseeable, including lost profits, consequential damages,
punitive damages, the cost of demolition and rebuilding of any
improvements on real property, interest and penalties;
<PAGE>
(b) Fees incurred for the services of attorneys, consultants,
contractors, experts, laboratories and all other costs incurred in
connection with the investigation or remediation of such Hazardous
Materials or in connection with a violation of Environmental
Requirements, including the preparation of any feasibility studies
or reports or the performance of any cleanup, remediation, removal,
response, abatement, containment, closure, restoration or monitoring
work required by any federal, state or local governmental agency or
political subdivision, or reasonably necessary to make full economic
use of the Premises;
(c) Liability to any third person or governmental agency to
indemnify such person or agency for costs expended in connection
with the items referenced in subsection (b) above; and
(d) Diminution in the value of Tenant's leasehold estate or
Landlord's fee title estate, as the case may be.
22. Estoppel Certificates:
Within fifteen (15) days after receipt of a written request, Landlord and Tenant
agree to deliver to the other a duly executed and acknowledged instrument
certifying the parties best knowledge (i) whether this Lease is in full force
and effect (and if not, the reasons therefor); (ii) as to the existence of any
default by the other party, including the nature and extent of such default;
(iii) whether there has been any modification or amendment to this Lease, and
specifying the nature of such modification; (iv) the commencement and expiration
dates of the term of this Lease; (v) the date to which rent has been paid; and
(vi) as to such other matters relating to this
<PAGE>
Lease as may be reasonably requested that do not modify or otherwise alter the
rights under this Lease of the party executing the certificate. Any such
certificate may be conclusively relied upon by the requesting party and by any
prospective purchaser or lender, and the contents of the certificate shall be
binding upon the party executing such certificate.
23. Holdover.
Tenant shall indemnify and hold Landlord harmless from and against all costs,
claims, loss, or liability resulting from delay by Tenant in surrendering the
Premises at the end of the term of this Lease, including without limitation, any
claims made by any succeeding tenant founded on such delay. Tenant agrees that
if possession of the Premises is not surrendered to Landlord within twenty-four
(24) hours after the date of the expiration or termination of the term of this
Lease, then Tenant shall pay, in addition to any payment pursuant to the
preceding sentence, for each month and for each portion of any month during
which Tenant holds over in the Premises after the expiration or termination of
the term, one and one-half times the base rent which was payable under this
Lease during the last month of the term plus all additional rent payable
pursuant to the term of this Lease. Nothing contained in this Lease shall be
deemed to permit Tenant to retain possession of the Premises after the
expiration of the term. The provisions of this paragraph shall survive the
expiration or termination of the term.
24. Remedy Cumulative.
Each remedy provided for in this Lease will be cumulative and concurrent and
shall be in addition to every other remedy provided for in this Lease or now or
hereafter existing at law or in equity or by statute. The exercise by either
party of any remedy shall not preclude the simultaneous or later exercise by
such party of the same or any other remedy.
<PAGE>
25. Governing Law.
This Lease shall be governed by and construed in accordance with Florida law.
26. Waiver.
No failure by either party to insist upon the strict performance of any term or
covenant hereof or to exercise any right, power or remedy consequent upon a
breach, and no submission by Tenant or acceptance by Landlord of full or partial
rent during the continuance of any breach shall constitute a waiver of the
breach or of any such term or covenant. No waiver of any breach shall affect
this Lease or the rights of either party with respect to any other than or
existing or subsequent breach.
27. Final Understanding; Captions; Pronouns.
(a) This Lease represents the final understanding and
complete agreement between Landlord and Tenant. This Lease cannot be modified
except by writing signed by Landlord and Tenant.
(b) The captions in this Lease are for the purpose of
reference only and shall not limit or define the meaning of the provisions of
this Lease.
(c) Where the context requires, the use of any gender shall
include all genders, and the singular shall include the plural and vice versa.
<PAGE>
28. Memorandum of Lease.
Either party may request that the other execute a Memorandum of this Lease and
the Option for the purpose of recording the same in the public records of Palm
Beach County, Florida. The party requesting the execution of the Memorandum
shall bear the cost of preparing the same and all costs related to the
recordation of the Memorandum. Landlord and Tenant covenant to execute a
termination of such Memorandum upon termination or expiration of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to be
executed in their names and on their behalf.
LANDLORD:
FJK TEEJAY LTD,
a Florida limited partnership
By: FJK-TEEJAY, INC.
By: /s/ Frederick J. Keitel
---------------------------------
Frederick J. Keitel, President
TENANT:
Workflow Management, Inc.,
a Delaware corporation
By: /s/ Steven R. Gibson
--------------------------------
Name: Steven R. Gibson
-------------------------------
Title: Chief Financial Officer
-----------------------------
<PAGE>
CERTIFICATION
The undersigned, Frederick J. Keitel, III, President of FJK-Tee Jay, Inc.,
general partner of FJK- Tee Jay, Ltd., a Florida limited partnership
("Borrower"), certifies to NationsBank, N. A. ("Lender") that the copy of the
lease ("Lease") dated as of January 8, 1999, by and between Borrower and
Workflow Management, Inc., a Delaware corporation ("Workflow"), contains all of
the agreements by and between Borrower and Workflow, except for an agreement
dated as of January 8, 1999, be and among Borrower, Lender and Workflow; and
(ii) there are no defaults under the Lease or, to the best of the Borrower's
knowledge, any conditions which with the passage of time or giving of notice
would constitute a default thereunder.
BORROWER:
FJK-TEE JAY, LTD., a Florida limited partnership
By: FJK-TEE JAY, INC., a Florida
corporation, its sole general partner
By: /s/ Frederick J. Keitel, III
-------------------------------------
Frederick J. Keitel, III,
President
EXHIBIT 10.12
AGREEMENT
THIS AGREEMENT is made as of this 30th day of December, 1998, by and among
NATIONSBANK, N.A. ("NationsBank"); WORKFLOW MANAGEMENT, INC., a Delaware
corporation ("Workflow"); and FJK-TEE JAY, LTD., a Florida limited partnership
("Borrower").
Background:
A. The Borrower has requested that NationsBank extend an acquisition and
tenant improvement loan ("Loan") to Borrower in an amount not to exceed
$3,000,000 in connection with certain real property and the improvements thereon
located at 241 Royal Palm Way, Palm Beach, Florida ("Property").
B. Workflow and Borrower have executed a lease dated as of January 8, 1999
("Lease"), pursuant to which Workflow leases the Property from the Borrower, and
the Borrower leases the Property to Workflow. The original term of the Lease
expires November 30, 2009, subject to certain renewal rights of Workflow.
Workflow's obligation under the Lease to pay rent is contingent upon Borrower
completing the "Tenant Improvements" (defined in the Lease), in accordance with
the terms and provisions of the Lease. Workflow and Borrower expect that the
Tenant Improvements will be completed so that Workflow can occupy the Property
beginning December 1, 1999.
C. While the Loan remains unpaid, NationsBank has required that Workflow
provide additional security for payment of the Loan pursuant to the terms and
conditions set forth in this Agreement. Workflow is willing to provide the
additional security requested by NationsBank because the Lease and the Loan
represent an economic benefit to Workflow.
Agreement:
For and in consideration of the sum of Ten and 00/100 Dollars ($10.00)
cash in hand paid and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. The terms and provisions of the Background set forth above are
incorporated in this Agreement in full as if more fully set forth herein.
2. While the Loan remains unpaid and upon the occurrence of an event of
default under any of the documents which evidence and/or secure the Loan
(collectively, the "Loan Documents") beyond any cure period set forth in the
Loan Documents, NationsBank shall have the right to give Workflow and the
Borrower written notice ("Purchase Notice") instructing Workflow to purchase the
Property from the Borrower. In the event NationsBank elects to send the Purchase
Notice, Workflow covenants and agrees to purchase the Property from the Borrower
and the Borrower covenants and agrees to sell and convey the Property to
Workflow all pursuant to the terms of the "Option" as described and set forth in
the Lease.
<PAGE>
3. This Agreement shall terminate and be of no further force and effect
upon payment in full of the Loan to NationsBank.
4. Time is of the essence with regard to all payments and obligations due
under the terms and conditions of the Loan Documents, this Agreement and any
related agreements.
5. This Agreement may not be supplemented, changed, waived, discharged,
terminated, modified or amended except by written instrument executed by the
parties. It constitutes the entire agreement between the parties and supersedes
all previous negotiations, discussions and agreements between the parties, and
no parol evidence of any prior or other agreement shall be permitted to
contradict or vary its terms. Except as set forth in the Lease and the Loan
Documents, there are no promises, terms, conditions or obligations other than
those contained in this Agreement.
6. The waiver by NationsBank of any breach of any provision of the Loan
Documents, this Agreement or any related agreements or the failure to exercise
any right, power or remedy under the Loan Documents, this Agreement or any
related agreements shall not be deemed a continuing waiver or a waiver of any
subsequent breach, whether of the same or another provision, or in any way
impair any right, power or remedy. No right, power or remedy conferred by the
Loan Documents, this Agreement or any related agreements upon NationsBank shall
be exclusive of any other right, power or remedy now or hereafter available at
law, in equity, by statute or otherwise.
7. This Agreement shall be governed and construed under, by and in
accordance with the laws of the State of Florida. It is understood and agreed by
the parties to this Agreement that if any part, term or provision of this
Agreement is held by a court of competent jurisdiction to be illegal or in
conflict with any law of the State of Florida, the validity of the remaining
portions or provisions shall not be affected, and the rights and obligations of
the parties shall be construed and enforced as if this Agreement did not contain
the part, term or provisions held to be invalid.
8. This Agreement and the respective representations, warranties,
covenants, provisions, terms, conditions and agreements contained in this
Agreement shall be binding upon and shall inure to the benefit of the parties to
this Agreement and their respective successors, assigns and heirs. Nothing in
this Agreement, whether expressed or implied, shall be construed to give any
person other than the parties to this Agreement any legal or equitable right,
remedy or claim in respect to this Agreement, which is intended for the sole and
exclusive benefit of the parties to this Agreement.
<PAGE>
9. Notice required to be given pursuant to the Note, the Loan Documents,
this Agreement or any related agreements shall be deemed given if delivered by
hand, or when mailed by certified mail, return receipt requested, telecopier or
by overnight courier (prepaid) to the following addresses:
(a) If to the Borrower, to:
FJK-TEE JAY, Ltd.
240 Royal Palm Way
Palm Beach, FL 33480
(b) If to Workflow, to:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attn: Office of General Counsel
(c) If to (a) or (b) with a copy to:
Gus J. James, Esq.
Kaufman & Canoles, P.C.
One Commercial Place
P.O. Box 3037
Norfolk, VA 23514
(d) If to the Bank, to:
NationsBank, N.A.
3rd Floor, Commercial Loans
One Commercial Place
Norfolk, VA 23510
(e) With a copy to:
Edward K. Oden, Esq.
Moore & Van Allen, PLLC
NationsBank Corporate Center
100 N Tryon Street, Floor 47
Charlotte, NC 28202-4003
10. This Agreement may be executed by the parties, individually or in any
combination, in one or more counterparts, each of which shall be an original and
all of which shall together constitute one and the same agreement.
11. The parties executing this Agreement on behalf of the Borrower and
Workflow represent and warrant that: (a) all necessary corporate or partnership
action to be taken in connection with the execution, delivery and performance of
this Agreement and any related documents has been duly and effectively taken;
and (b) the execution, delivery and performance by the Borrower and Workflow of
this Agreement and any related documents does not constitute a violation or
breach of the Borrower's or Workflow's bylaws, articles of incorporation,
partnership agreement or any other agreement or law by which they are bound.
<PAGE>
WITNESS the following signatures and seals:
FJK-TEE JAY, LTD., a Florida
limited partnership
By: FJK-TEE JAY, INC., a Florida
corporation, its General Partner
By: /s/ Frederick J. Keitel, III
--------------------------------
Its: President
WORKFLOW MANAGEMENT, INC.
By: /s/ Steven R. Gibson
--------------------------------
Its: Chief Financial Officer
NATIONSBANK, N.A.
By: _____________________________________
Its: ____________________________________
EXHIBIT 10.13
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of January 19, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and THOMAS B.
D'AGOSTINO (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.
(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.
<PAGE>
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").
(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 June 11, 1998, 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.
<PAGE>
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.
(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.
<PAGE>
(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.
(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.
(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.
<PAGE>
(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.
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).
<PAGE>
(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:
(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;
<PAGE>
(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
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:
<PAGE>
(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
(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").
<PAGE>
(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.
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.
<PAGE>
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.
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.
<PAGE>
(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.
(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,
<PAGE>
(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.
(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.
<PAGE>
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.
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.
<PAGE>
(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
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Fax: (561) 659-7793
If to the Company:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Attention: General Counsel
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.
(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.
<PAGE>
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/ Steven R. Gibson
----------------------
Name: Steven R. Gibson
----------------
Title: Vice President
---------------
Executive:
/s/ Thomas B. D'Agostino
-------------------------
Name: Thomas B. D'Agostino
EXHIBIT 10.14
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of January 19, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and STEVE R.
GIBSON (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.
(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.
<PAGE>
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").
(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 May 18, 1998, 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.
<PAGE>
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.
(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.
<PAGE>
(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.
(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.
(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.
<PAGE>
(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.
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).
<PAGE>
(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:
(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;
<PAGE>
(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
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:
<PAGE>
(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
(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").
<PAGE>
(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.
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.
<PAGE>
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.
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.
<PAGE>
(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.
(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:
<PAGE>
(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.
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.
<PAGE>
(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:
Steve R. Gibson
1540 Pathway Drive
Carrboro, NC 27510
Fax: (919) 942-5935
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.
(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.
<PAGE>
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/ Claudia S. Amlie
-------------------------
Name: Claudia S. Amlie
----------------
Title: Vice President
---------------
Executive:
/s/ Steve R. Gibson
----------------------------
Name: Steve R. Gibson
EXHIBIT 10.15
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of January 19, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and CLAUDIA
SAENZ AMLIE (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.
(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.
<PAGE>
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 May 18, 1998, 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.
(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.
(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.
<PAGE>
(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.
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).
<PAGE>
(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:
(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;
<PAGE>
(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
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
(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.
(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,
<PAGE>
(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.
(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.
<PAGE>
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.
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.
<PAGE>
(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:
Claudia S. Amlie
13036 Coastal Circle
Palm Beach Gardens, Florida 33410
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.
(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.
<PAGE>
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.
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/ Steven R. Gibson
----------------------------
Name: Steven R. Gibson
--------------------
Title: Vice President
-------------------
Executive:
/s/ Claudia S. Amlie
---------------------------------
Name: Claudia Saenz Amlie
EXHIBIT 10.16
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of January 19, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and THOMAS B.
D'AGOSTINO, JR. (the "Executive").
Background Statement
The Executive is employed by SFI, a subsidiary of the Company, pursuant to
that certain Employment Agreement between Hano Business Forms, Inc. and the
Executive dated as of September 1, 1998 (Hano Business Forms, Inc. or any other
entity which from time to time employs Executive during the Change of Control
Period, or the Employment Period, if applicable, shall hereinafter be referred
to as the "Employer"). 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 Employer 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; provided,
however, that notwithstanding the foregoing or any other provision of this
Agreement to the contrary, no "Change of Control" shall be deemed to have
occurred by virtue of the occurrence of any of the events set forth in (a)
through (d) above if, immediately prior to the occurrence of such event, the
Employer is not an "affiliated company" (as defined in Section 4(b)(i) hereof)
of the Company.
<PAGE>
3. Employment Period; Other Agreements.
(a) The Company hereby agrees to continue the Executive in the
employ of the Company or one of its affiliated companies, and the Executive
hereby agrees to remain in the employ of the Company or one of its affiliated
companies, 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").
(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 Employer and
the Executive, dated as of September 1, 1998, 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 Employer 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 Employer 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 Employer 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 Employer.
<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.
(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. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(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;
<PAGE>
(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 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
Executive 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.
<PAGE>
6. Obligation of the Company upon Termination
(a) Good Reason; 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 for Good Reason:
(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 100% 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 for Good Reason, 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.
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.
<PAGE>
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.
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.
<PAGE>
(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.
(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,
<PAGE>
(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.
(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.
<PAGE>
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 or
one of its affiliated companies, 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.
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.
<PAGE>
(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.
(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 Employer, including the Existing Employment Agreement, the employment of
the Executive by the Employer is "at will" and, prior to the Effective Date, may
be terminated by either the Executive or the Employer at any time. Moreover, if
prior to the Effective Date, (i) the Executive's employment with the Employer
terminates or (ii) the Employer ceases to be an "affiliated company" of the
Company, this Agreement shall terminate upon the occurrence of any of the events
or conditions described in (i) or (ii) above without further obligations to the
Executive and the Company shall be released of all of its obligations under this
Agreement.
<PAGE>
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/ Steven R. Gibson
----------------------------------
Name: Steven R. Gibson
-------------------------
Title: Vice President
-------------------------
Executive:
/s/ Thomas B. D'Agostino, Jr.
--------------------------------------
Name: Thomas B. D'Agostino, Jr.
EXHIBIT 10.17
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of January 19, 1999, is by and between
WORKFLOW MANAGEMENT, INC., a Delaware corporation (the "Company"), and RICHARD
M. SCHLANGER (the "Executive").
Background Statement
The Executive is employed by United Envelope, LLC (formerly United
Envelope Co., Inc.), a subsidiary of the Company, pursuant to that certain
Employment Agreement between United Envelope Co., Inc. and the Executive dated
as of April 25, 1997 (United Envelope, LLC or any other entity which from time
to time employs Executive during the Change of Control Period, or the Employment
Period, if applicable, shall hereinafter be referred to as the "Employer"). 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 Employer 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; provided,
however, that notwithstanding the foregoing or any other provision of this
Agreement to the contrary, no "Change of Control" shall be deemed to have
occurred by virtue of the occurrence of any of the events set forth in (a)
through (d) above if, immediately prior to the occurrence of such event, the
Employer is not an "affiliated company" (as defined in Section 4(b)(i) hereof)
of the Company.
<PAGE>
3. Employment Period; Other Agreements.
(a) The Company hereby agrees to continue the Executive in the
employ of the Company or one of its affiliated companies, and the Executive
hereby agrees to remain in the employ of the Company or one of its affiliated
companies, 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").
(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 Employer and
the Executive, dated as of April 25, 1997, 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 Employer 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 Employer 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 Employer 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 Employer.
<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.
(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. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(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;
<PAGE>
(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 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
Executive 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.
<PAGE>
6. Obligation of the Company upon Termination
(a) Good Reason; 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 for Good Reason:
(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 100% 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 for Good Reason, 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.
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.
<PAGE>
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.
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.
<PAGE>
(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.
(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,
<PAGE>
(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.
(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.
<PAGE>
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 or
one of its affiliated companies, 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.
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.
<PAGE>
(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, NY 11050
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.
(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 Employer, including the Existing Employment Agreement, the employment of
the Executive by the Employer is "at will" and, prior to the Effective Date, may
be terminated by either the Executive or the Employer at any time. Moreover, if
prior to the Effective Date, (i) the Executive's employment with the Employer
terminates or (ii) the Employer ceases to be an "affiliated company" of the
Company, this Agreement shall terminate upon the occurrence of any of the events
or conditions described in (i) or (ii) above without further obligations to the
Executive and the Company shall be released of all of its obligations under this
Agreement.
<PAGE>
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/ Steven R. Gibson
-----------------------------
Name: Steven R. Gibson
--------------------
Title: Vice President
-------------------
Executive:
/s/ Richard M. Schlanger
-------------------------------
Name: Richard M. Schlanger
EXHIBIT 11.1
WORKFLOW MANAGEMENT, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
January 23, January 24, January 23, January 24,
1999 1998 1999 1998
-----------------------------------------------
Basic earnings per share:
Net income $ 2,941 $ 2,265 $ 5,861 $ 7,550
======== ======== ======== ========
Weighted average number of
common shares outstanding 13,065 17,017 14,575 15,301
======== ======== ======== ========
Basic earnings per share $ 0.23 $ 0.13 $ 0.40 $ 0.49
======== ======== ======== ========
Diluted earnings per share:
Net income $ 2,941 $ 2,265 $ 5,861 $ 7,550
======== ======== ======== ========
Weighted average number of:
Common shares outstanding 13,065 17,017 14,575 15,301
Common stock equivalents* 4 335 71 324
-------- -------- -------- --------
Total 13,069 17,352 14,646 15,625
======== ======== ======== ========
Diluted earnings per share $ 0.23 $ 0.13 $ 0.40 $ 0.48
======== ======== ======== ========
* The Company had additional employee stock options outstanding during the
periods presented that were not included in the computation of diluted
earnings per share because they were anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-24-1999
<PERIOD-END> JAN-23-1999
<CASH> 775
<SECURITIES> 0
<RECEIVABLES> 62,777
<ALLOWANCES> (3,182)
<INVENTORY> 29,957
<CURRENT-ASSETS> 93,796
<PP&E> 65,414
<DEPRECIATION> (29,143)
<TOTAL-ASSETS> 167,229
<CURRENT-LIABILITIES> 38,707
<BONDS> 63,792
0
0
<COMMON> 13
<OTHER-SE> 60,676
<TOTAL-LIABILITY-AND-EQUITY> 167,229
<SALES> 95,542
<TOTAL-REVENUES> 95,542
<CGS> 67,539
<TOTAL-COSTS> 67,539
<OTHER-EXPENSES> 21,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,248
<INCOME-PRETAX> 5,251
<INCOME-TAX> 2,310
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,941
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
