<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 26, 1996
UNITED MAGAZINE COMPANY
(Exact name of registrant as specified in its charter)
Ohio 0-2675 31-0681050
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
5131 Post Road, Dublin, Ohio 43017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 792-0777
<PAGE> 2
Item 5. Other Events
The Form 8-K dated July 26, 1996 is amended to include the
Stock Transfer and Exchange Agreements and Asset Transfer and Exchange
Agreements listed below as exhibits herein. The Agreements relate to the
following acquisitions:
1. Asset Transfer and Exchange Agreement dated July 29, 1996 with Northern News
Company.
2. Stock Transfer and Exchange Agreement dated July 30, 1996 with Michiana News
Services, Inc.
3. Stock Transfer and Exchange Agreement dated July 31, 1996 with The Stoll
Companies.
4. Asset Transfer and Exchange Agreement dated August 1, 1996 with Ohio
Periodical Distributors, Inc.
5. Asset Transfer and Exchange Agreement dated August 2, 1996 with Wholesalers
Leasing Corp.
6. Stock Transfer and Exchange Agreement dated August 2, 1996 with Scherer
Companies.
7. Stock Transfer and Exchange Agreement dated August 2, 1996 with Read-mor
Book Stores, Inc.
The shareholders of Scherer, Stoll, and Michiana and the controlling
shareholders of UNIMAG have agreed to use June 30, 1996 as the effective
closing date for the transactions. The purchase price will include a
calculation of tangible net worth as of June 30, 1996.
<PAGE> 3
Item 7. Financial Statements and Exhibits
The following exhibits are included herein:
1. Asset Transfer and Exchange Agreement dated July 29, 1996 with Northern News
Company.
2. Stock Transfer and Exchange Agreement dated July 30, 1996 with Michiana News
Services, Inc.
3. Stock Transfer and Exchange Agreement dated July 31, 1996 with The Stoll
Companies.
4. Asset Transfer and Exchange Agreement dated August 1, 1996 with Ohio
Periodical Distributors, Inc.
5. Asset Transfer and Exchange Agreement dated August 2, 1996 with Wholesalers
Leasing Corp.
6. Stock Transfer and Exchange Agreement dated August 2, 1996 with Scherer
Companies.
7. Stock Transfer and Exchange Agreement dated August 2, 1996 with Read-mor
Book Stores, Inc.
The above companies are privately held and have never had audited financial
statements. The companies' auditors are completing the required audited
financial information. Copies of the audited financial information and pro
forma financial information for the Registrant and the sellers are not
presently available but will be filed under cover of Form 8-KA on or before
October 9, 1996 or as soon as available.
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 hereunto duly authorized.
UNITED MAGAZINE COMPANY
--------------------------
(Registrant)
Date: September 26, 1996 By: /s/ Thomas L. Gerlacher
----------------------------
Thomas L. Gerlacher
Chief Financial Officer
<PAGE> 4
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
<S> <C> <C>
2(a) Asset Transfer and Exchange Agreement
between United Magazine Company and
Northern News Company, effective
July 29, 1996*
2(b) Stock Transfer and Exchange Agreement
among United Magazine Company, Michiana
News Service, Inc. and all of the
shareholders of Michiana News Service, Inc.,
effective July 30, 1996*
2(c) Stock Transfer and Exchange Agreement among
United Magazine Company, The Stoll Companies
and all of the shareholders of The Stoll
Companies, effective July 31, 1996*
2(d) Asset Transfer and Exchange Agreement
between United Magazine Company and Ohio
Periodical Distributors, Inc., effective
August 1, 1996*
2(e) Asset Transfer and Exchange Agreement between
United Magazine Company and Wholesalers
Leasing, Corp., effective August 2, 1996*
2(f) Stock Transfer and Exchange Agreement among
United Magazine Company, The Scherer Companies
and all of the shareholders of The Scherer Companies,
effective August 2, 1996*
2(g) Stock Transfer and Exchange Agreement among
United Magazine Company, Read-mor Book Stores, Inc.
and all of the shareholders of Read-mor Book
Stores, Inc., effective August 2, 1996*
</TABLE>
- --------------
* The schedules and exhibits to the indicated agreements, which are listed on
the following pages of this Index, will be furnished to the Commission upon
request.
<PAGE> 5
THE FOLLOWING IS A LISTING OF SCHEDULES AND EXHIBITS INCLUDED ON THE AGREEMENT
LISTED AS EXHIBIT NO. 2(d).
Schedule 1.1 (a) Real Property
Schedule 1.1 (b) Real Property Leases
Schedule 1.1 (c) Personal Property
Schedule 1.1 (d) Inventory
Schedule 1.1 (e) Vehicles
Schedule 1.1 (f) Permits
Schedule 1.1 (g) Proprietary Rights
Schedule 1.1 (h) Personal Property Leases
Schedule 1.1 (i) Contracts
Schedule 1.1 (j) Receivables
Schedule 1.1 (m) Telephone Numbers
Schedule 1.1 (n) Employee Plan and Benefit Arrangements
Schedule 1.2 Control Group
Schedule 1.3 Non-Assigned Acquired Assets
Schedule 2.1 Excluded Liabilities
Schedule 3.2 Selected Generally Accepted Accounting Principles
Schedule 4.3 Agreements to Issue Unimag Shares
Schedule 4.5 Litigation
Schedule 5.1 Qualification as Foreign Corporation
Schedule 5.2 OPD Shareholders
Schedule 5.4 Consents and Approvals
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Absence of Certain Changes
Schedule 5.8 Taxes
Schedule 5.9 Compliance with Law
Schedule 5.10 Proprietary Rights
Schedule 5.11 Restrictive Documents and Laws
Schedule 5.12 Insurance
Schedule 5.13 Bank Accounts
Schedule 5.14 Properties
Schedule 5.16 Legal Proceedings
Schedule 5.17 Employee Benefit Plans (Schedules (a) through (h))
Schedule 5.18 Contracts
Schedule 5.19 Accounts Receivable
Schedule 5.20 Conflicts or Defaults
Schedule 5.22 Officers, Employees, and Compensation
Schedule 5.23 Labor Relations
Schedule 5.24 Customers and Suppliers
Schedule 5.25 Special Terms to Customers
Schedule 6.2 (a) Budgeted Salary Increases
Exhibit A Debenture Agreement
Exhibit B Legal Opinion of Counsel to Unimag
Exhibit C Legal Opinion of Counsel to OPD and the Shareholders
Exhibit D Document Escrow Agreement
Exhibit E Opinion of Independent Legal Counsel
<PAGE> 6
THE FOLLOWING IS A LISTING OF SCHEDULES AND EXHIBITS INCLUDED ON THE AGREEMENT
LISTED AS EXHIBIT NO. 2(e).
Schedule 1.1 (a) Vehicles
Schedule 1.1 (b) Computer Equipment
Schedule 1.2 Control Group
Schedule 1.3 Non-Assigned Acquired Assets
Schedule 2.1 Assumed Liabilities
Schedule 4.3 Agreements to Issue Unimag Shares
Schedule 4.5 Litigation
Schedule 5.1 Qualification as Foreign Corporation
Schedule 5.2 Wholesalers Shareholders
Schedule 5.4 Consents and Approvals
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Compliance with Law
Schedule 5.8 Restrictive Documents and Laws
Schedule 5.9 Properties
Schedule 5.11 Legal Proceedings
Schedule 5.12 Conflicts or Defaults
Exhibit A Debenture Agreement
Exhibit B Legal Opinion of Baker & Hostetler
Exhibit C Legal Opinion of Counsel to Wholesalers
Exhibit D Document Escrow Agreement
Exhibit E Opinion of Independent Legal Counsel
<PAGE> 7
THE FOLLOWING IS A LISTING OF SCHEDULES AND EXHIBITS INCLUDED ON THE AGREEMENT
LISTED AS EXHIBIT NO. 2(a).
Schedule 1.1 (a) Real Property
Schedule 1.1 (b) Real Property Leases
Schedule 1.1 (c) Personal Property
Schedule 1.1 (d) Inventory
Schedule 1.1 (e) Vehicles
Schedule 1.1 (f) Permits
Schedule 1.1 (g) Proprietary Rights
Schedule 1.1 (h) Personal Property Leases
Schedule 1.1 (i) Contracts
Schedule 1.1 (j) Receivables
Schedule 1.1 (m) Telephone Numbers
Schedule 1.1 (n) Employee Plan and Benefit Arrangements
Schedule 1.2 Control Group
Schedule 1.3 Non-Assigned Acquired Business Assets
Schedule 2.1 Excluded Liabilities
Schedule 3.2 Selected Generally Accepted Accounting Principles
Schedule 4.3 Agreements to Issue Unimag Shares
Schedule 4.5 Litigation
Schedule 5.1 Qualification as Foreign Corporation
Schedule 5.2 Northern and MacGregor Shareholders
Schedule 5.4 Consents and Approvals
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Absence of Certain Changes
Schedule 5.8 Taxes
Schedule 5.9 Compliance with Law
Schedule 5.10 Proprietary Rights
Schedule 5.11 Restrictive Documents and Laws
Schedule 5.12 Insurance
Schedule 5.13 Bank Accounts
Schedule 5.14 Properties
Schedule 5.16 Legal Proceedings
Schedule 5.17 Employee Benefit Plans (Schedules (a) through (h))
Schedule 5.18 Contracts
Schedule 5.19 Accounts Receivable
Schedule 5.20 Conflicts or Defaults
Schedule 5.22 Officers, Employees, and Compensation
Schedule 5.23 Labor Relations
Schedule 5.24 Customers and Suppliers
Schedule 5.25 Special Terms to Customers
Schedule 6.2 (a) Employment Arrangements
Exhibit A Debenture Agreement
Exhibit B Legal Opinion of Counsel to Unimag
Exhibit C Legal Opinion of Counsel to Northern and the Shareholders
Exhibit D Document Escrow Agreement
Exhibit E Petoskey Warehouse Lease
Exhibit F Opinion of Independent Legal Counsel
<PAGE> 8
THE FOLLOWING IS A LISTING OF SCHEDULES AND EXHIBITS INCLUDED ON THE AGREEMENTS
LISTED AS EXHIBIT NOS. 2(b), 2(c), 2(f), 2(g).
Schedule 1.1 Control Group
Schedule 2.1 (b) Certain Generally Accepted Accounting Principles
Schedule 3.3 Agreements to Issue Unimag Shares
Schedule 3.5 Litigation
Schedule 4.1 Qualification as Foreign Corporation
Schedule 4.2 Transferring Shareholders
Schedule 4.3 Restrictions on Shares
Schedule 4.5 Consents and Approvals
Schedule 4.7 Undisclosed Liabilities
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Taxes
Schedule 4.10 Compliance with Law
Schedule 4.11 Proprietary Rights
Schedule 4.12 Restrictive Documents and Laws
Schedule 4.13 Insurance
Schedule 4.14 Bank Accounts
Schedule 4.15 Properties
Schedule 4.17 Legal Proceedings
Schedule 4.18 Employee Benefit Plans (Schedules (a) through (j))
Schedule 4.19 Contracts
Schedule 4.20 Accounts Receivable
Schedule 4.21 Conflicts or Defaults
Schedule 4.23 Employees and Compensation
Schedule 4.24 Labor Relations
Schedule 4.25 Customers and Suppliers
Schedule 4.26 Special Terms to Customers
Schedule 5.2 (a) Employment Arrangements (not in Exhibit 2(b))
Exhibit A Debenture Agreement
Exhibit B Opinion of Baker & Hostetler
Exhibit C-1 Form of Employment Agreement
Exhibit C-2 Form of Employment Agreement
Exhibit C-3 Form of Employment Agreement
Exhibit C-4 Form of Employment Agreement (Exhibit 2(c) only)
Exhibit D Opinion of Counsel to Transferring Shareholders
Exhibit E Document Escrow Agreement
The following are Exhibits included in the Agreement listed as Exhibit 2(b):
Exhibit A Debenture Agreement
Exhibit B Opinion of Baker & Hostetler
Exhibit C-1 Form of Employment Agreement
Exhibit C-2 Form of Employment Agreement
Exhibit C-3 Form of Employment Agreement
Exhibit D Niles Building Lease
Exhibit E Fort Wayne Building Purchase Agreement
Exhibit F Opinion of Sperry & Bowman
Exhibit G Document Escrow Agreement
Exhibit H Supply Agreement
Exhibit I Asset Purchase Agreement
<PAGE> 1
ASSET TRANSFER AND EXCHANGE AGREEMENT
BETWEEN
UNITED MAGAZINE COMPANY
AND
NORTHERN NEWS COMPANY
EFFECTIVE DATE: JULY 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Description of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Control Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.3 Non-Assignment of Certain Acquired Business Assets . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 OBLIGATIONS TO BE ASSUMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Obligations to be Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Non-Assignment of Certain Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 CLOSING; EXCHANGE CONSIDERATION; AND
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Escrow Closing; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Valuation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Transfer Documents and Issuance of Unimag Shares and Debentures . . . . . . . . . . . . . . . . . 9
(a) Contributions by Northern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Issuance of Unimag Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Issuance of Unimag Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Unimag Shares to be Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.4 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.5 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Capitalization of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.4 Conflicts; Consents; and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.6 Brokerage and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7 Unimag 10-K and 10-Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.10 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.12 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF NORTHERN . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2 Capitalization and Security Holders; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.3 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.5 Unaudited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) 1995 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Wholesale Periodical Business Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) MacGregor Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.6 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.7 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.9 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.10 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.11 Restrictive Documents or Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.13 Bank Accounts, Depositories; Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.14 Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.15 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.16 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.18 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.20 No Conflict or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.21 Books of Account; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.22 Officers, Employees, and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.23 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.24 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.25 Special Terms; Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.26 Businesses of Northern and MacGregor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.27 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.28 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 6 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.1 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(b) HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Other Governmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(d) Tax-Free Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.2 Covenants of Northern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) Access to Records and Other Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Employee Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(f) Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(g) Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(j) Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.3 Covenants of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Conduct of Unimag's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Joint Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Consummation of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 7 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.1 Mutual Conditions to Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Completion of Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(b) No Adverse Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(c) Certain Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(d) Other Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(e) Exchange Agreements for Certain Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(f) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(g) Lease for Petoskey Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(h) Termination and Release of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.2 Conditions to Obligations of Northern to Complete the Escrow Closing . . . . . . . . . . . . . . 38
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(e) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(f) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(g) Unimag Shareholder Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(h) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.3 Conditions to Obligations of Unimag to Complete the Escrow Closing . . . . . . . . . . . . . . . 40
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(e) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(f) Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(g) Agreement for Acquisition of MacGregor Stock
Owned by Foster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(h) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(i) Opinion of Independent Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(j) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(k) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.4 Document Escrow Agreement; Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . 41
Section 7.5 Mutual Conditions to Consummate the Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) Escrow Closing of Other Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Unimag Board of Directors Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(c) Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 8 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) Termination by Northern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Termination by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.1 Survival of Representations, Warranties, Covenants, and Agreements . . . . . . . . . . . . . . . 43
Section 9.2 Indemnification by Northern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.3 Indemnification by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.4 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.5 Procedure for Indemnification with Respect to Third Party Claims . . . . . . . . . . . . . . . . 46
Section 9.6 Procedure For Indemnification with Respect to Non-Third Party Claims . . . . . . . . . . . . . . 47
Section 9.7 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.2 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.3 Genders and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.9 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
- v -
<PAGE> 7
ASSET TRANSFER AND EXCHANGE AGREEMENT
This Asset Transfer and Exchange Agreement (this "Agreement") is made
and entered into August 30, 1996, to be effective as of July 29, 1996, between
United Magazine Company, an Ohio corporation ("Unimag") and Northern News
Company, a Michigan corporation ("Northern").
BACKGROUND INFORMATION
A. Pursuant to the transactions described in this Agreement (the
"Exchange"), Unimag desires to acquire substantially all of the assets and
business operations of Northern which comprise, are used in, and relate to
Northern's wholesale magazine, book, newspaper, and sundries distribution and
related businesses (the "Wholesale Periodical Business"), together with all of
the issued and outstanding stock of MacGregor News Agency, Inc., a Michigan
corporation having its principal offices located at 1733 Industrial Park Drive,
Mount Pleasant, Michigan 48858 ("MacGregor"), in exchange for (1) Unimag's
common shares, without par value ("Unimag Shares"), and (2) senior and
subordinated debentures of Unimag, subject to and upon the terms and conditions
set forth in this Agreement.
B. All of the issued and outstanding stock of MacGregor (the
"MacGregor Stock") currently is owned 79% by Northern and 21% by Arthur C.
Foster, Sr. ("Foster"), and Northern has obtained the agreement of Foster to
transfer all of the MacGregor Stock owned by Foster to Unimag as described in
this Agreement.
C. The respective boards of directors of Unimag and Northern have
(1) determined that the Exchange and the other transactions contemplated in
this Agreement are desirable and in the best interests of their respective
shareholders, and (2) duly approved and adopted this Agreement.
D. Unimag and Northern intend that the Exchange qualify, along
with other exchanges with Unimag occurring both before and after the closing of
the transactions contemplated by this Agreement, as a tax-free exchange under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"),
subject to the rules of Section 351 of the Code and the regulations promulgated
thereunder applicable to the receipt and taxability of "boot" (within the
meaning of such rules).
- 1 -
<PAGE> 8
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
ARTICLE 1
EXCHANGE
Section 1.1 DESCRIPTION OF ASSETS. Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with the
provisions of Section 351 of the Code, Northern shall transfer, convey, and
contribute (and cause to be transferred, conveyed, and contributed) to the
capital of Unimag, in exchange for Unimag Shares and senior and subordinated
debentures of Unimag (both in the amounts and as otherwise described in Article
3), all of Northern's (and, with respect to the MacGregor Stock owned by
Foster, all of Foster's) right, title, and interest, at the Escrow Closing
Date, in and to certain of Northern's assets (the "Acquired Assets"), and
specifically (i) all of Northern's and Foster's MacGregor Stock and (ii) all of
the assets and business operations of Northern which comprise, are used in, and
relate to Northern's Wholesale Periodical Business (the "Acquired Business
Assets") consisting of all of the Wholesale Periodical Business assets,
properties, rights (contractual or otherwise), and business operations of
Northern of every kind, nature, and description, real, personal, and mixed,
tangible and intangible, known and unknown, wherever located (other than those
assets, properties, rights (contractual or otherwise), and businesses
specifically excluded in this Article), including, without in any way limiting
the generality of the foregoing, the following Acquired Business Assets:
(a) All real property, including without limitation the
real property described on Schedule 1.1(a), along with all easements,
rights-of-way, and other appurtenant rights and privileges relating
thereto and all buildings, fixtures, and other improvements located
thereon and therein (the "Real Property");
(b) All rights and claims under leases and subleases of
real property and improvements, including without limitation the
leases and subleases listed on Schedule 1.1(b), along with all
easements, rights-of-way, and other appurtenant rights and privileges
relating thereto (the "Real Property Leases");
(c) All leasehold improvements and fixtures not described
in Section Section 1.1(a) and 1.1(b), all machinery, equipment,
tooling, parts, furniture, magazine racks, supplies, and other
tangible personal property (the "Personal Property"), including
without limitation the Personal Property described on Schedule 1.1(c);
- 2 -
<PAGE> 9
(d) All raw materials, supplies, component parts,
work-in-process, finished goods inventory, and other inventory (the
"Inventory"), including without limitation the Inventory listed on
Schedule 1.1(d);
(e) All automobiles and other vehicles (the "Vehicles"),
including without limitation the Vehicles described on Schedule
1.1(e);
(f) All franchises, licenses, permits, consents,
authorizations, approvals, orders, registrations, variances,
certificates, and similar rights obtained from any regulatory,
administrative, or other government agency or body (to the extent the
same are transferable) (the "Permits"), including without limitation
the Permits listed on Schedule 1.1(f);
(g) All patents, inventions, trade secrets, processes,
proprietary rights, proprietary knowledge, know- how, computer
software, trademarks, names, service marks, trade names, copyrights,
marks, symbols, logos, franchises, and permits, and all applications
therefor, registrations thereof, and licenses, sublicenses, or
agreements with respect thereto, which Northern owns or has the right
to use or to which Northern is a party, and all filings,
registrations, or issuances of any of the foregoing with or by any
federal, state, or local regulatory, administrative, or governmental
office (collectively, the "Proprietary Rights"), including without
limitation the Proprietary Rights described on Schedule 1.1(g);
(h) All claims and rights under leases of equipment,
vehicles, or other tangible personal property (the "Personal Property
Leases"), including without limitation the Personal Property Leases
listed on Schedule 1.1(h);
(i) All claims and rights under contracts, agreements,
contract rights, leases, license agreements, franchise rights and
agreements, insurance policies, purchase and sales orders, quotations
and executory commitments, mortgages and other security interests,
instruments, guaranties, indemnifications, arrangements, and
understandings of Northern, whether oral or written, to which Northern
is a party (whether or not legally bound thereby) (the "Contracts"),
including without limitation the Contracts listed on Schedule 1.1(i);
(j) All accounts, notes, and other receivables, and all
prepaid expenses, including without limitation the items listed on
Schedule 1.1(j);
(k) All causes of action, judgments, claims, demands, and
rights of set off and recoupment against others of whatever kind or
description;
(l) All books of account, customer and supplier lists,
order and regulatory records, advertising and promotional materials,
marketing studies, operating manuals, and all other files, papers, and
records (the "Business Records");
- 3 -
<PAGE> 10
(m) All telephone numbers for Northern's offices and
facilities, including without limitation the telephone numbers listed
on Schedule 1.1(m); and
(n) All rights in and with respect to the assets or other
features of any kind or nature associated with Northern's Employee
Plans and Benefit Arrangements (both defined in Section 5.17), listed
on Schedule 1.1(n).
Notwithstanding anything in this Section 1.1 to the contrary,
the following items shall be excluded from the definition of Acquired Assets:
(i) Northern's corporate charters, qualifications to conduct business as a
foreign corporation, arrangements with registered agents relating to foreign
qualification, taxpayer and other identification numbers, minute books, stock
transfer books, and other documents relating to the organization and existence
of Northern as a corporation; (ii) all of the rights of Northern under this
Agreement; (iii) all of Northern's investments, cash, and cash equivalents
including, without limitation, all bank accounts of Northern; (iv) the Petoskey
Warehouse, as described in Section 7.1(g); and (v) all assets and business
operations of Northern which do not comprise any part of, and otherwise are not
used in or related to, Northern's Wholesale Periodical Business.
Section 1.2 CONTROL GROUP. In addition to the Exchange and other
transactions contemplated by this Agreement, Unimag shall complete similar
exchange and related transactions with the other transferors identified in
Schedule 1.2. Immediately after completion of the Exchange and such portion of
the other exchanges with such other parties as Unimag is able to complete,
Northern and such other transferors shall constitute a group which is in
control of Unimag, as defined in Section 368(c) of the Code.
Section 1.3 NON-ASSIGNMENT OF CERTAIN ACQUIRED BUSINESS ASSETS.
Northern represents and warrants to Unimag that Schedule 1.3 lists and
describes all Acquired Business Assets which are non-assignable or the
assignment of which pursuant to this Agreement requires the consent of a third
party. Notwithstanding anything in this Agreement to the contrary, to the
extent that the assignment of any of the Acquired Business Assets shall require
the consent of a third party (or in the event that any of the same shall be
non-assignable), neither this Agreement nor any action taken pursuant to the
provisions of this Agreement shall constitute an assignment or an agreement to
assign if such assignment or attempted assignment would constitute a breach
thereof or affect adversely the rights of Northern thereunder. Northern shall
use its best efforts to obtain the consent of such third parties to an
assignment to Unimag. If such consent is not obtained, Northern shall
cooperate with Unimag in any reasonable arrangement designed to provide for
Unimag the benefits of such Acquired Business Asset, including without
limitation enforcement, for the account and benefit of Unimag, of any and all
rights of Northern against any other person with respect to such Acquired
Business Asset.
- 4 -
<PAGE> 11
ARTICLE 2
OBLIGATIONS TO BE ASSUMED
Section 2.1 OBLIGATIONS TO BE ASSUMED. Upon the terms and
subject to the conditions set forth in this Agreement, from and after the
Escrow Closing Date Unimag shall assume the remaining unpaid purchase money
obligation of Northern and Foster with respect to Northern's and Foster's
purchase of the MacGregor stock (together with the obligation for accrued but
unpaid interest thereon) and all obligations and liabilities of Northern of any
kind whatsoever incurred by Northern in connection with or otherwise related to
the Wholesale Periodical Business, whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due (other
than those obligations and liabilities specifically excluded in this Article),
to the extent the same have not been discharged or satisfied prior to the
Escrow Closing Date, including without limitation the following (collectively,
the "Assumed Liabilities"):
(a) All obligations and liabilities of Northern under the
Real Property Leases, Permits, Personal Property Leases, Contracts,
and other arrangements referred to in paragraphs (a) through (n) of
Section 1.1;
(b) All liabilities of Northern arising out of its
conduct of the Wholesale Periodical Business for unpaid federal,
state, or local income, gross receipts, license, payroll, employment,
excise, severance, occupation, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest or penalty, whether disputed or not
(collectively, the "Taxes"), excluding, however, any liability of
Northern for Taxes arising in connection with the Exchange and the
other transactions contemplated by this Agreement;
(c) All liabilities, responsibilities, and obligations of
Northern under, or in any way related to, any of Northern's Employee
Plans and Benefit Arrangements; and
(d) Any other obligation or liability not otherwise
included above but disclosed in the Schedules to be attached to this
Agreement as provided in Article 5.
Notwithstanding anything in this Section 2.1 to the contrary,
the following items shall be excluded from the definition of Assumed
Liabilities: (i) any liability or obligation of Northern under this Agreement;
(ii) any liability or obligation not incurred by Northern in connection with or
otherwise related to the Wholesale Periodical Business or Northern's and
Foster's purchase of the MacGregor stock; (iii) any liability of the
shareholders of Northern for Taxes of any nature attributable to their
respective shares of S corporation taxable income of Northern (including,
without limitation, their respective shares of gain, if any, arising in
connection with the Exchange and the other transactions contemplated by this
Agreement); (iv) any liability or obligation identified on Schedule 2.1; and
(v) any liability or obligation with
- 5 -
<PAGE> 12
respect to Northern's Wholesale Periodical Business which would constitute a
breach of the representations and warranties of Northern under Section 5.6.
Section 2.2 NON-ASSIGNMENT OF CERTAIN ASSUMED LIABILITIES. With
respect to any Assumed Liability which exists pursuant to an Acquired Business
Asset which is non-assignable (as described in Section 1.1) and is to be
transferred or assigned subject to obtaining the consent or approval of the
appropriate third party (because such consent or approval is not obtained prior
to the Escrow Closing, Unimag shall indemnify, hold harmless, and defend
Northern against such Assumed Liability and any obligations, liabilities,
costs, and expenses relating to such Assumed Liability.
With respect to any Assumed Liability which is, as of
the Escrow Closing Date or at any time thereafter, in litigation and which is
not assumed by Unimag pursuant to the provisions of the preceding paragraph (a
"Litigated Third Party Claim"), Northern shall promptly notify Unimag thereof
in writing. Unimag shall assume the defense of any Litigated Third Party Claim
with legal counsel of its choice as of the Escrow Closing Date, or at any time
within 20 days after Northern has given notice of the Litigated Third Party
Claim, if after the Escrow Closing Date. Northern may retain separate legal
counsel at its sole cost and expense and participate in the defense of the
Litigated Third Party Claim. Northern: (a) will not consent to the entry of
any judgement or enter into any settlement with respect to any Litigated Third
Party Claim without the prior written consent of Unimag; (b) will cooperate
with Unimag in the defense of any Litigated Third Party Claim; and (c) will
conduct the defense of any Litigated Third Party Claim, including the
settlement or other disposition thereof, in all respects as directed by Unimag.
ARTICLE 3
CLOSING; EXCHANGE CONSIDERATION; AND OTHER MATTERS
Section 3.1 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange, including the contribution of the Acquired Assets, assumption of the
Assumed Liabilities, and the other transactions contemplated by this Agreement
(the "Escrow Closing") shall be held at the offices of Baker & Hostetler, 65
East State Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus,
Ohio time on such date (the "Escrow Closing Date") as may be reasonably
designated by Unimag; provided that the Escrow Closing shall be held not later
than September 28, 1996. As provided in Section 7.5, after the Escrow Closing
the only conditions to the release of this Agreement and the other documents
executed in connection with the transactions contemplated by this Agreement
(the "Additional Documents") from the Document Escrow Agreement (defined in
Section 7.4) shall be the approval of the Exchange by the board of directors
and the shareholders of Unimag and the escrow closing of certain other
acquisitions. Within ten days after such shareholder approval (the "Closing
Date"), the Parties shall cause the Agreement and the Additional Documents to
be delivered to the appropriate Party in accordance with the terms and
conditions of the Document Escrow Agreement and the Parties shall close the
Exchange (the "Closing"). In no event shall the Closing be held later than
December 31, 1996.
- 6 -
<PAGE> 13
Section 3.2 EXCHANGE CONSIDERATION.
(a) Valuation. Upon the terms and subject to the
conditions set forth in this Agreement, in exchange for the
contribution of the Acquired Assets and in full consideration
therefor, at the Closing Unimag shall assume the Assumed Liabilities
as provided in Article 2 and shall, subject to the provisions of
Section 3.3 and subject to the adjustments provided for in Section
Section 3.2(b) and 4.3, issue to Northern (i) 1,746,515 Unimag Shares,
and (ii) $ 2,517,037 principal amount of Unimag debentures (the
"Unimag Debentures"). The Unimag Debentures shall be issued pursuant
to the terms of the Debenture Agreement attached hereto as Exhibit A
(the "Debenture Agreement"). An aggregate of $ 1,423,384 principal
amount of the Unimag Debentures shall be Senior Debentures (as defined
in the Debenture Agreement), and the balance of the Unimag Debentures
shall be Subordinated Debentures (as defined in the Debenture
Agreement).
(b) Valuation Adjustment. The amount of Unimag
Shares and the principal amount of Unimag Debentures to be received by
Northern in exchange for Northern's contribution of the Acquired
Assets is based upon a total valuation of such contributions of $
5,136,810, with 51% of this value being exchanged for Unimag Shares at
an agreed upon price of $1.50 per Unimag Share, and 49% of this value
being exchanged for Unimag Debentures. Such value was determined by
adding the sum of:
(i) An amount equal to 60% of the net
combined annual sales of Northern's Wholesale Periodical
Business and of MacGregor for the 12-month period ended
December 31, 1995, which amount is currently estimated to be $
5,125,501 ("1995 Combined Sales"); plus or minus
(ii) An amount equal to the tangible net
worth (the "Tangible Net Worth") based upon the book value of
100% of the MacGregor Stock and upon the book value of the
Acquired Business Assets comprising Northern's Wholesale
Periodical Business as of June 30, 1996, net of the Assumed
Liabilities (which Tangible Net Worth is currently estimated
to be $11,309).
Within 30 days after the Escrow Closing Date, Northern shall
cause to be prepared and delivered to Unimag (A) the balance sheet of Northern
for the Wholesale Periodical Business as of June 30, 1996 (the "June 30th
Balance Sheet"), (B) the 1995 Wholesale Periodical Business Financial
Statements (defined in Section 6.2(i)), and (C) copies of MacGregor's sales and
returns reports (and all supporting documentation relating to such reports) for
the 52-week period ended on December 31, 1995 (the "1995 Macgregor Sales
Reports"), and the sales and returns reports for each of the three weeks before
the beginning of and after the end of such 52-week period. The June 30th
Balance Sheet shall: (1) be prepared from and in accordance with the books and
records of Northern; (2) be prepared in conformity with generally accepted
accounting principles applied on a consistent basis, including without
limitation the generally accepted accounting principles set forth on Schedule
3.2, but subject to the exceptions to generally accepted accounting principles
also set forth on Schedule 3.2; and (3) fairly present in all material respects
the financial condition of Northern's Wholesale
- 7 -
<PAGE> 14
Periodical Business as of such date in accordance with such practices.
Northern shall also deliver to Unimag copies of the work papers used in
connection with the preparation of the June 30th Balance Sheet, the 1995
Wholesale Periodical Business Financial Statements, and the 1995 MacGregor
Sales Reports. The 1995 MacGregor Sales Reports shall fairly present in all
material respects MacGregor's 1995 sales.
As soon as practical after delivery to Unimag of the June 30th
Balance Sheet, the 1995 Wholesale Periodical Business Financial Statements, and
the 1995 MacGregor Sales Report, and the related workpapers, Unimag shall cause
Arthur Andersen LLP to conduct an audit of the June 30th Balance Sheet to
determine the actual Tangible Net Worth as of such date, and, if necessary, to
conduct a review of the 1995 Wholesale Periodical Business Financial
Statements, and the 1995 MacGregor Sales Reports to confirm the accuracy of the
recorded amounts of 1995 Combined Sales. In connection with its review of the
1995 MacGregor Sales Reports, Arthur Andersen LLP also shall review the sales
and returns reports for each of the three weeks before and after the 52-week
period to confirm that there has been an appropriate cut-off of sales, returns,
and related matters (in accordance with generally accepted accounting
principles) at the beginning and end of said 52-week period. The determination
of the Tangible Net Worth shall be made consistent with the generally accepted
accounting principles (and exceptions therefrom) set forth in Schedule 3.2.
Arthur Andersen LLP shall promptly thereafter deliver to Unimag and Northern a
report as to its determination of the actual value of Northern's contribution
of the Acquired Assets in accordance with the provisions of subparagraphs (i)
and (ii) of Section 3.2(b) (the "Actual Value"). Within thirty (30) days after
the delivery of this report to it, Northern shall deliver to Unimag a written
statement describing its objections (if any) to Arthur Andersen LLP's
determination of the Tangible Net Worth, the 1995 Combined Sales, and the
Actual Value. Unimag and Northern shall use reasonable efforts to resolve any
disputes regarding these determinations, and if they are unable to resolve any
such disputes within thirty (30) days after Northern has submitted its
objections to Unimag, then KPGM Peat Marwick, an independent accounting firm,
shall resolve any such disputes. The Parties shall use reasonable efforts to
cause KPGM Peat Marwick to decide all disputed items as soon as practicable
(but in any event within thirty (30) days). All fees and expenses of Arthur
Andersen LLP shall be borne by Unimag, but the fees and expenses of KPGM Peat
Marwick shall be borne equally between Unimag, on the one hand, and Northern,
on the other.
If the Actual Value, as so determined, is more than $
5,136,810, then Unimag shall issue additional Unimag Shares, valued at $1.50
per share, equal to 51% of, and additional Unimag Subordinated Debentures in a
principal amount equal to 49% of, the amount by which the Actual Value, as so
determined, exceeds $ 5,136,810. If the Actual Value, as so determined, is
less than $ 5,136,810, then the parties shall reduce the number of Unimag
Shares, valued at $1.50 per share, issued to Northern by an amount equal to 51%
of, and the Unimag Subordinated Debentures issued to Northern by an amount
equal to 49% of, the amount by which the Actual Value, as so determined, is
less than $ 5,136,810. Notwithstanding the foregoing, if any reduction in the
amount of Unimag Shares to be issued would in any way prevent the Exchange,
along with other exchanges between other companies and Unimag occurring both
before and after the closing of the transactions contemplated by this
Agreement, from being treated as a tax-free exchange under Section 351 of the
Code, then the relative percentage of Unimag Shares and Unimag Subordinated
Debentures to be so returned shall be
- 8 -
<PAGE> 15
adjusted in order to maintain the tax-free exchange nature of these
transactions. In the event that Northern fails to return such Unimag Shares and
Unimag Subordinated Debentures within 30 days after a determination that the
Actual Value is less than $ 5,136,810, then, in addition to any other rights or
remedies Unimag may have under this Agreement or otherwise, Unimag shall have
the right to setoff the value of such Unimag Shares and Unimag Subordinated
Debentures against any amount owed to Northern by Unimag, whether pursuant to
this Agreement or the Unimag Debentures.
Section 3.3 TRANSFER DOCUMENTS AND ISSUANCE OF UNIMAG SHARES AND
DEBENTURES.
(a) Contributions by Northern. At the Closing,
Northern shall transfer, convey, and contribute (and shall cause to be
transferred, conveyed, and contributed) to the capital of Unimag the
Acquired Assets, free and clear of all claims and encumbrances except
for the Assumed Liabilities, by delivering to Unimag the following
duly executed transfer instruments and documents (collectively the
"Transfer Documents"):
(i) General warranty deeds for the Real
Property, conveying to Unimag merchantable, fee
simple title.
(ii) All certificates evidencing the
MacGregor Stock owned by Northern and Foster,
endorsed for transfer to Unimag.
(iii) Assignments of (including all rights
and claims related to) the Real Property Leases, the
Personal Property Leases, the Contracts, and all
other items of the type described in paragraphs (k)
and (n) of Section 1.1.
(iv) All certificates of title to the
Vehicles, endorsed for transfer to Unimag.
(v) Bills of sale, assignments, and such
other instruments of transfer as may be required in
order to convey to Unimag ownership of the Personal
Property, the Inventory, the Permits, the Proprietary
Rights, all assets of the type described in paragraph
(j) of Section 1.1, the Business Records, and all
items of the type described in paragraph (m) of
Section 1.1.
(vi) Any and all other instruments of
transfer reasonably requested by Unimag in order to
complete the conveyances to Unimag of all of the
Acquired Assets in accordance with the terms and
conditions of this Agreement.
(b) Issuance of Unimag Shares. At the Closing,
upon delivery of all of the Transfer Documents by Northern, Unimag
shall issue to Northern that number of Unimag Shares which Northern is
entitled to receive as described in Section 3.2(a). Unimag shall not
be obligated to issue any fractional Unimag Shares as a result of the
Exchange. To the extent that Northern otherwise would become entitled
to a fractional Unimag share as a result of the Exchange, Northern
shall be entitled to receive a cash payment
- 9 -
<PAGE> 16
for such fractional interest in an amount equal to such fractional
interest multiplied by $1.50. Such payment is merely intended to
provide a mechanical rounding off of, and is not a separately
bargained for, consideration.
(c) Issuance of Unimag Debentures. At the
Closing, upon delivery of all of the Transfer Documents by Northern,
Unimag shall issue to Northern the Unimag Debentures which Northern is
entitled to receive as described in Section 3.2(a).
(d) Unimag Shares to be Restricted Securities.
The Unimag Shares to be received by Northern in the Exchange shall be
restricted securities within the meaning of Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Act"). Northern
understands and agrees that such shares may not be sold, pledged,
hypothecated or otherwise transferred unless such shares are
registered under the Act or pursuant to an opinion of counsel, which
opinion and counsel are reasonably acceptable to Unimag and its
counsel, that an exemption from such registration is available.
Northern agrees that the following legend may be placed on the
certificates for the Unimag Shares to be received by it and that
appropriate stop-transfer instructions may be given to Unimag's
transfer agent and registrar:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED, UNLESS THEY ARE AT THE TIME SO
REGISTERED, OR THE SALE OR TRANSFER THEREOF IS NOT
REQUIRED TO BE SO REGISTERED, OR IS MADE PURSUANT TO
THE APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED
IN THE SECURITIES ACT OF 1933, AS AMENDED, OR IN
THE RULES OR REGULATIONS THEREUNDER.
Section 3.4 EMPLOYEES. As of the Closing Date, upon delivery of
all of the Transfer Documents by Northern, Unimag shall hire as its employees
all of the persons who are on such date employees of Northern and who are
willing to accept employment with Unimag. All of such persons will be hired
initially at the compensation, and on and subject to all of the terms and
conditions, which existed as part of their employment with Northern immediately
prior to their employment with Unimag, including any terms and conditions which
exist under or relate to Northern's Employee Plans and Benefit Arrangements.
Section 3.5 NAME. Northern will change its name, effective as of
the Closing Date, to a name which does not include the words "news" or
"periodical" or "distributors" or any similar words. Northern will cause
appropriate filings to be made with the Michigan Secretary of State and any
other jurisdiction in which Northern is qualified to do business.
- 10 -
<PAGE> 17
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF UNIMAG
In order to induce Northern to enter into this Agreement, Unimag
hereby represents and warrants to Northern that the statements set forth in
this Article 4 are true, correct, and complete:
Section 4.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 4.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the board of directors and the shareholders of Unimag to be
obtained after the date of this Agreement). This Agreement has been duly
executed and delivered by Unimag and constitutes a legal, valid, and binding
obligation of Unimag, enforceable against Unimag in accordance with its terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, or other similar laws from time to time in effect which may affect
the enforcement of creditors' rights in general, and (b) general principles of
equity.
Section 4.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 26,760,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. Northern acknowledges that prior to the Closing, Unimag may (i)
authorize additional capital stock, including additional Unimag Shares, or (ii)
reduce the number of outstanding Unimag Shares by means of a reverse stock
split, or any other method which would result in a reduction in the number of
outstanding Unimag Shares. Unimag will deliver written notice to Northern if
it authorizes any such action. (Except as otherwise described in this
Agreement, and except as disclosed on Schedule 4.3, Unimag has not entered into
any agreement which would require it to reduce or increase the number of Unimag
Shares outstanding.) In the event that Unimag authorizes a reverse stock split
or other reduction in the number of outstanding Unimag Shares,
- 11 -
<PAGE> 18
then the $1.50 agreed upon price of a Unimag Share for purposes of determining
the number of Unimag Shares to be issued to Northern pursuant to Section 3.2
shall be proportionately adjusted with the objective that Northern shall have
the right to receive the same proportionate ownership interest in Unimag as
before the reduction in the number of outstanding Unimag Shares.
Section 4.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement shall:
(a) Violate, conflict with, result in a violation
or breach of any provision of, constitute a default (or an event
which, with the giving of notice, the passage of time, or otherwise,
would constitute a default) under, entitle any third party (with the
giving of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease, or other instrument
or obligation to which Unimag is a party and which is material to
Unimag and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree,
statute, rule, or regulation, applicable to Unimag or its respective
properties or assets; or
(c) Require any action, consent, or approval of,
review by, or registration with any third party, court, governmental
body, or other agency, instrumentality, or authority, other than (i)
actions required, if any, by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), (ii) actions to be taken in
respect of federal and state securities laws as contemplated by this
Agreement, and (iii) approval by the shareholders of Unimag.
Section 4.5 LITIGATION. Except as disclosed in Schedule 4.5:
(a) there is no (and over the last three years there have been no) suits,
claims, actions, proceedings, or investigations (collectively, "Actions")
pending or, to the best knowledge of Unimag, threatened against Unimag or any
of its subsidiaries in which the amount in dispute exceeds (or exceeded)
$25,000, or which has or could result in liability or loss for Unimag or any of
its subsidiaries of more than $25,000, or which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on Unimag and
its subsidiaries, taken as a whole, or a material adverse effect on the ability
of Unimag to consummate the Exchange and other transactions contemplated by
this Agreement; and (b) to the best knowledge of Unimag, there exist no
disputes, conflicts or circumstances providing the basis for a dispute or
conflict which could reasonably be expected to result in any such Action.
Neither Unimag nor any subsidiary is subject to any outstanding judgment,
order, writ, injunction, or decree which, individually or in the aggregate, has
a reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition (financial or otherwise), or
prospects of Unimag, or a material adverse
- 12 -
<PAGE> 19
effect on the ability of Unimag to consummate the Exchange or other
transactions contemplated by this Agreement.
Section 4.6 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 4.7 UNIMAG 10-K AND 10-Q. Unimag has previously made
available to Northern true, correct, and complete copies of Unimag's most
recent 10-KSB for the fiscal year ending September 30, 1995 (the "10-K"), and
Unimag's most recent 10- QSB for the fiscal quarter ending June 30, 1996
("10-Q"), both of which have been filed with the Securities and Exchange
Commission ("SEC"). The financial statements of Unimag included in the 10-K
and 10-Q have been prepared from and in accordance with the books and records
of Unimag and in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the 10-Q, as permitted by the
SEC under the Securities and Exchange Act of 1934, as amended) and fairly
present (subject, in the case of the 10-Q, to normal and recurring audit
adjustments) the consolidated financial position of Unimag and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Section 4.8 TAXES. Unimag has duly paid, or caused to be paid,
all taxes, assessments, fees, and other governmental charges (hereinafter,
"taxes") payable by Unimag or its subsidiaries. Unimag has duly filed, or
caused to be filed, all federal, state, local and foreign tax returns and tax
reports required to be filed by it or its subsidiaries and all such returns and
reports are true, correct, and complete. There is no pending or, to the best
knowledge of Unimag, threatened federal, state, local or foreign tax audit or
assessment relating to it or its subsidiaries and there is no agreement with
any federal, state, local, or foreign tax authority that may affect the
subsequent tax liabilities of Unimag and its subsidiaries.
Section 4.9 UNDISCLOSED LIABILITIES. Unimag has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent, or otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the 10-Q or
the financial statements therein set forth, which have not been paid
or discharged since the date thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since June 30,
1996, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
which are not inconsistent with the other representations, warranties
and agreements of Unimag set forth in this Agreement; and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
its financial statements.
- 13 -
<PAGE> 20
Section 4.10 COMPLIANCE WITH LAW. To the best knowledge of
Unimag, Unimag has complied and is in compliance in all material respects with
all laws, statutes, ordinances, orders, rules and regulations promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 4.11 NO MATERIAL ADVERSE CHANGE. Since the filing of the
10-Q with the SEC, there has been no material adverse change in the properties,
assets, liabilities, business, results of operations, or condition (financial
or otherwise) of Unimag. Unimag is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any entity.
Section 4.12 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of the Acquired Assets pursuant to this Agreement
along with other exchanges and acquisitions occurring before and after the
closing of the transactions contemplated by this Agreement, as an exchange
under Section 351 of the Code, subject to the rules of Section 351 of the Code
and the regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules). Unimag shall be solely
responsible for evaluating (and determining the appropriate methods required
for reporting) all federal, state, and local income and other tax consequences
to Unimag which will and may result from the transactions contemplated by this
Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
NORTHERN
In order to induce Unimag to enter into this Agreement, Northern
hereby represents and warrants to Unimag that the statements contained in this
Article 5 are true, correct, and complete:
Section 5.1 ORGANIZATION AND STANDING. Northern and MacGregor
each is a corporation duly organized, validly existing and in good standing
under the laws of the State of Michigan with full power and authority
(corporate and otherwise) to own, lease, use, and operate its properties and to
conduct its business as and where now owned, leased, used, operated and
conducted. Each corporation is duly qualified to do business and is in good
standing in each state listed in Schedule 5.1, is not qualified to do business
in any other state and, except as set forth in Schedule 5.1, neither the nature
of the business or other activities conducted by it nor the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation in any other state, except where the failure to be so qualified
would not have a material adverse effect on the business, operations, assets,
properties, condition (financial or otherwise) or prospects of such
corporation. Neither corporation has received any written notice or assertion
within the last three years from any governmental official in any state to the
effect that it is required to be qualified or authorized to do business in a
state in which it is not so qualified or has not obtained such authorization.
Neither corporation is in default or in violation
- 14 -
<PAGE> 21
of the performance, observation or fulfillment of any material provision of its
articles of incorporation or code of regulations.
Section 5.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of Northern consists solely of 1,000 shares of
common stock, no par value, (a) 500 of which are issued and outstanding, and
(b) none of which are held as treasury shares (the "Northern Shares"). The
authorized capital stock of MacGregor consists solely of 50,000 shares of
common stock, with a par value $1.00 per share, 10,000 of which are issued and
outstanding, and none of which are held as treasury shares (the "MacGregor
Shares"). Schedule 5.2 contains a correct and complete list of the names and
addresses of all of the shareholders of Northern and MacGregor and indicates
all Northern Shares and MacGregor Shares owned beneficially and of record by
each such shareholder. Each outstanding Northern Share and MacGregor Share has
been duly authorized and validly issued and is fully paid and nonassessable,
and no Northern Share or MacGregor Share has been issued in violation of
preemptive or similar rights. Except as set forth and briefly described in
Schedule 5.2, there are no outstanding subscriptions, options, warrants, puts,
calls, agreements, understandings, claims, or other commitments or rights of
any type relating to the issuance, sale, or transfer by Northern or any
shareholder of Northern or by MacGregor or any shareholder of MacGregor of any
securities of Northern or MacGregor, nor are there outstanding any securities
which are convertible into or exchangeable for shares of capital stock of
Northern or MacGregor, and neither Northern nor MacGregor has any obligations
of any kind to issue any additional securities. The issuance and sale of all
securities of Northern and MacGregor have been in full compliance with all
applicable federal and state securities laws. Neither Northern (except for its
MacGregor Stock) nor MacGregor owns, directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint venture, or any
other entity or enterprise. Neither Northern nor MacGregor is subject to any
obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution, or otherwise) in any entity.
Section 5.3 CORPORATE POWER AND AUTHORITY. Northern has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Northern. This
Agreement has been duly executed and delivered by Northern and constitutes the
legal, valid, and binding obligation of Northern , enforceable against Northern
in accordance with its terms, except as such enforceability may be limited by
(a) applicable bankruptcy, insolvency, or other similar laws from time to time
in effect which may affect the enforcement of creditors' rights in general, and
(b) general principles of equity.
Section 5.4 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 5.4, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by Northern nor the consummation of the Exchange
and other transactions contemplated by this Agreement requires or will require
any action, consent, or approval of, review by, or registration with any third
party, court, governmental body, or other agency, instrumentality, or
authority, other than
- 15 -
<PAGE> 22
actions, required by the HSR Act, and (ii) actions to be taken in respect of
federal and state securities laws as contemplated by this Agreement.
Section 5.5 UNAUDITED FINANCIAL STATEMENTS.
(a) 1995 Statements. Northern has furnished to
Unimag the "Unaudited Statements" consisting of (i) the unaudited
balance sheet of Northern (with respect to its Wholesale Periodical
Business) as of December 31, 1995, and the related statement of income
for the fiscal year then ended, and (ii) the unaudited balance sheet
of MacGregor for the 10-month period as of October 31, 1995, and the
related statement of income of MacGregor for the 10- month period then
ended, including, in each case, the related notes, if any.
(b) Wholesale Periodical Business Statements. In
the case of the Wholesale Periodical Business, the Unaudited
Statements have been prepared by management from and in accordance
with the books and records of Northern, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as disclosed therein), and fairly present in
all material respects the financial condition of the Wholesale
Periodical Business as of the date stated and the results of the
Wholesale Periodical Business for the period then ended in accordance
with such practices.
(c) MacGregor Statements. In the case of
MacGregor, the Unaudited Statements have been prepared by management
from and in accordance with the books and records of MacGregor in
accordance with generally accepted accounting principles applied on a
consistent basis (except as disclosed therein) and fairly present in
all material respects the financial condition of MacGregor as of the
date stated and the results of MacGregor for the period then ended in
accordance with such practices.
Section 5.6 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 5.6, neither Northern, with respect to Northern's Wholesale Periodical
Business, nor MacGregor has any liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent, or otherwise and
whether due or to become due) except:
(a) Those set forth or reflected in the Unaudited
Statements which have not been paid or discharged since the date
thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since December
31, 1995, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on their
books and which are not inconsistent with the other representations,
warranties, and agreements of Northern set forth in this Agreement;
and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
the Unaudited Statements.
- 16 -
<PAGE> 23
Section 5.7 ABSENCE OF CERTAIN CHANGES. Except as expressly
provided for or permitted under Section 6.2(a) of this Agreement, or as set
forth in Schedule 5.7, since December 31, 1995, there has not been:
(a) Any material adverse change in the business,
operations, assets, properties, customer base, prospects, rights, or
condition (financial or otherwise) of Northern's Wholesale Periodical
Business or of MacGregor or any occurrence, circumstance, or
combination thereof which reasonably could be expected to result in
any such material adverse change;
(b) Any declaration, setting aside, or payment of
any dividend or any distribution (in cash or in kind) to any
shareholder of Northern or MacGregor, or any direct or indirect
redemption, purchase, or other acquisition by Northern or MacGregor of
any of its capital stock, or any options, warrants, rights, or
agreements to purchase or acquire such stock;
(c) Any increase in amounts payable by Northern
or MacGregor to or for the benefit of, or committed to be paid by
Northern or MacGregor to or for the benefit of, any shareholder,
director, officer, or other consultant, agent, or employee of Northern
or MacGregor whose total annual compensation exceeds $50,000 or any
relatives of such person, or any increase in any benefits granted
under any bonus, stock option, profit-sharing, pension, retirement,
severance, deferred compensation, group health, insurance, or other
direct or indirect benefit plan, payment or arrangement made to, with,
or for the benefit of any such person;
(d) Any transaction entered into or carried out
by Northern (with respect to its Wholesale Periodical Business) or
MacGregor other than in the ordinary and usual course of business
consistent with past practices;
(e) Any borrowing or agreement to borrow funds by
Northern (with respect to its Wholesale Periodical Business) or
MacGregor, any incurring by Northern (with respect to its Wholesale
Periodical Business) or MacGregor of any other obligation or liability
(contingent or otherwise), except liabilities incurred in the usual
and ordinary course of business (consistent with past practices), or
any endorsement, assumption or guarantee of payment or performance of
any loan or obligation of any other person or entity by Northern (with
respect to its Wholesale Periodical Business) or MacGregor;
(f) Any material change by Northern (with respect
to its Wholesale Periodical Business) or MacGregor in its method of
doing business or any change in its accounting principles or practices
or its method of application of such principles or practices;
(g) Any mortgage, pledge, lien, security
interest, hypothecation, charge, or other encumbrance imposed or
agreed to be imposed on or with respect to the property or assets of
Northern (with respect to its Wholesale Periodical Business) or
MacGregor;
- 17 -
<PAGE> 24
(h) Any sale, lease, or other disposition of, or
any agreement to sell, lease, or otherwise dispose of any of the
properties or assets of Northern (with respect to its Wholesale
Periodical Business) or MacGregor, other than sales of inventory in
the usual and ordinary course of business for fair equivalent value to
persons other than directors, officers, shareholders, or other
affiliates of such corporation;
(i) Any purchase of or any agreement to purchase
assets (other than inventory purchased in the ordinary course of
business consistent with past practices) for an amount in excess of
$50,000 for any one purchase or $100,000 for all such purchases made
by Northern (with respect to its Wholesale Periodical Business) or
MacGregor or any lease or any agreement to lease, as lessee, any
capital assets with payments over the term thereof to be made by
Northern (with respect to its Wholesale Periodical Business) or
MacGregor exceeding an aggregate of $100,000;
(j) Any loan or advance made by Northern (with
respect to its Wholesale Periodical Business) or MacGregor to any
person other than loans made to customers in the ordinary course of
business consistent with past practices not exceeding $50,000, in the
aggregate, to any customer;
(k) Any modification, waiver, change, amendment,
release, rescission, or termination of, or accord and satisfaction
with respect to, any material term, condition, or provision of any
contract, agreement, license, or other instrument to which Northern
(with respect to its Wholesale Periodical Business) or MacGregor is a
party, other than any satisfaction by performance in accordance with
the terms thereof in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance adversely
affecting the business operations or condition (financial or
otherwise) of Northern (with respect to its Wholesale Periodical
Business) or MacGregor, including without limitation the filing of any
petition or charge of unfair labor practice with any governmental or
regulatory authority, efforts to effect a union representation
election, or actual or threatened employee strike, work stoppage, or
slow down.
Section 5.8 TAXES.
(a) Except as set forth and briefly described in
Schedule 5.8, Northern (with respect to its Wholesale Periodical
Business) and MacGregor each has duly paid all taxes payable by it.
Northern (with respect to its Wholesale Periodical Business) and
MacGregor each has duly filed all federal, state, local, and foreign
tax returns and tax reports required to be filed by it and all such
returns and reports are true, correct, and complete. Except as
disclosed and briefly described in Schedule 5.8, since December 31,
1991, none of such returns and reports have been amended, and except
as set forth and briefly described in Schedule 5.8, all taxes, arising
under or reflected on such returns and reports have been fully paid or
were fully accrued as liabilities in the Unaudited Statements and
shall be paid before the Escrow Closing. During the last five (5)
years, no claim has been made by authorities in any jurisdiction where
Northern (with respect
- 18 -
<PAGE> 25
to its Wholesale Periodical Business) or MacGregor did not file tax
returns that it is or may be subject to taxation therein.
(b) Northern (with respect to its Wholesale
Periodical Business) and MacGregor each has delivered to Unimag copies
of all federal, state, local, and foreign income tax returns filed
with respect to it for taxable periods ended on or after December 31,
1991. Schedule 5.8 sets forth the dates and results of any and all
audits conducted by taxing authorities within the last five years or
otherwise with respect to any tax year for which assessment is not
barred by any applicable statute of limitations. No waivers of any
applicable statute of limitations for the filing of any tax returns or
payment of any taxes or assessments of any deficient or unpaid taxes
are outstanding. Except as set forth and briefly described in
Schedule 5.8, all deficiencies proposed as a result of any audits have
been paid or settled or have been fully accrued as liabilities in the
Unaudited Statements and shall be paid before the Closing. Except as
set forth and briefly described in Schedule 5.8, there is no pending
or, to the best knowledge of Northern, threatened federal, state,
local, or foreign tax audit or assessment relating to Northern (with
respect to its Wholesale Periodical Business) or MacGregor, and there
is no agreement with any federal, state, local, or foreign taxing
authority that may affect the subsequent tax liabilities of Northern
(with respect to its Wholesale Periodical Business) or MacGregor.
(c) Except as set forth and briefly described in
Schedule 5.8, all Taxes attributable to the existence or operation of
Northern (with respect to its Wholesale Periodical Business) and
MacGregor as at or through December 31, 1995 are, to the extent not
already paid, accurately reflected in the Unaudited Statements.
(d) Except as set forth and briefly described in
Schedule 5.8, there exists no tax-sharing agreement or arrangement
pursuant to which Northern (with respect to its Wholesale Periodical
Business) or MacGregor is obligated to pay the tax liability of any
other person or entity or to indemnify any other person or entity with
respect to any tax.
(e) Schedule 5.8 includes a list of all states,
territories and jurisdictions to which any Tax is properly payable by
Northern (with respect to its Wholesale Periodical Business) or
MacGregor.
(f) Northern became an "S corporation," within
the meaning of Section 1361(a)(1) of the Code of (an "S corporation"),
for federal income tax purposes effective January 1, 1983, pursuant to
a valid election made by Northern, with the consent of all of its
shareholders, effective as of such date, and Northern is and from such
date always has been an S corporation.
Section 5.9 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 5.9, to the best knowledge of Northern, Northern (with
respect to its Wholesale Periodical Business) and MacGregor each has complied
and is in compliance in all material respects with all nonenvironmental
(environmental matters being addressed in Section 5.14) laws, statutes,
ordinances, orders, rules and regulations promulgated, and all judgments,
decisions, and orders entered, by
- 19 -
<PAGE> 26
any federal, state, local, or foreign court or governmental authority or
instrumentality which are applicable or relate to it or to its business or
properties including without limitation: (a) all zoning, fire, safety, and
building laws, ordinances, regulations, and requirements; (b) Title VII of the
Civil Rights Act of 1964, as amended; (c) the Fair Labor Standards Act, as
amended; (d) the Occupational Safety and Health Act of 1970, as amended; (e)
the Americans with Disabilities Act of 1990; (f) all applicable federal, state
and local laws, rules and regulations relating to employment; (g) all
applicable laws, rules and regulations governing payment of minimum wages and
overtime rates, and the withholding and payment of taxes from compensation of
employees; (h) federal and state antitrust and trade regulation laws applicable
to competition generally or to agreements restricting, allocating, or otherwise
affecting geographic or product markets; and (i) the Controlled Substances Act
(collectively, the "Applicable Laws"). To the best knowledge of Northern,
Northern (with respect to its Wholesale Periodical Business) and MacGregor has
all franchises, licenses, permits, covenants, authorizations, approvals, and
certifications necessary or appropriate for the operation of its business or
the ownership of its properties. Schedule 5.9 includes a list of all material
franchises, licenses, permits, consents, authorizations, approvals, and
certificates owned or held by Northern (with respect to its Wholesale
Periodical Business) and MacGregor (collectively, the "Permits"), each of which
is currently valid and in full force and effect. To the best knowledge of
Northern, neither Northern (with respect to its Wholesale Periodical Business)
nor MacGregor is in violation of any of the Permits, and there is no pending
nor, to the best knowledge of Northern, any threatened proceeding which could
result in the revocation, cancellation or inability to renew any Permit.
Except as disclosed and briefly described in Schedule 5.9, neither Northern
(with respect to its Wholesale Periodical Business) nor MacGregor has been
charged with or given notice of any violation of any of the Applicable Laws
which violation has not been remedied in full (without any remaining
liability).
Section 5.10 PROPRIETARY RIGHTS. Schedule 5.10 sets forth:
(a) All material names, patents, inventions,
trade secrets, proprietary rights, computer software, trademarks,
trade names, service marks, logos, copyrights, and franchises and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements in respect thereof which Northern (with
respect to its Wholesale Periodical Business) and MacGregor each owns,
has the right to use, or to which each is a party; and
(b) All filings, registrations, or issuances of
any of the foregoing with or by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices (all
items in (a) and (b) of this Section 5.10, together with the customer
lists described below, being sometimes hereinafter referred to
collectively as the "Proprietary Rights").
Northern (with respect to its Wholesale Periodical
Business) and MacGregor each is, to the best knowledge of Northern, the sole
and exclusive owner of all right, title, and interest in and to all of its
respective Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances, and restrictions whatsoever, and there
is not pending or, to the best knowledge of Northern, threatened any
investigation, proceeding, inquiry, or other review by any federal, state,
local, or foreign regulatory, administrative, or
- 20 -
<PAGE> 27
governmental office or offices with respect to Northern's or MacGregor's right,
title, or interest in any Proprietary Right.
Other than those Proprietary Rights listed in
Schedule 5.10, no name, patent, invention, trade secret, customer list,
proprietary right, computer software, trademark, trade name, service mark,
logo, copyright, franchise, license, sublicense, or other such right is
necessary for the operation of the business of Northern (with respect to its
Wholesale Periodical Business) or MacGregor in substantially the same manner as
such business is presently conducted. To the best knowledge of Northern, such
businesses have not been and are not being conducted in contravention of any
trademark, copyright, or other proprietary right of any person or entity.
Except as set forth in Schedule 5.10, none of the
Proprietary Rights: (i) has been hypothecated, sold, assigned, or licensed by
Northern or MacGregor, or to the best knowledge of Northern, any other person
or entity; (ii) to the best knowledge of Northern, infringes upon or violates
the rights of any person or entity; (iii) to the best knowledge of Northern is
subject to challenge, claims of infringement, unfair competition, or other
claims; or (iv) to the best knowledge of Northern, is being infringed upon or
violated by any person or entity. Except as set forth in Schedule 5.10,
neither Northern nor MacGregor has given any indemnification against patent,
trademark, or copyright infringement as to any equipment, materials, products,
services, or supplies which either of them uses, licenses, or sells. To the
best knowledge of Northern, no product, process, method, or operation presently
sold, engaged in, or employed by them infringes upon any rights owned by any
other person or entity. There is not pending or, to the best knowledge of
Northern, threatened any claim or litigation against Northern or MacGregor
contesting the right of either of them to sell, engage in, or employ any such
product, process, method, or operation.
Except as set forth in Schedule 5.10, Northern and
MacGregor each has exclusive rights to own and use the computer software used
by it (the "Software"). Schedule 5.10 lists and briefly describes, all
material licenses, agreements, documents, and other materials relating to the
Software and to Northern's and MacGregor's rights therein. Except as set forth
in Schedule 5.10, neither Northern nor MacGregor has licensed or otherwise
authorized any other person to use or make use of all or any part of the
Software, nor granted, assigned, or otherwise conveyed any right in or to the
Software.
Section 5.11 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 5.11, neither Northern (with respect to its
Wholesale Periodical Business) nor MacGregor is a party to or bound under any
mortgage, lien, lease, agreement, contract, instrument, law, order, judgment or
decree, or any similar restriction not of general application which materially
and adversely affects, or reasonably could be expected to so affect (a) its
business, operations, assets, properties, prospects, rights, or condition
(financial or otherwise); (b) the continued operation by Unimag of such
business after the Closing Date on substantially the same basis as such
business is currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
- 21 -
<PAGE> 28
Section 5.12 INSURANCE. Northern (with respect to its Wholesale
Periodical Business) and MacGregor each has been and is insured with respect to
its properties and the conduct of its business in such amounts and against such
risks as are sufficient for compliance with applicable law and as are adequate
to protect its property and business in accordance with normal industry
practice. Such insurance is and has been provided by insurers unaffiliated
with Northern or MacGregor, which insurers are, to the best knowledge of
Northern, financially sound and reputable. Set forth in Schedule 5.12 is a
true, correct, and complete list of all insurance policies and bonds in force
in which Northern (with respect to its Wholesale Periodical Business) or
MacGregor is named as an insured party, or for which it has paid any premiums,
and such list correctly states the name of the insurer, the name of each
insured party, the type and amount of coverage, deductible amounts, if any, the
expiration date, and the premium amount of each such policy or bond. Except as
disclosed in Schedule 5.12, all such policies or bonds are currently in full
force and effect and no notice of cancellation or termination has been received
with respect to any such policy. Northern and MacGregor will continue all of
such insurance in full force and effect through the Closing Date. All premiums
due and payable on such policies have been paid. Except as disclosed in
Schedule 5.12, neither Northern or MacGregor is a co-insurer under any term of
any insurance policy.
Section 5.13 BANK ACCOUNTS, DEPOSITORIES; POWERS OF ATTORNEY. Set
forth in Schedule 5.13 is a true, correct, and complete list of the names and
locations of all banks or other depositories in which Northern (with respect to
its Wholesale Periodical Business) and MacGregor have accounts or safe deposit
boxes, and the names of the persons authorized to draw thereon, borrow
therefrom, or have access thereto. Except as set forth in Schedule 5.13, no
person has a power of attorney from Northern (with respect to its Wholesale
Periodical Business) or MacGregor.
Section 5.14 TITLE TO AND CONDITION OF PROPERTIES. Except as set
forth in Schedule 5.14, Northern (with respect to its Wholesale Periodical
Business) and MacGregor each has good, valid, and indefeasible title to all of
its assets and properties of every kind, nature, and description, tangible or
intangible, wherever located, which constitute all of the property now used in
and necessary for the conduct of its business as presently conducted (including
without limitation all operating property and assets shown or reflected on the
Unaudited Statements, except inventory sold in the ordinary course of
business). Except as set forth in Schedule 5.14, to the best knowledge of
Northern, all such properties are owned free and clear of all mortgages,
pledges, liens, security interests, encumbrances, and restrictions of any
nature whatsoever, including without limitation: (a) rights or claims of
parties in possession; (b) easements or claims of easements; (c) encroachments,
overlaps, boundary line or water drainage disputes, or any other matters; (d)
any lien or right to a lien for services, labor, or material furnished; (e)
special tax or other assessments; (f) options to purchase, leases, tenancies,
or land contracts; (g) contracts, covenants, or reservations which restrict the
use of such properties; and (h) violations of any Applicable Laws applicable to
such properties. All such properties are usable for their current uses without
violating any Applicable Laws, or any applicable private restriction, and such
uses are legal conforming uses. Except as set forth in Schedule 5.14, no
financing statement under the Uniform Commercial Code or similar law naming
Northern, MacGregor, or any of their predecessors is on file in any
jurisdiction in which either owns property or does business, and neither is a
party to or bound under any agreement or legal obligation authorizing any party
to file any such financing statement. Schedule 5.14 contains a complete and
accurate
- 22 -
<PAGE> 29
list of the location of all real property which is owned, leased, or operated
by Northern and MacGregor and describes the nature of their interests in that
real property. With respect to any leased real property, except as set forth
in Schedule 5.14, each has an insurable leasehold interest in that real
property.
Except as set forth in Schedule 5.14, to the best knowledge of
Northern, all real property and structures, all machinery and equipment, and
all tangible personal property owned, leased or used by Northern (with respect
to its Wholesale Periodical Business) or MacGregor and material to the
operation of its business are reasonably suitable for the purpose or purposes
for which they are being used (including full compliance with all Applicable
Laws and are in good condition and repair, ordinary wear and tear excepted.
Except as set forth in Schedule 5.14, to the best knowledge of Northern, there
are no material structural defects in the exterior walls or the interior
bearing walls, the foundation, or the roof of any building, garage or other
such structure so owned, leased, or used by Northern or MacGregor, and the
electrical, plumbing, heating systems, and air conditioning systems, of any
such structure are in good operating condition, ordinary wear and tear
excepted. The utilities servicing the real properties owned, leased, or used
by Northern and MacGregor are adequate to permit the continued operation of
their respective businesses, and there are no pending or, to the best knowledge
of Northern, threatened zoning, condemnation or eminent domain proceedings,
building, utility, or other moratoria, or injunctions or court orders which
would materially and adversely affect such continued operation. Schedule 5.14
lists, and Northern has furnished or made available to Unimag, copies of all
engineering, geologic, and environmental reports prepared by or for Northern or
MacGregor or with respect to the real property so owned, leased or used by them
in their possession which Northern has been able to reasonably locate after
conducting a good-faith review.
Except as set forth in Schedule 5.14, no real or personal
property owned, leased, or used by Northern (with respect to its Wholesale
Periodical Business) or MacGregor has been used to produce, process, store,
handle, or transport any hazardous or toxic substance or waste (as those terms
are defined or described in any of the applicable laws relating to the
protection, preservation, conservation, restoration, or quality of the
environment), except to the extent immaterial quantities of hazardous
substances are used as an incidental aspect of the operation of its business.
Except as set forth in Schedule 5.14, no hazardous or toxic substance or waste
has been disposed of, released or discharged on, leaked from, or has otherwise
contaminated any real property so owned, leased, or used by Northern or
MacGregor. Except as set forth in Schedule 5.14, no asbestos or substances
containing material quantities of asbestos have been installed in any such
property. Except as set forth in Schedule 5.14, there are no oil or gas wells
capped or uncapped or piping, structures, fixtures or other appliances relating
thereto on or about any such property and no such property has been used as a
landfill.
Section 5.15 BROKERS AND FINDERS. No investment banker, broker,
finder, or other intermediary: (a) has been retained by or is authorized to act
on behalf of Northern or any of its shareholders; (b) has submitted the
transactions contemplated by this Agreement to Northern or any of its
shareholders; or (c) is or might be entitled to any fee, commission, or other
payment from Northern as a direct or indirect result of the transactions
contemplated by this Agreement.
- 23 -
<PAGE> 30
Section 5.16 LEGAL PROCEEDINGS. Except as described in Schedule
5.16: (a) there are no (and over the last three years there have been no)
Actions pending or, to the best knowledge of Northern, threatened against or
relating to Northern (with respect to its Wholesale Periodical Business) or
MacGregor (or any of their officers, directors, shareholders, agents, or
representatives in connection with the business or affairs of either of them),
before any federal, state, local, or foreign court or governmental body in
which the amount in dispute exceeds (or exceeded) $25,000 or which has or could
result in liability or loss for Northern or MacGregor of more than $25,000; and
(b) to the best knowledge of Northern, there exist no disputes, conflicts, or
circumstances providing the basis for a dispute or conflict which could
reasonably be expected to result in any such Action. There are no Actions
pending or, to the best knowledge of Northern, threatened for the purpose of
enjoining or preventing this Agreement or any other transaction contemplated by
this Agreement or otherwise challenging the validity or propriety of the
transactions contemplated by this Agreement. Except as disclosed in Schedule
5.16, neither Northern (with respect to its Wholesale Periodical Business) nor
MacGregor is subject to any judgment, order or decree, or any governmental
restriction, which has a reasonable probability of having a material adverse
effect on its business operations, assets, properties, condition (financial or
otherwise), or prospects.
Section 5.17 ERISA.
(a) Schedule 5.17(a) identifies each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA") which (i) is subject to any
provision of ERISA, and (ii) is or was at any time during the last 5
years maintained, administered, or contributed to by Northern (with
respect to its Wholesale Periodical Business) or MacGregor or any
affiliate (as defined below) and covers any employee or former
employee of Northern or MacGregor or any affiliate or under which
Northern or MacGregor or any affiliate has any liability. Copies of
such plans (and, if applicable, related trust agreements) and all
amendments thereto have been furnished to Unimag together with the
three most recent annual reports (Form 5500 and all related schedules)
and actuarial valuation reports, if any, prepared in connection with
any such plan. Such plans are referred to collectively herein as the
"Employee Plans". For purposes of this section, "affiliate" of any
person or entity means (A) any other person or entity which, together
with such person or entity, would be treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended
(the "Code"), or (B) is an "affiliate," whether or not incorporated,
as defined in Section 407(d)(7) of ERISA, of such person or entity.
The only Employee Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section
3(2) of ERISA (the "Pension Plans") are identified as such on Schedule
5.17(a).
(b) Except as set forth in Schedule 5.17(b), no
Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in
Section 3(35) and subject to Title IV of ERISA, nor does Northern
(with respect to its Wholesale Periodical Business) or MacGregor have
any obligation to create, maintain, or contribute to any such
"multiemployer plan" or "defined benefit plan". No Employee Plan is
maintained in connection with any trust described in Section 501(c)(9)
- 24 -
<PAGE> 31
of the Code. No "accumulated funding deficiency," as defined in
Section 412 of the Code, has been incurred with respect to any
Employee Plan, whether or not waived. Full payment has been made of
all amounts which Northern or MacGregor is required to have paid as
contributions to or benefits under any Employee Plan as of the end of
the most recent fiscal year thereof, and there are no unfunded
obligations under any Employee Plan. Northern knows of no "reportable
event," within the meaning of Section 4043 of ERISA, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has occurred in
connection with any Employee Plan. No condition exists and no event
has occurred which could constitute grounds for termination of any
Employee Plan, and neither Northern, MacGregor, nor any of their
affiliates has incurred any material liability under Title IV of ERISA
arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of
ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has
or will make Northern or MacGregor, or any officer or director of
Northern or MacGregor, subject to any liability under Title I of ERISA
or liable for any tax pursuant to Section 4975 of the Code. There is
no pending or, to the best knowledge of Northern, threatened
litigation, arbitration, disputed claim, adjudication, audit,
examination, or other proceeding with respect to any Employee Plan or
any fiduciary or administrator thereof in their capacities as such.
(c) Except as set forth in Schedule 5.17(c), each
Employee Plan which is intended to be qualified under Section 401(a)
of the Code is, to the best knowledge of Northern, so qualified and
has been so qualified during the period from its adoption to date, and
each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Northern has furnished to Unimag copies
of the most recent Internal Revenue Service determination letters with
respect to each such plan for which it or MacGregor is the plan
sponsor. Except as set forth in Schedule 5.17(c), to the best
knowledge of Northern, each Employee Plan has been maintained in
compliance with its terms and the requirements prescribed by any and
all statutes, orders, rules, and regulations, including but not
limited to ERISA and the Code, which are applicable to such plan.
(d) Except as set forth in Schedule 5.17(d),
there is no contract, agreement, plan, or arrangement covering any
employee or former employee of Northern, MacGregor, or any affiliate
that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of the
Code.
(e) Schedule 5.17(e) identifies each employment,
severance, or other similar contract, arrangement, or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, or for deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not
an Employee Plan, (ii) is entered into, maintained, or contributed to,
as the case may be,
- 25 -
<PAGE> 32
by Northern (with respect to its Wholesale Periodical Business),
MacGregor, or any of their affiliates, and (iii) covers any employee
or former employee of Northern, MacGregor, or any affiliates. Such
contracts, plans, and arrangements as are described above, copies or
descriptions of which have been furnished previously to Unimag, are
referred to collectively herein as the "Benefit Arrangements". Each
Benefit Arrangement has been maintained in substantial compliance with
its terms and with requirements prescribed by any and all statutes,
orders, rules, and regulations that are applicable to such Benefit
Arrangement.
(f) Except as set forth in Schedule 5.17(f),
there is no liability in respect of post-retirement health and medical
benefits for current or retired employees of Northern (with respect to
its Wholesale Periodical Business) or MacGregor or any of their
affiliates. Except as set forth in Schedule 5.17(f), Northern and
MacGregor each has reserved its right to amend or terminate any
Employee Plan or Benefit Arrangement providing health or medical
benefits in respect of any active employee under the terms of any such
plan and descriptions thereof given to employees. With respect to any
of Northern's and MacGregor's Employee Plans which are "group health
plans" under Section 4980B of the Code and Section 607(1) of ERISA,
there has been substantial compliance with all requirements imposed
thereunder.
(g) Except as set forth in Schedule 5.17(g),
there has been no amendment to, written interpretation, or
announcement (whether or not written) by Northern, MacGregor, or any
of their affiliates relating to any Employee Plan or Benefit
Arrangement which would increase the expense of maintaining such
Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended immediately
prior to the Closing Date.
(h) Except as set forth in Schedule 5.17(h),
neither Northern (with respect to its Wholesale Periodical Business)
nor MacGregor is a party or subject to any union contract or any
material employment contract or arrangement providing for annual
future compensation of more than $25,000 to any officer, consultant,
director or employee.
(i) Except as set forth in Schedule 5.17(i), the
execution, delivery, and consummation of the transactions contemplated
by this Agreement do not constitute a triggering event under any
Employee Plan, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or
may result in any payment (of severance pay or any other type),
acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee, or director of Northern or
MacGregor.
(j) Any reference to ERISA or the Code or any
section thereof shall be construed to include all amendments thereto
and applicable regulations and administrative rulings issued
thereunder.
Section 5.18 CONTRACTS. Schedule 5.18 lists and briefly
describes all contracts, agreements, leases, arrangements, and understandings
(written or oral) ("Contracts") to which Northern (with
- 26 -
<PAGE> 33
respect to its Wholesale Periodical Business) or MacGregor is a party and which
fall within any of the following categories: (a) Contracts with any of their
respective top 20 customers based on revenues for the 12-month period ended
June 30, 1996; (b) Contracts not entered into in the ordinary course of
business (including without limitation Contracts with any present or former
shareholder, director, or officer, or any person related by blood or marriage
to any such person, or any person controlling, controlled by, or under common
control with any such person, or with any employee, agent, or consultant not
terminable at will); (c) Contracts which are service contracts (excluding
contracts for delivery services entered into in the ordinary course of
business) or equipment leases involving payments of more than $10,000 per year;
(d) Contracts containing covenants or restrictions purporting to limit the
freedom of Northern or MacGregor to compete in any line of business in any
geographic area or to employ or otherwise engage any person; (e) Contracts
which extend beyond one year, unless cancelable on 60 or fewer days' notice
without any liability, penalty, or premium; (f) Contracts which relate to any
borrowings or guarantees in excess of $25,000; (g) Contracts containing any
obligation or commitment which limits the freedom of Northern or MacGregor to
sell, lease, or otherwise distribute any product or customer information; or
(h) Contracts which are not listed above but which are material to the
condition (financial or otherwise), operations, assets, prospects, or business
of Northern or MacGregor. All such Contracts are valid and binding and in full
force and effect, and, to the best knowledge of Northern, enforceable in
accordance with their respective terms in all material respects. Except as set
forth in Schedule 5.18, neither Northern nor, to the best knowledge of
Northern, any other party thereto, is in violation of, in default in respect
of, nor, to the best knowledge of Northern, has there occurred an event or
condition which, with the passage of time or giving of notice (or both) would
constitute a default under any such Contract.
Section 5.19 ACCOUNTS RECEIVABLE. Except as set forth in Schedule
5.19, all accounts and notes receivable (customer, vendor, and other) of
Northern (with respect to its Wholesale Periodical Business) and of MacGregor
as of June 30, 1996, are and will be collectible in full, after application of
a reserve for uncollectible accounts determined in accordance with generally
accepted accounting principles, and are and will be valid and subsisting
(unless previously paid) and represent and will represent sales actually made
(net of all applicable credits and rebates) in the ordinary and usual course of
business consistent with past practices. It is anticipated that Arthur
Anderson LLP will perform all necessary audit procedures to verify the accounts
receivable of MacGregor as of June 30, 1996, at the time that it conducts the
audit of the June 30th Balance Sheet.
From the date of this Agreement through the Closing Date, no
customer or vendor accounts receivable of Northern (with respect to its
Wholesale Periodical Business) or MacGregor will be converted to notes
receivable or written off without the prior written consent of Unimag.
Section 5.20 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 5.20, neither the execution and delivery of this Agreement by
Northern, nor compliance by Northern with the terms and provisions of this
Agreement, including without limitation the consummation of the transactions
contemplated by this Agreement, will: (a) violate any Applicable Laws or
Permits; (b) conflict with or result in the breach of any term, condition, or
provision of (i) the articles of incorporation, code of regulations, or other
organizational document of Northern or
- 27 -
<PAGE> 34
MacGregor or (ii) any material agreement, deed, contract, undertaking,
mortgage, indenture, writ, order, decree, restriction, legal obligation, or
instrument to which Northern or MacGregor is a party or by which Northern or
MacGregor or any of their respective assets or properties are or may be bound
or affected; or (iii) any Contract; (c) constitute a default (or an event
which, with the giving of notice, the passage of time, or both, would
constitute a default) thereunder; (d) result in the creation or imposition of
any lien, security interest, charge or encumbrance, or restriction of any
nature whatsoever with respect to any material properties or assets of Northern
or MacGregor; or (e) give to others any interest or rights, including rights of
termination, acceleration, or cancellation in or with respect to any of the
material properties, assets, contracts, or business of Northern or MacGregor.
Section 5.21 BOOKS OF ACCOUNT; RECORDS. The general ledgers,
stock record books, minute books and other material records relating to the
assets, properties, contracts, and outstanding legal obligations of Northern
(with respect to its Wholesale Periodical Business) and MacGregor are, in all
material respects, complete and correct, and have been maintained in accordance
with good business practices and the matters contained therein are, to the
extent required by generally accepted accounting principles, accurately
reflected in the Unaudited Statements, except as may be set forth in Section
5.5.
Section 5.22 OFFICERS, EMPLOYEES, AND COMPENSATION. Schedule 5.22
lists and describes the current compensation of the five most highly
compensated managers of Northern (with respect to its Wholesale Periodical
Business) and MacGregor and any other employee of Northern (with respect to its
Wholesale Periodical Business) or MacGregor whose total current salary and
bonus exceeds $50,000. Except as disclosed in Schedule 5.22: (a) there are no
other forms of compensation paid to any such director, officer, or employee of
Northern or MacGregor; (b) the amounts accrued or to be accrued on the books
and records of Northern and MacGregor for vacation pay, sick pay, and all
commissions and other fees payable to agents, salespersons and representatives
of Northern and MacGregor will be adequate to cover their respective
liabilities for all such items; (c) neither Northern (with respect to its
Wholesale Periodical Business) nor MacGregor has become obligated, directly or
indirectly, to any shareholder, director, or officer or any person related to
any such person by blood or marriage, except for current liability for such
compensation; and (d) to the best knowledge of Northern, no shareholder,
director, officer, agent, employee, or representative of Northern (with respect
to its Wholesale Periodical Business) or MacGregor or any person related to
such person by blood or marriage holds any position or office with or has any
material financial interest, direct or indirect, in any supplier, customer, or
account of, or other outside business which has material transactions with,
Northern or MacGregor. Neither Northern nor MacGregor has any agreement or
understanding with any shareholder, director, officer, agent, employee, or
representative of Northern or MacGregor which would influence any such person
not to become associated with Unimag from and after the Closing or not to serve
Northern or MacGregor after the Closing in a capacity similar to the capacity
presently held.
Section 5.23 LABOR RELATIONS. Except as set forth in Schedule
5.23, there is no unfair labor practice complaint against Northern (with
respect to its Wholesale Periodical Business) or MacGregor pending before the
National Labor Relations Board. Except as set forth in Schedule
- 28 -
<PAGE> 35
5.23, neither Northern (with respect to its Wholesale Periodical Business) nor
Macgregor is a party to or bound by any collective bargaining agreement and
there is no labor strike, dispute, slowdown or stoppage, or any union
organizing campaign, actually pending or, to the best knowledge of Northern,
threatened against or involving Northern or MacGregor. Except as set forth in
Schedule 5.23, no labor grievance has been filed against Northern (with respect
to its Wholesale Periodical Business) or MacGregor in the last three years, and
no arbitration proceeding has arisen out of or under a collective bargaining or
other labor agreement and is pending and no claim therefor has been asserted.
Except as set forth in Schedule 5.23, no collective bargaining or other labor
agreement is currently being negotiated by Northern or MacGregor and no union
or collective bargaining unit represents any of their employees. Neither
Northern (with respect to its Wholesale Periodical Business) nor MacGregor has
experienced any work stoppage or other material labor difficulty during the
past five years.
Section 5.24 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 5.24, no supplier of Northern (with respect to its Wholesale
Periodical Business) or MacGregor has indicated that it shall stop, or decrease
the rate of, or substantially increase its fees for, supplying products or
services to Northern or MacGregor either prior to, or following the
consummation of, the Closing. Schedule 5.24 sets forth a list of all customers
which have terminated their relationships with Northern or MacGregor since
December 31, 1995, or have notified Northern or MacGregor, since December 31,
1995, that they intend to terminate their relationships with Northern or
MacGregor. Except as set forth in Schedule 5.24, Northern does not know of any
customers of Northern (with respect to its Wholesale Periodical Business) or
MacGregor which alone or in the aggregate comprise more than 1% of actual
annualized sales as shown in the Unaudited Statements, which have indicated
that they are considering or planning to (a) discontinue being customers of
Northern or MacGregor, (b) discontinue being customers of Unimag or Northern or
MacGregor after the Escrow Closing or the Closing, or (c) substantially
decrease the amount of their purchasing from Northern or MacGregor or Unimag or
otherwise materially alter the terms of such purchasing either before or after
the Closing.
Section 5.25 SPECIAL TERMS; PRODUCT WARRANTIES. Schedule 5.25
sets forth the terms and conditions of any credit, discount, or other terms
given by Northern (with respect to its Wholesale Periodical Business) or
MacGregor to any customer outside the usual and ordinary course of business.
Section 5.26 BUSINESSES OF NORTHERN AND MACGREGOR. Northern and
MacGregor each is and has been, engaged in the magazine, book, newspaper, and
sundries wholesale distribution and related businesses for more than 30 years,
and each is presently engaged in no other business whatsoever except as may be
incidental to the foregoing, except in the case of businesses being retained by
Northern and not being contributed by Northern to Unimag.
Section 5.27 INVESTMENT REPRESENTATION. Northern acknowledges,
represents, and warrants to Unimag that (a) it is an "accredited investor," as
that term is defined in Regulation D, (b) Northern has been provided the
opportunity to ask questions and receive answers from Unimag concerning the
business operations and financial condition of Unimag and the terms and
conditions of the transactions described in this Agreement, and to obtain any
additional
- 29 -
<PAGE> 36
information necessary to verify the accuracy of information provided to
Northern by Unimag, and (c) Northern is acquiring the Unimag Shares and the
Unimag Debentures to be issued pursuant to this Agreement for Northern's own
account for investment only and not with a view to the distribution thereof.
Northern has not (and, prior to the Closing, will not have) entered into any
agreement to dispose of any Unimag Shares now owned or hereafter received at
the Closing of the Exchange (except for the contingent obligation to return
Unimag Shares to Unimag pursuant to the valuation adjustment provisions of
Section 3.2(b)).
Section 5.28 SECTION 351 EXCHANGE. It is the intention of
Northern to treat the acquisition of the Acquired Assets pursuant to this
Agreement, along with other exchanges and acquisitions occurring before and
after the closing of the transactions contemplated by this Agreement, as an
exchange under Section 351 of the Code, subject to the rules of Section 351 of
the Code and the regulations promulgated thereunder applicable to the receipt
and taxability of "boot" (within the meaning of such rules). Northern shall be
solely responsible for evaluating (and determining the appropriate methods
required for reporting) all federal, state, and local income and other tax
consequences to it which will and may result from the transactions contemplated
by this Agreement.
ARTICLE 6
COVENANTS OF THE PARTIES
Section 6.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable
efforts to take all actions and do all things necessary, proper, or
advisable to consummate the Exchange and the other transactions
contemplated by this Agreement, including without limitation using all
reasonable efforts to cause the conditions set forth in Article 7 of
this Agreement for which such Party is wholly or partially responsible
to be satisfied, as soon as reasonably practicable and to prepare,
execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as
any other Party may reasonably request.
(b) HSR Filings. The Parties shall cooperate
with each other with respect to the preparation and filing of any
Notification and Report Forms and related materials that they may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act
with respect to the Exchange and shall promptly make any further
filings pursuant the HSR Act that may be necessary, proper, or
advisable.
(c) Other Governmental Matters. Each Party shall
use all reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
- 30 -
<PAGE> 37
(d) Tax-Free Treatment. Each of the Parties
shall use all reasonable efforts to cause the Exchange to constitute
(along with other exchanges and acquisitions occurring before and
after the Exchange) a tax- free exchange under Section 351 of the
Code, subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules). Each of the
Parties shall be solely responsible for evaluating (and determining
the appropriate methods required for reporting) all federal, state,
and local income and other tax consequences to each such Party which
will and may result from the transactions contemplated by this
Agreement.
(e) Bulk Transfer Laws. The Parties covenant and
acknowledge that neither Party will comply in any respect with the
provisions of any applicable bulk transfer laws in connection with the
Exchange and other transactions contemplated by this Agreement.
Notwithstanding anything in this Agreement to the Contrary, (i) any
Damages (defined in Section 9.2(a)) suffered by Unimag in any way
related to such failure to comply shall be treated as an Indemnifiable
Northern Claim (defined in Section 9.2(a)), and (ii) any Damages
suffered by Northern in any way related to such failure to comply
shall not be treated as an Indemnifiable Unimag Claim (defined in
Section 9.3(a)).
Section 6.2 COVENANTS OF NORTHERN. Northern covenants and agrees
that:
(a) Conduct of Business. Except as otherwise
expressly contemplated by this Agreement, from the date of this
Agreement until the Closing Date (the "Exchange Period"): (i)
Northern shall not take or permit to be taken any action or do or
permit to be done anything in the conduct of the business of Northern
(with respect to its Wholesale Periodical Business) or MacGregor, or
otherwise, that would be contrary to or in breach of any of the terms
or provisions of this Agreement or which would cause any of its
representations and warranties contained in this Agreement to be or
become untrue in any material respect; (ii) Northern (with respect to
its Wholesale Periodical Business) and MacGregor each shall conduct
its business in the ordinary course consistent with past practices;
(iii) Northern shall permit Unimag to manage and oversee the Wholesale
Periodical Business operations of Northern and the business operations
of MacGregor as provided in Section 6.3(b) and consistent with the
terms and conditions of the Joint Operating Agreement between Unimag,
Northern, and MacGregor dated March 1, 1996 (the "Joint Operating
Agreement"); and (iv) Northern shall use all reasonable efforts to
preserve the business organizations intact, keeping available to
Northern, MacGregor, and Unimag the present service of Northern's and
MacGregor's employees, and preserving for Northern, MacGregor, and
Unimag the goodwill of Northern's and MacGregor's suppliers,
customers, and others with whom business relationships exist. Without
limiting the generality of the foregoing, during the Exchange Period,
except as otherwise expressly contemplated by this Agreement or with
the prior written consent of Unimag, Northern shall not:
(A) Adopt or propose any change in its
or MacGregor's articles of incorporation or code of
regulations; adjust, split, combine, or reclassify any of
- 31 -
<PAGE> 38
its or MacGregor's capital stock; or make any other changes in
its or MacGregor's authorized or issued capital stock;
(B) Redeem, purchase, or otherwise
acquire any shares of its or MacGregor's capital stock; grant
any person or entity any right to acquire any shares of its or
MacGregor's capital stock; issue, deliver, sell, or agree to
issue, deliver, or sell, any additional shares of its or
MacGregor's capital stock or any other securities; or enter
into any agreement or arrangement with respect to the sale or
voting of its or MacGregor's shares of capital stock;
(C) Merge or consolidate it or MacGregor
with any other person or entity or acquire a material amount
of assets of any other person or entity except for the
acquisition of inventory in the ordinary course of business
consistent with past practices;
(D) Sell, lease, license, pledge,
encumber, or otherwise dispose of any of MacGregor's or its
Wholesale Periodical Business operating assets other than
sales of inventory in the ordinary course of business
consistent with past practices;
(E) For itself (with respect to its
Wholesale Periodical Business) or for MacGregor incur, create,
assume, or otherwise become liable for any indebtedness other
than indebtedness incurred in the ordinary course of business
consistent with past practices;
(F) Except for those arrangements
disclosed in Schedule 6.2(a), enter into or modify any
employment, severance, termination, or similar agreement or
arrangement with, or grant any bonuses, salary increases,
severance, or termination pay to, any officer, director,
consultant, or employee of Northern or MacGregor;
(G) For itself (with respect to its
Wholesale Periodical Business) or for MacGregor adopt, amend,
or terminate any employee benefit plan or increase, amend, or
terminate any benefits to officers, directors, consultants, or
employees;
(H) For itself (with respect to its
Wholesale Periodical Business) or for MacGregor modify in any
material way or terminate any of the contracts listed or
required to be listed in Schedule 5.18, except in the ordinary
course of business consistent with past practices;
(I) For itself (with respect to its
Wholesale Periodical Business) or for MacGregor, except as
disclosed in Schedule 5.16, settle any claims, litigation, or
actions, whether now pending or hereafter made or brought,
unless such
- 32 -
<PAGE> 39
settlement does not involve a payment by Northern or MacGregor
of more than $25,000;
(J) For itself (with respect to its
Wholesale Periodical Business) or for MacGregor engage in any
transaction, or enter into any agreement, contract, lease, or
other arrangement or understanding, with any affiliate of
Northern or MacGregor, except for transactions expressly
permitted by this Agreement; or
(K) Agree or commit to do any of the
foregoing.
(b) Exclusive Rights. Neither Northern nor
MacGregor shall, directly or indirectly, solicit (including without
limitation by way of furnishing or making available any non-public
information concerning the business, properties, or assets of
MacGregor or Northern) or engage in negotiations or discussions with,
disclose any of the terms of this Agreement to, accept any offer from,
furnish any information to, or otherwise cooperate, assist, or
participate with any person or organization (other than Unimag and its
representatives) regarding any Acquisition Proposal (defined below),
except that any person or entity making an Acquisition Proposal may be
informed of the restrictions contained in this sentence. Northern
shall notify Unimag promptly by telephone, and thereafter promptly
confirm in writing, if any such information is requested from, or any
Acquisition Proposal is received by, Northern or MacGregor. For
purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal received by Northern or MacGregor prior to the
Closing Date regarding the acquisition by purchase, merger, lease, or
otherwise of any capital stock of Northern or MacGregor, the business
of MacGregor or the Wholesale Periodical Business of Northern, or any
material assets, customer relationships, or other operations of
MacGregor or the Wholesale Periodical Business of Northern.
(c) Access to Records and Other Due Diligence.
During the Exchange Period, Northern shall: (i) make or cause to be
made available to Unimag and its representatives, attorneys,
accountants, and agents, for examination, inspection, and review, the
assets and property of Northern and MacGregor and all books,
contracts, agreements, commitments, records, and documents of every
kind relating to Northern's Wholesale Periodical Business and
MacGregor's business, and shall permit Unimag and its representatives,
attorneys, accountants and agents to have access to the same at all
reasonable times, including without limitation access to all tax
returns filed and in preparation and all review and other accounting
work papers of Northern's and MacGregor's independent accountants and
all reports to management and related responses; and (ii) permit
representatives of Unimag to interview suppliers, customers, and
personnel of Northern and MacGregor, provided, however, that a
Northern representative shall be entitled to be present at and
participate in each such interview.
(d) Disclosures. After the date of this
Agreement, Northern shall not: (i) disclose to any person,
association, firm, corporation or other entity (other than Unimag or
those designated in writing by Unimag) in any manner, directly or
indirectly, any proprietary information or data relevant to the
business of MacGregor or the Wholesale
- 33 -
<PAGE> 40
Periodical Business of Northern, whether of a technical or commercial
nature; or (ii) use, or permit or assist, by acquiescence or
otherwise, any person, association, firm, corporation, or other entity
(other than Unimag or those designated in writing by Unimag) to use,
in any manner, directly or indirectly, any such information or data,
excepting only use of such data or information as is at the time
generally known to the public and which did not become generally known
through any breach of any provision of this section by Northern. Upon
the termination of this Agreement for any reason, Northern shall
promptly cause all copies of such information and data in its
possession to be returned to Unimag.
(e) Employee Retention. Northern understands
that in Unimag's view it is essential to the successful operation of
the businesses of Northern and MacGregor that Northern assist Unimag
in retaining substantially unimpaired the operating organizations of
Northern (with respect to its Wholesale Periodical Business) and
MacGregor. During the Exchange Period, Northern shall not take any
action which would induce any employee or representative of Northern,
MacGregor, or Unimag not to become or continue as an employee or
representative of Northern, MacGregor, or Unimag.
(f) Dividends and Distributions. During the
Exchange Period, Northern shall not permit MacGregor to declare, set
aside, or pay any dividend or any distribution (in cash or in kind) to
its shareholders.
(g) Notices of Certain Events. Northern shall
promptly notify Unimag of:
(i) Any notice or other communication
from any person or entity alleging that the consent
of such person or entity is or may be required in
connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication
from any governmental or regulatory agency or
authority in connection with the transactions
contemplated by this Agreement; and
(iii) Any actions, suits, claims,
investigations, or proceedings commenced or, to the
knowledge of Northern, threatened against, relating
to, or involving or otherwise affecting Northern
(with respect to its Wholesale Periodical Business)
or MacGregor, or any of their property which, if in
existence on the date of this Agreement would have
been required to have been disclosed by Northern
pursuant to Section 5.16 or which relate to the
consummation of the transactions contemplated by this
Agreement.
(h) Title Evidence. Northern shall deliver to
Unimag as soon as practicable after the date of this Agreement title
opinions, title reports, or other evidence of title, in form and
substance reasonably satisfactory to Unimag, showing in Northern and
MacGregor, as the case may be, indefeasible fee simple title in all of
the facilities and real property owned by Northern (with respect to
its Wholesale Periodical Business) and
- 34 -
<PAGE> 41
MacGregor, subject only to such exceptions, encumbrances, or other
matters as are reasonably satisfactory to Unimag.
(i) Audited Financial Statements. Northern shall
deliver to Unimag, within 30 days after the Escrow Closing Date,
audited financial statements for Northern's Wholesale Periodical
Business for the fiscal year ended December 31, 1995 (the "1995
Wholesale Periodical Business Financial Statements") and the audited
balance sheet of MacGregor as of December 31, 1995 (the "Macgregor
Balance Sheet"). In addition, Northern shall deliver to Unimag,
within 75 days after the Escrow Closing Date, audited financial
statements for Northern's Wholesale Periodical Business for the fiscal
year ended December 31, 1994 (the "1994 Wholesale Periodical Business
Financial Statements", and, together with the 1995 Wholesale
Periodical Business Financial Statements, the "Financial Statements").
The audited Wholesale Periodical Business Financial Statements and the
MacGregor Balance Sheet shall be prepared from and shall be in
accordance with the books and records of Northern and MacGregor,
prepared in conformity with generally accepted accounting principles
applied on a consistent basis, including without limitation the
generally accepted accounting principles set forth on Schedule 3.2,
but subject to the exceptions to generally accepted accounting
principles also set forth on Schedule 3.2, and fairly present in all
material respects the financial condition of Northern (with respect to
its Wholesale Periodical Business) and MacGregor as of the dates
stated and the results of operations of Northern (with respect to its
Wholesale Periodical Business) for the periods then ended in
accordance with such practices. Northern shall cause Arthur Andersen
LLP to perform the December 31, 1994 audit and the audit of the
MacGregor Balance Sheet, and Northern shall pay (or cause MacGregor to
pay in the case of the audit of MacGregor Balance Sheet) all costs and
expenses incurred in connection with such audits. Unimag shall cause
Arthur Andersen LLP to perform the December 31, 1995, audit (and also
the audit of the June 30th Balance Sheet), and Unimag shall pay all
costs and expenses incurred in connection with such audits.
(j) Noncompetition. During the five year period
beginning on the Escrow Closing Date, Northern shall not, directly or
indirectly (whether in its own capacity or as a shareholder or other
owner, partner, member, manager, consultant, creditor, or agent of any
person, firm, association, organization, or other entity:
(i) Enter into or engage in any business
anywhere in the United States which competes with
Unimag's, or any of its subsidiaries', wholesale and
retail magazine, book, newspaper, and sundries
distribution and related business (the "Unimag
Business") during such period;
(ii) Solicit customers or business
patronage anywhere in the United States which results
in competition with the Unimag Business; or
(iii) Promote or assist, financially or
otherwise, any person, firm, association, corporation
or other entity engaged in any business which
competes with the Unimag Business anywhere in the
United States.
- 35 -
<PAGE> 42
The foregoing covenant shall not be deemed to have
been violated solely by the ownership of shares of any class
of capital stock of any publicly traded corporation involved
in the wholesale and retail magazine, book, newspaper, and
sundries distribution and related businesses, so long as the
aggregate holdings of Northern in such publicly traded
corporation other than Unimag represents less than 1% of such
corporation's outstanding capital stock.
Northern acknowledges that (a) the provisions of this
section are fundamental and essential for the protection of
Unimag's legitimate business and proprietary interests, and
(b) such provisions are reasonable and appropriate in all
respects.
Section 6.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as
otherwise expressly contemplated by this Agreement, during the
Exchange Period: (i) Unimag shall not take or permit to be taken any
action or do or permit to be done anything in the conduct of the
business of Unimag, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of its representations and warranties contained in
this Agreement to be or become untrue in any material respect; and
(ii) Unimag shall conduct its business in the ordinary course
consistent with past practices.
(b) Joint Operations. Notwithstanding
anything in this Agreement to the contrary, from and after the Escrow
Closing Date, Unimag shall manage and oversee the operation of the
business of Northern (with respect to its Wholesale Periodical
Business) and MacGregor as if the Exchange had already occurred.
Without limiting the generality of the foregoing, such management and
oversight shall include all of Unimag's rights as to such matters set
forth in the Joint Operating Agreement.
(c) Consummation of Acquisitions. Unimag shall
use all reasonable efforts to take all actions and do all things
necessary, proper, or advisable to consummate the: (i) acquisition of
Michiana News Service, Inc., a Michigan corporation ("Michiana"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Michiana, and all of the
shareholders of Michiana (the "Michiana Acquisition"); (ii)
acquisition of The Stoll Companies, an Ohio corporation ("Stoll"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Stoll, and all of the
shareholders of Stoll (the "Stoll Acquisition"); and (iii) acquisition
of certain assets and liabilities of Ohio Periodical Distributors,
Inc., an Ohio corporation, and Wholesalers Leasing Corp., a Delaware
corporation, pursuant to and upon the terms and conditions of the
respective Asset Transfer and Exchange Agreements between Unimag and
those companies and the acquisition of Read-mor Book Stores, Inc., an
Ohio corporation, and The Scherer Companies, a Delaware corporation,
pursuant to an upon the terms and conditions of the respective Stock
Transfer and Exchange Agreements among Unimag, each of those
companies, and all of their shareholders (collectively, the "Scherer
Companies Acquisitions"). Neither the acquisition agreement for the
Michiana Acquisition (the
- 36 -
<PAGE> 43
"Michiana Acquisition Agreement"), the acquisition agreement for the
Stoll Acquisition (the "Stoll Acquisition Agreement"), nor the
acquisition agreements for the Scherer Companies Acquisitions (the
"Scherer Companies Acquisition Agreements") shall be modified or
amended, in any material respect, without the prior written consent of
Northern, the Unimag Board of Directors, Stoll, Michiana, and each of
the companies which are a part of the Scherer Companies Acquisitions
(the "Scherer Companies"). In addition to the transferors described
in this Section 6.3(c), the remainder of the control group (as defined
in Section 368(c) of the Code) of Unimag is specified in Schedule 1.2.
(d) Confidential Information. Upon the
termination of this Agreement for any reason, Unimag shall promptly
cause all proprietary information or data relevant to the businesses
of Northern and MacGregor, whether of a technical, financial or
commercial nature and whether furnished by Northern hereunder or
otherwise received by Unimag, and all copies, extracts and summaries
thereof in its possession or in the possession of any of its officers,
shareholders or agents, to be promptly returned to Northern, except
for any such information relating to customers of Northern and
MacGregor obtained from Northern or MacGregor in connection with the
joint business operations of Unimag, Northern and MacGregor pursuant
to the Joint Operating Agreement.
ARTICLE 7
CONDITIONS
Section 7.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
(a) Completion of Schedules and Exhibits. Except
for the Debenture Agreement attached as Exhibit A, Schedules 1.1(a)
through (n), Schedule 1.3, and Schedule 2.1, the Parties acknowledge
that at the time of the execution of this Agreement the schedules and
exhibits will not be attached. The Parties shall proceed in good faith
to finalize the form and content of such schedules and exhibits in a
manner consistent with the terms and conditions of this Agreement and
otherwise mutually acceptable to both Parties. Upon finalizing the
form and content of such schedules and exhibits they shall be attached
to and become a part of this Agreement as if they had been attached to
this Agreement at the time of execution.
(b) No Adverse Proceeding. No temporary
restraining order, preliminary or permanent injunction, or other order
or decree which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
- 37 -
<PAGE> 44
(c) Certain Approvals. Unimag and Northern each
shall have filed any Notification and Report Forms and related
materials that either such Party may be required to file with the
Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the
Exchange, and all waiting periods applicable to the consummation of
the Exchange under the HSR Act shall have expired or been terminated.
(d) Other Governmental Approvals. Any
governmental or other approvals or reviews of this Agreement and the
transactions contemplated by this Agreement required under any
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated thereunder, or any corporate governance
document shall have been received, except for any filings which Unimag
must make with the Securities and Exchange Commission in connection
with obtaining approval from Unimag's shareholders of the Exchange and
other transactions contemplated by this Agreement.
(e) Exchange Agreements for Certain Acquisitions.
Northern shall have received copies of the final form of the Michiana
Acquisition Agreement, the Stoll Acquisition Agreement and the Scherer
Companies Acquisition Agreements, all of which shall be of a form and
content substantially similar to this Agreement, with the exception
that the Michiana Acquisition Agreement, the Stoll Acquisition
Agreement, and certain of the Scherer Companies Acquisition Agreements
shall be for the exchange of stock and debentures.
(f) Tax Commentary. Unimag shall have received a
tax commentary, dated the Escrow Closing Date, of Arthur Andersen LLP,
in form and substance satisfactory to Unimag, as to the qualification
of the Exchange for Unimag as a tax-free exchange under Section 351 of
the Code, and Unimag shall have delivered a copy of such opinion to
Northern.
(g) Lease for Petoskey Warehouse. Unimag and
Northern shall have entered into a lease for the real property owned
by Northern known as the "Petoskey Warehouse", and such lease shall be
in full force and effect as of the Escrow Closing, upon the following
terms and conditions: (i) the lease term shall be month-to-month;
(ii) the annual rent shall be $3.00 per square foot multiplied by the
total leasable space (on a triple net basis); and (iii) such other
reasonable and customary terms and conditions as Unimag and Northern
may agree upon. The Petoskey Warehouse lease shall be in
substantially the form attached to this Agreement as Exhibit E.
(h) Termination and Release of Security
Interests. Old Kent Bank and Charles MacGregor, David MacGregor,
Scott MacGregor, Keith Hayes, and Debra J. Hayes shall have terminated
and released all security interests in the Acquired Assets.
Section 7.2 CONDITIONS TO OBLIGATIONS OF NORTHERN TO COMPLETE THE
ESCROW CLOSING. The obligations of Northern to complete the Escrow Closing and
to consummate other transactions contemplated by this Agreement to be completed
at the Escrow Closing shall be subject to the fulfillment of all of the
following conditions unless waived by Northern in writing:
- 38 -
<PAGE> 45
(a) Representations and Warranties. The
representations and warranties of Unimag set forth in Article 4 of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Escrow Closing Date as
though made at and as of the Escrow Closing Date.
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing Date.
(c) Certificate. Unimag shall have furnished
Northern with a certificate dated the Escrow Closing Date signed by
its chairman, president, or any vice president to the effect that the
conditions set forth in Section 7.2(a) and Section 7.2(b) have been
satisfied.
(d) Opinion of Counsel. Northern shall have
received the legal opinion, dated the Escrow Closing Date, of Baker &
Hostetler, counsel to Unimag, in substantially the form attached to
this Agreement as Exhibit B.
(e) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise), or prospects of Unimag since the date of the 10-Q or of
the Scherer Companies, Stoll or Michiana since December 31, 1995.
(f) Due Diligence. Northern's completion of its
due diligence review of Unimag, Stoll, Michiana, and the Scherer
Companies with results satisfactory to Northern on or before September
6, 1996.
(g) Unimag Shareholder Letters. As of the date
of this Agreement, shareholders of Unimag who have the right to vote
more than 50% of the outstanding Unimag Shares intend to submit
letters to Unimag indicating they intend to vote in favor of the
Exchange, the Stoll Acquisition, the Michiana Acquisition, and the
Scherer Companies Acquisitions at the Unimag shareholders meeting to
be held for that purpose. Copies of these letters will be provided to
Northern by Unimag prior to the Escrow Closing.
(h) Other Documents. Unimag shall have delivered
the following items to Northern:
(i) Unimag's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of
Unimag, issued by the Ohio Secretary of State as of a
date not more than ten days prior to the Escrow
Closing Date;
- 39 -
<PAGE> 46
(iii) The code of regulations of Unimag,
certified by the secretary of Unimag on the Escrow
Closing Date;
(iv) An assumption of the Assumed
Liabilities upon such reasonable and customary terms
and conditions as Unimag and Northern may agree; and
(v) Resolutions of the directors of
Unimag approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Unimag on
the Escrow Closing Date.
Section 7.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to consummate the Exchange and
complete the Escrow Closing and to consummate the other transactions
contemplated by this Agreement to be completed at the Escrow Closing shall be
subject to the fulfillment of all of the following conditions unless waived by
Unimag in writing:
(a) Representations and Warranties. The
representations and warranties of Northern set forth in Article 5 of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Escrow Closing Date as
though made at and as of the Escrow Closing Date.
(b) Performance of Agreement. Northern shall
have performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
it under this Agreement at or prior to the Escrow Closing Date.
(c) Certificate. Northern shall have furnished
Unimag with a certificate dated the Escrow Closing Date signed on its
behalf by its chairman, president or any vice president to the effect
that the conditions set forth in Section 7.3(a) and Section 7.3(b)
have been satisfied.
(d) Opinion of Counsel. Unimag shall have
received the legal opinion, dated the Escrow Closing Date, of legal
counsel to Northern, substantially in the form attached to this
Agreement as Exhibit C.
(e) Books and Records. Northern shall have
delivered to Unimag all corporate books and records and other
materials of Northern (with respect to its Wholesale Periodical
Business) and MacGregor, including without limitation stock books and
ledgers, minute books, bank account lists, tax returns, and financial
and operational records and materials. Notwithstanding the foregoing,
Northern shall retain possession and ownership of the originals of its
corporate governance documents and records, but shall deliver to
Unimag such copies thereof as Unimag may request.
(f) Third Party Consents. Unimag shall have
received all necessary customer, vendor, and other third party
consents and approvals of this Agreement and the transactions
contemplated by this Agreement.
- 40 -
<PAGE> 47
(g) Agreement for Acquisition of MacGregor Stock
Owned by Foster. Northern and Foster shall have entered into an
agreement pursuant to which Foster will have agreed to transfer and
convey to Unimag the MacGregor Stock owned by him, and such agreement
shall be on terms and conditions satisfactory to Unimag.
(h) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise) or prospects of Northern (with respect to its Wholesale
Periodical Business) or MacGregor from that reflected in the Unaudited
Statements.
(i) Opinion of Independent Counsel. Unimag shall
have received the legal opinion, dated the Escrow Closing Date, of
legal counsel reasonably acceptable to Unimag and its counsel in the
form attached to this Agreement as Exhibit F.
(j) Other Documents. Northern shall have
delivered the following items to Unimag:
(i) Northern's and MacGregor's articles
of incorporation, certified by the Michigan Secretary
of State as of a date not more than ten days prior to
the Escrow Closing Date;
(ii) Good standing certificates of
Northern and MacGregor, issued by the Michigan
Secretary of State as of a date not more than ten
days prior to the Escrow Closing Date;
(iii) The codes of regulations of Northern
and MacGregor, certified by the secretaries of
Northern and MacGregor on the Escrow Closing Date;
(iv) The Transfer Documents for the
contribution, transfer, assignment, and conveyance of
the Acquired Assets upon such reasonable and
customary terms and conditions as Unimag and Northern
may agree; and
(v) The resolutions of the directors of
Northern approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Northern on
the Escrow Closing Date.
(k) Due Diligence. Unimag's completion of its
due diligence review with results satisfactory to Unimag on or before
September 6, 1996.
Section 7.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth
in Section 7.1, Section 7.2, and Section 7.3, the Parties shall hold the Escrow
Closing at which the Parties and Baker & Hostetler, as escrow agent ("Escrow
Agent"), shall execute and deliver the document escrow agreement in the form
attached to this Agreement as Exhibit D (the "Document Escrow Agreement"). The
Document Escrow Agreement shall provide, among other things, that at the Escrow
Closing this Agreement and all of the Additional Documents shall be deposited
with Escrow Agent to be held pursuant to the terms
- 41 -
<PAGE> 48
of the Document Escrow Agreement and that upon the escrow closing of certain
acquisitions and the approval of the Exchange by Unimag's board of directors
and shareholders this Agreement and the Additional Documents shall be released
and delivered to the appropriate Party at the Escrow Closing and the Exchange
and other transactions contemplated by this Agreement shall be consummated.
Section 7.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of Other Acquisitions. Unimag
shall have consummated the escrow closings of the Michiana
Acquisition, the Stoll Acquisition and the remainder of the Scherer
Companies Acquisitions. Such escrow closings shall be completed no
later than September 28, 1996, and shall be substantially similar to
the Escrow Closing under this Agreement.
(b) Unimag Board of Directors Approval. The
Exchange and the Scherer Companies Acquisitions shall have been
approved by Unimag's board of directors.
(c) Unimag Shareholder Approval. The Exchange,
the Stoll Acquisition, the Michiana Acquisition, and the Scherer
Companies Acquisitions shall have been approved by the affirmative
vote of the shareholders of Unimag to the extent such approval is
required by the provisions of Ohio Revised Code Chapter 1701 and
Unimag's articles of incorporation.
ARTICLE 8
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION.
(a) Termination by Northern. This Agreement may
be terminated and cancelled prior to the Escrow Closing Date by
Northern if: (i) (A) any of the representations or warranties of
Unimag contained in this Agreement shall prove to be inaccurate in any
material respect, or any covenant, agreement, obligation, or condition
to be performed or observed by Unimag under this Agreement has not
been performed or observed in any material respect at or prior to the
time specified in this Agreement, and (B) such inaccuracy or failure
shall not have been cured within 15 business days after receipt by
Unimag of written notice of such occurrence from Northern; (ii) any
permanent injunction or other order of a court or other competent
authority preventing consummation of the Exchange or any other
transaction contemplated by this Agreement shall have become final and
nonappealable; (iii) so long as Northern is not in material breach of
any representation, warranty, covenant, or agreement, if the Escrow
Closing has not occurred on or before September 28, 1996; or (iv) so
long as Northern is not in
- 42 -
<PAGE> 49
material breach of any representation, warranty, covenant, or
agreement, if the Escrow Closing has not occurred on or before
December 31, 1996.
(b) Termination by Unimag. This Agreement may be
terminated and cancelled at any time prior to the Escrow Closing Date
by Unimag if: (i) (A) any of the representations or warranties of
Northern contained in this Agreement shall prove to be inaccurate in
any material respect, or any covenant, agreement, obligation, or
condition to be performed or observed by Northern under this Agreement
has not been performed or observed in any material respect at or prior
to the time specified in this Agreement, and (B) such inaccuracy or
failure shall not have been cured within 15 business days after
receipt by Northern of written notice of such occurrence from Unimag;
(ii) any permanent injunction or other order of a court or other
competent authority preventing consummation of the Exchange or any
other transaction contemplated by this Agreement shall have become
final and nonappealable; (iii) so long as Unimag is not in material
breach of any representation, warranty, covenant, or agreement, if the
Escrow Closing has not occurred on or before September 28, 1996; or
(iv) so long as Unimag is not in material breach of any
representation, warranty, covenant, or agreement, if the Escrow
Closing has not occurred on or before December 31, 1996.
Section 8.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the shareholders of Northern and
the Unimag shareholders, but, after such adoption, no amendment shall be made
which by law requires further adoption by the shareholders of Northern or the
Unimag shareholders without such further adoption. Notwithstanding the
foregoing, this Agreement may not be amended except by an instrument in writing
signed by each of the Parties.
Section 8.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing Date, or Closing as the case may be, Unimag (with respect to Northern)
and Northern (with respect to Unimag) may, to the extent legally allowed: (a)
extend the time for the performance of any of the obligations or other acts of
such Party; (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant hereto; or
(c) waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in a written instrument signed by such
Party.
ARTICLE 9
INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS.
(a) Notwithstanding any investigation conducted
at any time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of Northern and
Unimag in this Agreement and in the Document Escrow
- 43 -
<PAGE> 50
Agreement shall survive the execution, delivery, and performance of
this Agreement and the Document Escrow Agreement. All representations
and warranties of the Parties set forth in this Agreement and in the
Document Escrow Agreement shall be deemed to have been made again by
them at and as of the Escrow Closing Date.
(b) As used in this Article 9, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 9.2 INDEMNIFICATION BY NORTHERN.
(a) Subject to the provisions of this Section 9.2
and of Section 9.4 below, Northern shall indemnify and hold harmless
Unimag from and against any and all losses, liabilities, damages,
demands, claims, suits, actions, judgments or causes of action,
assessments, costs and expenses, including without limitation
interest, penalties, reasonable attorneys' fees, any and all
reasonable expenses incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting to,
imposed upon, or incurred or suffered by Unimag, directly or
indirectly, as a result of or arising from any material inaccuracy in
or breach of any of the representations, warranties, covenants, or
agreements made by Northern in this Agreement or the Document Escrow
Agreement (collectively, "Indemnifiable Northern Claims").
(b) Unimag shall be deemed to have suffered
Damages arising out of or resulting from the matters referred to in
Section 9.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
(c) Northern may satisfy any obligation of
indemnification under this Article 9 by delivery of Unimag Shares to
Unimag with a value equal to the amount of the payment being
satisfied. For purposes of this Section 9.2(c), Unimag Shares shall
be valued at the greater of (i) $1.50 per share, or (ii) their market
value at the time the indemnification obligation has been finally
established.
(d) Notwithstanding anything contained in this
Agreement to the contrary, the collective indemnification obligations
of Northern under this Agreement shall never exceed, in the aggregate,
the sum of $510,000.
Section 9.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless
Northern from and against any Damages asserted against, resulting to,
imposed upon, or incurred or suffered by Northern, directly or
indirectly, as a result of or arising from any (i) material inaccuracy
in or breach or nonfulfillment of any of the representations,
warranties, covenants, or agreements made by Unimag in this Agreement
or the Document Escrow Agreement, (ii) subject to the limitations set
forth in Section 9.3(c), any and all claims, liabilities or
obligations
- 44 -
<PAGE> 51
arising out of the operation of the business of Northern or MacGregor
after the Escrow Closing Date, or (iii) any and all claims,
liabilities and obligations arising out of any failure by Unimag to
pay, following the Escrow Closing Date, any Assumed Liability or to
pay any amount or perform any obligation under any of the Contracts,
(collectively, "Indemnifiable Unimag Claims" and, together with
Indemnifiable Northern Claims, the "Indemnifiable Claims").
(b) Unimag shall satisfy any obligation of
indemnification under this Article 9 in cash.
(c) Notwithstanding anything contained in this
Agreement to the contrary, Northern hereby acknowledges that Unimag
shall not be liable to Northern, under this Article 9 or any other
provision of this Agreement, for any claims, liabilities, or
obligations arising out of the operation of the business of Northern
or MacGregor prior to the Escrow Closing Date, if such claim,
liability, or obligation is caused by or results from any
Indemnifiable Northern Claims.
Section 9.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 9 are subject to the following limitations:
(a) For purposes of this Article 9, all Damages
shall be computed net of any insurance coverage which reduces the
Damages that would otherwise be sustained; provided that in all cases
the timing of the receipt or realization of insurance proceeds shall
be taken into account in determining the amount of reduction of
Damages.
(b) Subject to the provisions of Section 9.4(c),
below, Unimag shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim or Claims unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $51,000. Once Unimag's Damages exceeds $51,000 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $51,000 of Damages.
(c) Notwithstanding and in lieu of the provisions
of Section 9.4(b), above, Unimag shall not be entitled to
indemnification with respect to an Indemnifiable Claim or Claims
resulting from a breach of the representations and warranties
contained in Section 5.14 unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $10,000. Once
Unimag's Damages for any such breach exceeds $10,000 in the aggregate,
Unimag shall only be entitled to be indemnified to the extent of such
Damages in excess of such initial $10,000 of Damages.
(d) The obligations of indemnity under this
Article 9 with respect to any Indemnifiable Claim shall terminate two
years after the Escrow Closing Date.
(e) If, prior to the termination of the
obligation to indemnify, written notice of an Indemnifiable Claim is
given by Unimag or Northern as the case may be (an "Indemnified
Party") to the other Party or Parties, as the case may be (the
- 45 -
<PAGE> 52
"Indemnifying Party"), or a suit or action based upon an alleged
Indemnifiable Claim is commenced against the Indemnifying Party, the
Indemnified Party shall not be precluded from pursuing such
Indemnifiable Claim (whether through the courts or otherwise) by
reason of the termination of the obligation of indemnity as described
in Section 9.4(d) above.
Section 9.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 9 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted liability with counsel reasonably satisfactory to the
Indemnified Party. Notwithstanding the foregoing: (i) the
Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be
payable by the Indemnified Party; (ii) the Indemnified Party shall not
have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing; and (iii) the
rights of the Indemnified Party to be indemnified in respect of
Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only
to the extent that the Indemnifying Party is prejudiced by such
failure. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party
fails to assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall have the right to defend, compromise, or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Party.
(c) Notwithstanding anything in this Section 9.5
to the contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party, to defend,
compromise, or settle such Indemnifiable Claim; and (ii) the
Indemnifying Party shall not, without the Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable Claim
unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party
- 46 -
<PAGE> 53
(and its subsidiaries and affiliates) a release from all liability in
respect of such Indemnifiable Claim.
Section 9.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three disinterested arbitrators. The panel shall be composed of one
arbitrator appointed by the Indemnified Party, one appointed by the
Indemnifying Party, and the third, who shall be an attorney admitted to
practice in the State of Ohio who has experience in periodical distribution,
shall be appointed by the mutual agreement of the two arbitrators chosen by the
Indemnified Party and the Indemnifying Party. The panel shall sit in Columbus,
Ohio, and its procedures shall be governed by the Ohio Arbitration Act
contained in Chapter 2711 of the Ohio Revised Code. The rules of civil
procedure with respect to depositions and requests for production of documents
applicable in Ohio common pleas courts shall apply. A decision in any such
arbitration shall apply both to the particular question submitted and to all
similar questions arising thereafter. The determination made shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting, and other fees in connection with
such a contest; provided that if the contested claim is referred to and
ultimately determined by arbitration, the legal, auditing, and other fees of
the prevailing Party and the fees and expenses of any arbitrator shall be borne
by the nonprevailing Party.
Section 9.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 9.5 or Section 9.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 3.2(b)), the
Unimag Debentures, or the Additional Documents.
- 47 -
<PAGE> 54
ARTICLE 10
MISCELLANEOUS
Section 10.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Jr., Esq.
Facsimile No.: (614) 462-2616
(b) If to Northern:
Northern News Company
5131 Post Road
Dublin, Ohio 43017
Attention: Treasurer
Facsimile No.: (614) 792-2029
with a copy to:
Northern News Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ruth Hunter Smith, General Counsel
Facsimile No.: (614) 792-2029
- 48 -
<PAGE> 55
Section 10.2 NON-WAIVER. No failure by any Party to insist upon
strict compliance with any term or provision of this Agreement, to exercise any
option, to enforce any right, or to seek any remedy upon any default of any
other Party shall affect, or constitute a waiver of, any other Party's right to
insist upon such strict compliance, exercise that option, enforce that right,
or seek that remedy with respect to that default or any prior, contemporaneous,
or subsequent default. No custom or practice of the Parties at variance with
any provisions of this Agreement shall affect or constitute a waiver of, any
Party's right to demand strict compliance with all provisions of this
Agreement.
Section 10.3 GENDERS AND NUMBERS. Where permitted by the context,
each pronoun used in this Agreement includes the same pronoun in other genders
and numbers, and each noun used in this Agreement includes the same noun in
other numbers.
Section 10.4 HEADINGS. The headings of the various articles and
sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such articles and sections, and shall be
ignored in construing this Agreement.
Section 10.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same Agreement.
Section 10.6 ENTIRE AGREEMENT. This Agreement (including all
exhibits, schedules, and other documents referred to in this Agreement, all of
which are hereby incorporated herein by reference) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the Parties with respect to the subject matter of this
Agreement.
Section 10.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon or give to any person, firm, corporation, or other entity, other
than the Parties, any rights, remedies, or other benefits under or by reason of
this Agreement.
Section 10.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio without regard
to principles of conflicts of law.
Section 10.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors, and
assigns. Neither this Agreement nor any of the rights, interests, or
obligations under this Agreement shall be transferred or assigned by any of the
Parties without the prior written consent of the other Parties.
Section 10.10 EXPENSES. Except as otherwise specifically provided
in this Agreement: (a) Unimag shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its legal counsel, independent public accountants, and
other financial advisors; (b) Northern shall pay its own costs and expenses
associated with this Agreement, including without limitation the fees and
expenses of
- 49 -
<PAGE> 56
their legal counsel, accountants, and financial advisors; and (c) all such
costs and expenses incurred by Northern in connection with this Agreement and
the transactions contemplated hereby shall be accrued and expensed, or
otherwise accounted for, so that such costs and expenses will be taken into
consideration when determining the Tangible Net Worth of Northern pursuant to
Section 3.2(b).
Section 10.11 PUBLIC ANNOUNCEMENTS. Northern shall not, without
the prior written consent of Unimag, make any public announcement or statement
with respect to the transactions contemplated in the Agreement. The provisions
of this section are subject to each Party's obligation to comply with
applicable requirements of the federal or state securities laws or any
governmental order or regulation.
Section 10.12 SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by applicable law, and
the Parties shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
UNITED MAGAZINE COMPANY
By /s/ RONALD E. SCHERER
----------------------------------
Ronald E. Scherer, Chairman
NORTHERN NEWS COMPANY
By /s/ DAVID B. THOMPSON
--------------------------------
David B. Thompson, Treasurer
- 50 -
<PAGE> 57
INDEX OF SCHEDULES
Schedule 1.1 (a) Real Property
Schedule 1.1 (b) Real Property Leases
Schedule 1.1 (c) Personal Property
Schedule 1.1 (d) Inventory
Schedule 1.1 (e) Vehicles
Schedule 1.1 (f) Permits
Schedule 1.1 (g) Proprietary Rights
Schedule 1.1 (h) Personal Property Leases
Schedule 1.1 (i) Contracts
Schedule 1.1 (j) Receivables
Schedule 1.1 (m) Telephone Numbers
Schedule 1.1 (n) Employee Plan and Benefit Arrangements
Schedule 1.2 Control Group
Schedule 1.3 Non-Assigned Acquired Business Assets
Schedule 2.1 Excluded Liabilities
Schedule 3.2 Selected Generally Accepted Accounting Principles
Schedule 4.3 Agreements to Issue Unimag Shares
Schedule 4.5 Litigation
Schedule 5.1 Qualification as Foreign Corporation
Schedule 5.2 Northern and MacGregor Shareholders
Schedule 5.4 Consents and Approvals
Schedule 5.6 Undisclosed Liabilities
- 51 -
<PAGE> 58
Schedule 5.7 Absence of Certain Changes
Schedule 5.8 Taxes
Schedule 5.9 Compliance with Law
Schedule 5.10 Proprietary Rights
Schedule 5.11 Restrictive Documents and Laws
Schedule 5.12 Insurance
Schedule 5.13 Bank Accounts
Schedule 5.14 Properties
Schedule 5.16 Legal Proceedings
Schedule 5.17 Employee Benefit Plans (Schedules (a) through (h))
Schedule 5.18 Contracts
Schedule 5.19 Accounts Receivable
Schedule 5.20 Conflicts or Defaults
Schedule 5.22 Officers, Employees, and Compensation
Schedule 5.23 Labor Relations
Schedule 5.24 Customers and Suppliers
Schedule 5.25 Special Terms to Customers
Schedule 6.2 (a) Employment Arrangements
- 52 -
<PAGE> 59
INDEX OF EXHIBITS
Exhibit A Debenture Agreement
Exhibit B Legal Opinion of Counsel to Unimag
Exhibit C Legal Opinion of Counsel to Northern and the
Shareholders
Exhibit D Document Escrow Agreement
Exhibit E Petoskey Warehouse Lease
Exhibit F Opinion of Independent Legal Counsel
- 53 -
<PAGE> 1
STOCK TRANSFER AND EXCHANGE AGREEMENT
AMONG
UNITED MAGAZINE COMPANY,
MICHIANA NEWS SERVICE, INC.
AND
ALL OF THE SHAREHOLDERS OF MICHIANA NEWS SERVICE, INC.
DATE: JULY 30, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Escrow Closing; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 EXCHANGE OF CAPITAL STOCK AND DEBENTURES . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Exchange of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Outstanding Michiana Shares . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Valuation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Michiana Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Exchange of Certificates; Issuance of Shares and Debentures . . . . . . . . . . . . . 5
(a) Delivery of Michiana Share Certificates . . . . . . . . . . . . . . . . . . . 5
(b) Issuance of Unimag Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Issuance of Unimag Debentures . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Distributions with Respect to Unexchanged Shares . . . . . . . . . . . . . . 6
(e) Unimag Shares to be Restricted Securities . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Capitalization of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 Conflicts; Consents; and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6 Brokerage and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Unimag 10-K and 10-Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.10 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
MICHIANA AND THE MICHIANA SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2 Capitalization and Security Holders; Subsidiaries . . . . . . . . . . . . . . . . . . 11
Section 4.3 Ownership of Shares and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.4 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.11 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.12 Restrictive Documents or Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.14 Bank Accounts, Depositories; Powers of Attorney . . . . . . . . . . . . . . . . . . . 18
Section 4.15 Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.16 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.17 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.19 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.20 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.21 No Conflict or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.22 Books of Account; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.23 Officers, Employees, and Compensation . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.24 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.25 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.26 Special Terms; Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.27 Business of Michiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.28 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.29 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.1 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Other Governmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Tax-Free Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.2 Covenants of Michiana and the Michiana Shareholders . . . . . . . . . . . . . . . . . 27
(a) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Access to Records and Other Due Diligence . . . . . . . . . . . . . . . . . . 29
(d) Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(e) Employee Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 30
(g) Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(h) Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(i) Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5.3 Covenants of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Conduct of Unimag's Business . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Joint Operations of Unimag and Michiana . . . . . . . . . . . . . . . . . . . 32
(c) Consummation of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.1 Mutual Conditions to Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . 33
(a) Completion of Schedules and Exhibit . . . . . . . . . . . . . . . . . . . . . 33
(b) No Adverse Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) Certain Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Other Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Escrow Closing of Certain Acquisitions . . . . . . . . . . . . . . . . . . . 33
(f) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(g) Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) Lease for Niles Building . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) Sale and Purchase of Ft. Wayne Building . . . . . . . . . . . . . . . . . . . 34
Section 6.2 Conditions to Obligations of Michiana and the
Michiana Shareholders to Complete the Escrow Closing . . . . . . . . . . . . . . . . 35
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(d) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(e) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(f) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . 35
(g) Termination of Stock Pledge Agreement . . . . . . . . . . . . . . . . . . . . 35
(h) Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(i) Purchase of Assets of Toman Distribution . . . . . . . . . . . . . . . . . . 36
(j) HOCAB Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(k) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(l) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.3 Conditions to Obligations of Unimag to Complete
the Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 37
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(e) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(f) Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(g) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(h) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(i) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.4 Document Escrow Agreement; Unimag Shareholder Approval . . . . . . . . . . . . . . . 39
Section 6.5 Mutual Conditions to Consummate the Exchange . . . . . . . . . . . . . . . . . . . . 39
(a) Escrow Closing of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 7 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(a) Termination by Michiana and the Michiana Shareholders . . . . . . . . . . . . 40
(b) Termination by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 8 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.1 Survival of Representations, Warranties, Covenants,
and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.2 Indemnification by Michiana Shareholders . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.3 Indemnification by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.4 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.5 Procedure for Indemnification with Respect to
Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.6 Procedure For Indemnification with Respect to
Non-Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.7 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.2 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.3 Genders and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.9 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
- v -
<PAGE> 7
STOCK TRANSFER AND EXCHANGE AGREEMENT
This Stock Transfer and Exchange Agreement (this "Agreement") is made
and entered into July 30, 1996, among United Magazine Company, an Ohio
corporation ("Unimag"), Michiana News Service, Inc., a Michigan corporation
("Michiana"), and all of Michiana's shareholders which are listed on Schedule
4.2 (individually, a "Michiana Shareholder" and collectively, the "Michiana
Shareholders").
BACKGROUND INFORMATION
A. Unimag desires to acquire the magazine, book, and sundries
distribution, wholesale, and related businesses of Michiana (the "Wholesale
Periodical Business") through an exchange (the "Exchange"), pursuant to which
Michiana's shares of common stock, $100 par value (each a "Michiana Share" and
collectively, the "Michiana Shares"), outstanding at the Escrow Closing
(defined in Section 1.2, below) shall be exchanged for (1) Unimag's common
shares, without par value ("Unimag Shares"), and (2) senior and subordinated
debentures of Unimag, subject to and upon the terms and conditions set forth in
this Agreement.
B. The respective boards of directors of Unimag and Michiana have
(1) determined that the Exchange and the other transactions contemplated in
this Agreement are desirable and in the best interests of their respective
shareholders, and (2) duly approved and adopted this Agreement.
C. Unimag and Michiana intend that the Exchange qualify, along
with other exchanges between other companies and Unimag occurring both before
and after the closing of the transactions contemplated by this Agreement, as a
tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules).
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
- 1 -
<PAGE> 8
ARTICLE 1
EXCHANGE
Section 1.1 EXCHANGE. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the provisions
of Section 351 of the Code, the Michiana Shareholders shall transfer all of the
Michiana Shares to Unimag in exchange for Unimag's transfer to the Michiana
Shareholders of Unimag Shares and senior and subordinated debentures of Unimag
(both in the amounts and as described in Section 2.1). Immediately after this
exchange, the former Michiana Shareholders shall represent a part of the group
of transferors, a list of whom is attached as Schedule 1.1, who will be in
control (as defined in Section 368(c) of the Code) of Unimag.
Section 1.2 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange and the other transactions contemplated by this Agreement (the "Escrow
Closing") shall be held at the offices of Baker & Hostetler, 65 East State
Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus, Ohio time on
such date (the "Escrow Closing Date") as may be reasonably designated by
Unimag; provided that it is the intention of the Parties that the Escrow
Closing shall be held not later than August 31, 1996. As provided in Section
6.5, after the Escrow Closing the only conditions to the release of this
Agreement and the other documents executed in connection with the transactions
contemplated by this Agreement (the "Additional Documents") from the Document
Escrow Agreement (defined in Section 6.4) shall be the approval of the Exchange
by the shareholders of Unimag and the escrow closing of certain other
acquisitions. Within ten days after such shareholder approval (the "Closing
Date"), the Parties will cause the Agreement and the Additional Documents to be
delivered to the appropriate Party in accordance with the terms and conditions
of the Document Escrow Agreement and the Parties will close the Exchange (the
"Closing"). In no event shall the Closing be held later than December 31,
1996.
ARTICLE 2
EXCHANGE OF CAPITAL STOCK AND DEBENTURES
Section 2.1 EXCHANGE OF CAPITAL STOCK. At the Closing:
(a) Outstanding Michiana Shares. Each Michiana
Share which is issued and outstanding immediately prior to the Escrow
Closing shall, subject to the provisions of Section 2.2, and subject
to the adjustments provided for in Sections 2.1(b) and 3.3, be
exchanged for (i) 5,698.53 Unimag Shares (an aggregate of 5,698,534.60
Unimag Shares for all Michiana Shares exchanged), and (ii) $6,207.60
principal amount of Unimag debentures (an aggregate of $6,207,596
principal amount of Unimag debentures for all Michiana
- 2 -
<PAGE> 9
Shares exchanged) (the "Unimag Debentures"). The Unimag Debentures
shall be issued pursuant to the terms of the Debenture Agreement
attached hereto as Exhibit A. An aggregate of $3,500,000 principal
amount of the Unimag Debentures ($3,500 per Michiana Share converted)
will be Senior Debentures (as defined in the Debenture Agreement), and
the balance of the Unimag Debentures will be Subordinated Debentures
(as defined in the Debenture Agreement).
(b) Valuation Adjustment. The amount of Unimag
Shares and the principal amount of Unimag Debentures to be received
upon exchange of the Michiana Shares is based upon a total valuation
of Michiana of $14,755,398, or $14,755.40 per Michiana Share, with
57.93% of this value being exchanged for Unimag Shares at an agreed
upon price of $1.50 per Unimag Share, and 42.07% of this value being
exchanged for Unimag Debentures. The value of Michiana was determined
by adding the sum of:
(i) An amount equal to 60% of the net
annual wholesale sales of Michiana for the 52-week
period ended on or about December 31, 1995, which is
currently estimated to be $16,857,976 ("1995 Sales");
plus
(ii) The tangible net worth of Michiana
as of June 30, 1996, which is currently estimated to
be a deficit of $2,102,578 (the "Tangible Net
Worth").
Within 30 days after the Escrow Closing Date,
the Michiana Shareholders shall cause to be delivered to Unimag (A)
the balance sheet of Michiana as of June 30, 1996 (the "June 30th
Balance Sheet"), and (B) copies of Michiana's sales and returns
reports (and all supporting documentation relating to such reports)
for the 52- week period ended on or about December 31, 1995 (the "1995
Sales Reports"), and the sales and returns reports for each of the
three weeks before the beginning of and after the end of such 52-week
period. The June 30th Balance Sheet shall: (1) be prepared from and
in accordance with the books and records of Michiana; (2) be prepared
in conformity with generally accepted accounting principles applied on
a consistent basis, including without limitation the generally
accepted accounting principles set forth on Schedule 2.1(b), but
subject to the exceptions to generally accepted accounting principles
also set forth on Schedule 2.1(b); and (3) fairly present in all
material respects the financial condition of Michiana as of such date
in accordance with such practices. The Michiana Shareholders shall
also deliver to Unimag copies of the work papers used in connection
with the preparation of the June 30th Balance Sheet and the 1995
Financial Statements. The 1995 Sales Reports shall fairly present in
all material respects Michiana's 1995 sales.
As soon as practical after Michiana delivers
to Unimag the June 30th Balance Sheet, the 1995 Sales Report, and the
related workpapers, Unimag shall cause Arthur Andersen LLP to conduct
an audit of the June 30th Balance Sheet to determine the actual
Tangible Net Worth of Michiana as of such date, and, if necessary, to
conduct a review of the 1995 Sales Report to confirm the accuracy of
the recorded amount of 1995
- 3 -
<PAGE> 10
Sales. In connection with the review of the 1995 Sales Report, Arthur
Andersen will also review the sales and return reports for each of the
three weeks before and after the 52-week period to confirm that there
has been an appropriate cut-off of sales, returns, and related matters
(in accordance with Generally Accepted Accounting Principles) at the
beginning and end of the 52-week period. The determination of the
Tangible Net Worth shall be made consistent with the generally
accepted accounting principles (and exceptions therefrom) set forth in
Schedule 2.1(b). In addition, the determination of Tangible Net
Worth shall take into consideration the obligations under the deferred
compensation arrangements with Tim L. Knoblauch (dated 3/3/94) and
David A. Berkenes (dated 10/1/93), respectively, determined in
accordance with generally accepted accounting principles as if such
obligations existed on June 30, 1996 unless otherwise agreed to by the
Parties. Arthur Andersen LLP shall promptly deliver a report as to
its determination of the actual value of Michiana to Unimag and the
Michiana Shareholders. Within thirty (30) days after the delivery of
this report to them, the Michiana Shareholders shall deliver to Unimag
a written statement describing their objections (if any) to Arthur
Andersen LLP's determination of Tangible Net Worth, 1995 Sales, and
the actual value of Michiana. Unimag and the Michiana Shareholders
shall use reasonable efforts to resolve any disputes regarding these
determinations, and if they are unable to resolve any such disputes
within thirty (30) days after the Michiana Shareholders have submitted
their objections to Unimag, then KPGM Peat Marwick, an independent
accounting firm, shall resolve any such disputes. The parties shall
use reasonable efforts to cause KPGM Peat Marwick to decide all
disputed items as soon as practicable (but in any event within thirty
(30) days). All fees and expenses of Arthur Andersen LLP shall be
borne by Unimag, but the fees and expenses of KPGM Peat Marwick shall
be borne equally between Unimag, on the one hand, and the Michiana
Shareholders, on the other.
If the actual value of Michiana, as so
determined, is more than $14,755,398, then Unimag shall issue
additional Unimag Shares, valued at $1.50 per share, equal to 57.93%
of, and additional Unimag Subordinated Debentures in a principal
amount equal to 42.07% of, the amount by which the actual value of
Michiana, as so determined, exceeds $14,755,398. If the actual value
of Michiana, as so determined, is less than $14,755,398, then the
parties shall reduce the number of Unimag Shares, valued at $1.50 per
share, issued to the Michiana Shareholders by an amount equal to
57.93% of, and the Unimag Subordinated Debentures issued to the
Michiana Shareholders by an amount equal to 42.07% of, the amount by
which the actual value of Michiana, as so determined, is less than
$14,755,398. Notwithstanding the foregoing, if any reduction in the
amount of Unimag Shares to be issued would in any way prevent the
Exchange, along with other exchanges between other companies and
Unimag occurring both before and after the closing of the transactions
contemplated by this Agreement, as a tax-free exchange under Section
351 of the Code, then the relative percentage of Unimag Shares and
Unimag Subordinated Debentures to be so returned shall be adjusted in
order to maintain the tax-free exchange nature of these transactions.
In the event that the
- 4 -
<PAGE> 11
Michiana Shareholders fail to return such Unimag Shares and Unimag
Subordinated Debentures within 30 days after a determination that the
actual value of Michiana is less than $14,755,398, then, in addition
to any other rights or remedies Unimag may have under this Agreement
or otherwise, Unimag shall have the right to setoff the value of such
Unimag Shares and Unimag Subordinated Debentures against any amount
owed to the Michiana Shareholders by Unimag, whether pursuant to this
Agreement or the Unimag Debentures.
(c) Michiana Treasury Shares. Each Michiana
Share, if any, which is held by Michiana as a treasury share
immediately prior to the Escrow Closing shall, by virtue of the
Exchange and without any required action on the part of Michiana,
cease to exist and be canceled and retired, and no cash or other
property shall be issued in respect thereof.
Section 2.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF SHARES AND
DEBENTURES.
(a) Delivery of Michiana Share Certificates. At
the Closing, each Michiana Shareholder shall surrender to Unimag the
certificates evidencing all the Michiana Shares (the "Michiana Share
Certificates") owned by such Michiana Shareholder immediately prior to
the Escrow Closing.
(b) Issuance of Unimag Shares. At the Closing,
upon delivery of the Michiana Share Certificates evidencing all of the
Michiana Shares owned by each Michiana Shareholder pursuant to Section
2.2(a), Unimag shall issue to each Michiana Shareholder that number of
Unimag Shares which such Michiana Shareholder is entitled to receive
as described in Section 2.1.
Unimag shall not be obligated to issue any
fractional Unimag Shares as a result of the Exchange described in
Section 2.1 and this subsection. To the extent that an outstanding
Michiana Share would otherwise become a fractional Unimag Share as a
result of such exchange, the holder of such Michiana Share shall be
entitled to receive a cash payment for such fractional interest in an
amount equal to such fractional interest multiplied by $1.50 upon
presentation of an appropriate Michiana Share Certificate representing
such fractional interest to Unimag pursuant to this Section 2.2. Such
payment is merely intended to provide a mechanical rounding off of,
and is not a separately bargained for, consideration. If more than
one Michiana Share Certificate is exchanged by the same Michiana
Shareholder, the number of Unimag Shares issuable to such Michiana
Shareholder pursuant to Section 2.1 and this subsection shall be
computed on the basis of the aggregate number of Michiana Shares
represented by such Michiana Share Certificates.
(c) Issuance of Unimag Debentures. At the
Closing, upon the delivery of the Michiana Share Certificates
evidencing all of the Michiana Shares owned by each Michiana
Shareholder pursuant to Section 2.2(a), Unimag shall issue to each
Michiana
- 5 -
<PAGE> 12
Shareholder the Unimag Debentures which such Michiana Shareholder is
entitled to receive as described in Section 2.1.
(d) Distributions with Respect to Unexchanged
Shares. The Michiana Shareholders shall have no rights as
shareholders of Unimag and no rights as debentureholders of Unimag
(except that the Debenture Agreement shall provide that interest will
begin accruing under both the Unimag Senior and Subordinated
Debentures effective as of the Escrow Closing Date) until they have
exchanged their Michiana Shares, and no dividends or other
distributions or payments with respect to Unimag Shares or Unimag
Debentures having a record date after the Closing shall be paid to the
holder of any delivered Michiana Share Certificate until such holder
delivers such certificate.
(e) Unimag Shares to be Restricted Securities.
The Unimag Shares to be received by the Michiana Shareholders in the
Exchange shall be restricted securities within the meaning of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The Michiana Shareholders understand and agree that such shares may
not be sold, pledged, hypothecated or otherwise transferred unless
such shares are registered under the Act or pursuant to an opinion of
counsel, which opinion and counsel are reasonably acceptable to Unimag
and its counsel, that an exemption from such registration is
available. The Michiana Shareholders agree that the following legend
may be placed on the certificates for the Unimag Shares to be received
by them and that appropriate stop-transfer instructions may be given
to Unimag's transfer agent and registrar:
THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED, UNLESS THEY ARE AT THE
TIME SO REGISTERED, OR THE SALE OR TRANSFER THEREOF
IS NOT REQUIRED TO BE SO REGISTERED, OR IS MADE
PURSUANT TO THE APPLICABLE EXEMPTION FROM
REGISTRATION PROVIDED IN THE SECURITIES ACT OF 1933,
AS AMENDED, OR IN THE RULES OR REGULATIONS
THEREUNDER.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF UNIMAG
In order to induce Michiana and the Michiana Shareholders to enter into
this Agreement, Unimag hereby represents and warrants to Michiana and the
Michiana Shareholders that the statements set forth in this Article 3 are true,
correct and complete.
- 6 -
<PAGE> 13
Section 3.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 3.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the shareholders of Unimag to be obtained after the date of
this Agreement). This Agreement has been duly executed and delivered by Unimag
and constitutes a legal, valid, and binding obligation of Unimag, enforceable
against Unimag in accordance with its terms, except as such enforceability may
be limited by (a) applicable bankruptcy, insolvency, or other similar laws from
time to time in effect which may affect the enforcement of creditors' rights in
general, and (b) general principles of equity.
Section 3.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 26,660,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. Michiana and the Michiana Shareholders acknowledge that prior
to the Closing, Unimag may (i) authorize additional capital stock, including
additional Unimag Shares, or (ii) reduce the number of outstanding Unimag
Shares by means of a reverse stock split, or any other method which would
result in a reduction in the number of outstanding Unimag Shares. Unimag will
deliver written notice to Michiana and the Michiana Shareholders if it
authorizes any such action. In the event that Unimag authorizes a reverse
stock split or other reduction in the number of outstanding Unimag Shares, then
the $1.50 agreed upon price of a Unimag Share for purposes of the exchange of
Michiana Shares for Unimag Shares pursuant to Section 2.1 shall be
proportionately adjusted with the objective that the Michiana Shareholders, in
the aggregate, shall have the right to receive the same proportionate ownership
interest in Unimag as before the reduction in the number of outstanding Unimag
Shares. Michiana and the Michiana Shareholders also acknowledge that prior to
the Closing, Unimag will have issued Unimag Shares and Unimag Debentures to
Northern (defined in Section 5.3(c)) and that such issuances will have no
affect
- 7 -
<PAGE> 14
whatsoever on the amount of Unimag Shares and Unimag Debentures to be issued to
the Michiana Shareholders in connection with the Exchange.
Section 3.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement, shall:
(a) Violate, conflict with, result in a violation
or breach of any provision of, constitute a default (or an event
which, with the giving of notice, the passage of time, or otherwise,
would constitute a default) under, entitle any third party (with the
giving of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease, or other instrument
or obligation to which Unimag is a party and which is material to
Unimag and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree,
statute, rule, or regulation, applicable to Unimag or its respective
properties or assets; or
(c) Require any action, consent, or approval of,
review by, or registration with any third party, court, governmental
body, or other agency, instrumentality, or authority, other than (i)
actions required by the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (ii) actions to be taken in respect of
federal and state securities laws as contemplated by this Agreement,
and (iii) approval by the shareholders of Unimag.
Section 3.5 LITIGATION. Except as disclosed in Schedule 3.5:
(a) there is no (and over the last three years there have been no) suits,
claims, actions, proceedings, or investigations (collectively, "Actions")
pending or, to the best knowledge of Unimag, threatened against Unimag or any
of its subsidiaries in which the amount in dispute exceeds (or exceeded)
$25,000, or which has or could result in liability or loss for Unimag or any of
its subsidiaries of more than $25,000, or which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on Unimag and
its subsidiaries, taken as a whole, or a material adverse effect on the ability
of Unimag to consummate the Exchange and other transactions contemplated by
this Agreement; and (b) to the best knowledge of Unimag, there exist no
disputes, conflicts or circumstances providing the basis for a dispute or
conflict which could reasonably be expected to result in any such Action.
Neither Unimag nor any subsidiary is subject to any outstanding judgment,
order, writ, injunction, or decree which, individually or in the aggregate, has
a reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition
- 8 -
<PAGE> 15
(financial or otherwise), or prospects of Unimag, or a material adverse effect
on the ability of Unimag to consummate the Exchange or other transactions
contemplated by this Agreement.
Section 3.6 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 3.7 UNIMAG 10-K AND 10-Q. Unimag has previously made
available to Michiana and the Michiana Shareholders true, correct, and complete
copies of Unimag's most recent 10-KSB for the fiscal year ending September 30,
1995 (the "10-K"), and Unimag's most recent 10-QSB for the fiscal quarter
ending March 31, 1996 ("10-Q"), both of which have been filed with the SEC.
The financial statements of Unimag included in the 10-K and 10-Q have been
prepared from and in accordance with the books and records of Unimag and in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the 10-Q, as permitted by the SEC under the
Securities and Exchange Act of 1934, as amended) and fairly present (subject,
in the case of the 10-Q, to normal and recurring audit adjustments) the
consolidated financial position of Unimag and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended.
Section 3.8 TAXES. Unimag has duly paid, or caused to be paid,
all taxes, assessments, fees, and other governmental charges (hereinafter,
"taxes") payable by Unimag or its subsidiaries. Unimag has duly filed, or
caused to be filed, all federal, state, local and foreign tax returns and tax
reports required to be filed by it or its subsidiaries and all such returns and
reports are true, correct, and complete. There is no pending or, to the best
knowledge of Unimag, threatened federal, state, local or foreign tax audit or
assessment relating to it or its subsidiaries and there is no agreement with
any federal, state, local, or foreign tax authority that may affect the
subsequent tax liabilities of Unimag and its subsidiaries.
Section 3.9 UNDISCLOSED LIABILITIES. Unimag has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent, or otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the 10-Q or
the financial statements therein set forth, which have not been paid
or discharged since the date thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since March
31, 1996, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on its
books and which are not inconsistent with the other representations,
warranties and agreements of Unimag set forth in this Agreement; and
- 9 -
<PAGE> 16
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
its financial statements.
Section 3.10 COMPLIANCE WITH LAW. To the best knowledge of
Unimag, Unimag has complied and is in compliance in all material respects with
all laws, statutes, ordinances, orders, rules and regulations promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 3.11 NO MATERIAL ADVERSE CHANGE. Since the filing of the
10-Q with the SEC, there has been no material adverse change in the properties,
assets, liabilities, business, results of operations, or condition (financial
or otherwise) of Unimag. Unimag is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any entity.
Section 3.12 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of Michiana pursuant to this Agreement along with
other exchanges and acquisitions occurring before and after the closing of the
transactions contemplated by this Agreement, as an exchange under Section 351
of the Code, subject to the rules of Section 351 of the Code and the
regulations promulagated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Unimag shall be solely responsible
for evaluating (and determining the appropriate methods required for reporting)
all federal, state, and local income and other tax consequences to Unimag which
will and may result from the transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
MICHIANA AND THE MICHIANA SHAREHOLDERS
In order to induce Unimag to enter into this Agreement, Michiana and
each of the Michiana Shareholders hereby jointly and severally represent and
warrant to Unimag that the statements contained in this Article 4 are true,
correct, and complete.
Section 4.1 ORGANIZATION AND STANDING. Michiana is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan with full power and authority (corporate and otherwise) to
own, lease, use, and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. Michiana is duly
qualified to do business and is in good standing in each state listed in
Schedule 4.1, is not qualified to do business in any other state and, except as
set forth in Schedule 4.1, neither the nature of the business or other
activities conducted by Michiana nor the properties it owns, leases, or
operates requires it to qualify to do business as a foreign corporation in any
other state,
- 10 -
<PAGE> 17
except where the failure to be so qualified would not have a material adverse
effect on the business, operations, assets, properties, condition (financial or
otherwise) or prospects of Michiana. Michiana has not received any written
notice or assertion within the last three years from any governmental official
in any state to the effect that Michiana is required to be qualified or
authorized to do business in a state in which Michiana is not so qualified or
has not obtained such authorization. Michiana is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 4.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of Michiana consists solely of 1,000 shares of
common stock, $100 par value, (a) all of which are issued and outstanding, and
(b) none of which are held as treasury shares. Schedule 4.2 contains a correct
and complete list of the names and addresses of all of the shareholders of
Michiana and indicates all Michiana Shares owned beneficially and of record by
each such shareholder. Each outstanding Michiana Share has been duly
authorized and validly issued and is fully paid and nonassessable, and no
Michiana Share has been issued in violation of preemptive or similar rights.
Except as set forth and briefly described in Schedule 4.2, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims, or other commitments or rights of any type relating to
the issuance, sale, or transfer by Michiana or any Michiana Shareholder of any
securities of Michiana, nor are there outstanding any securities which are
convertible into or exchangeable for shares of capital stock of Michiana; and
Michiana has no obligations of any kind to issue any additional securities.
The issuance and sale of all securities of Michiana has been in full compliance
with all applicable federal and state securities laws. Michiana does not own,
directly or indirectly, any equity or other ownership interest in any
corporation, partnership, joint venture, or any other entity or enterprise.
Michiana is not subject to any obligation or requirement to provide funds to or
make any investment (in the form of a loan, capital contribution, or otherwise)
in any entity.
Section 4.3 OWNERSHIP OF SHARES AND AUTHORITY. Except as set
forth and briefly described in Schedule 4.3, all of the Michiana Shares are
owned free and clear of all liens, security interests, encumbrances, pledges,
charges, claims, voting trusts, and restrictions of any nature whatsoever,
except restrictions on transfer imposed by or pursuant to federal or state
securities laws. Each Michiana Shareholder owns beneficially and of record all
of the Michiana Shares disclosed as being owned by him or her on Schedule 4.2,
and each Michiana Shareholder has the full and unrestricted right, power and
capacity to transfer and deliver the same and to execute this Agreement and
consummate the transactions contemplated by this Agreement without the consent
or approval of any other person. This Agreement has been duly executed and
delivered by each Michiana Shareholder and constitutes the legal, valid and
binding obligation of each Michiana Shareholder, enforceable against such
Michiana Shareholder in accordance with its terms except as such enforceability
may be limited by (a) applicable bankruptcy, insolvency, or other similar laws
from time to time in effect which may affect the enforcement of creditors'
rights in general, and (b) general principles of equity.
- 11 -
<PAGE> 18
Section 4.4 CORPORATE POWER AND AUTHORITY. Michiana has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Michiana. This
Agreement has been duly executed and delivered by Michiana and constitutes the
legal, valid, and binding obligation of Michiana, enforceable against Michiana
in accordance with its terms, except as such enforceability may be limited by
(a) applicable bankruptcy, insolvency, or other similar laws from time to time
in effect which may affect the enforcement of creditors' rights in general, and
(b) general principles of equity.
Section 4.5 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 4.5, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by Michiana or the Michiana Shareholders nor the
consummation of the transactions contemplated by this Agreement requires or
will require any action, consent, or approval of, review by, or registration
with any third party, court, governmental body, or other agency,
instrumentality, or authority, other than (i) actions required by the HSR Act,
and (ii) actions to be taken in respect of federal and state securities laws as
contemplated by this Agreement.
Section 4.6 FINANCIAL STATEMENTS. Michiana has furnished to
Unimag the balance sheet of Michiana as of June 30, 1995, and the related
statements of income, changes in shareholders' equity, and cash flows for the
fiscal year then ended, including, in each case, the related notes
(collectively, the "Reviewed Statements"), which are accompanied by the review
report of Coopers & Lybrand LLP. The Reviewed Statements have been prepared
from and are in accordance with the books and records of Michiana, have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis (except as disclosed in the Reviewed Statements), and fairly
present in all material respects the financial condition of Michiana as of the
date stated and the results of operations of Michiana for the period then ended
in accordance with such practices.
Section 4.7 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 4.7, Michiana has no liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent, or otherwise and
whether due or to become due) except:
(a) Those set forth or reflected in the Reviewed
Statements which have not been paid or discharged since the date
thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since June 30,
1995, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
- 12 -
<PAGE> 19
which are not inconsistent with the other representations, warranties,
and agreements of Michiana and the Michiana Shareholders set forth in
this Agreement; and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
the Reviewed Statements.
Section 4.8 ABSENCE OF CERTAIN CHANGES. Except as expressly
provided for or permitted under Section 5.2(a) or Section 5.2(f) of this
Agreement, or as set forth in Schedule 4.8, since June 30, 1995, there has not
been:
(a) Any material adverse change in the business,
operations, assets, properties, customer base, prospects, rights, or
condition (financial or otherwise) of Michiana or any occurrence,
circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change;
(b) Any declaration, setting aside, or payment of
any dividend or any distribution (in cash or in kind) to any Michiana
Shareholder, or any direct or indirect redemption, purchase, or other
acquisition by Michiana of any of its capital stock, or any options,
warrants, rights, or agreements to purchase or acquire such stock;
(c) Any increase in amounts payable by Michiana
to or for the benefit of, or committed to be paid by Michiana to or
for the benefit of, any shareholder, director, officer, or other
consultant, agent, or employee of Michiana whose total annual
compensation exceeds $50,000 or any relatives of such person, or any
increase in any benefits granted under any bonus, stock option,
profit-sharing, pension, retirement, severance, deferred compensation,
group health, insurance, or other direct or indirect benefit plan,
payment or arrangement made to, with, or for the benefit of any such
person;
(d) Any transaction entered into or carried out
by Michiana other than in the ordinary and usual course of business
consistent with past practices;
(e) Any borrowing or agreement to borrow funds by
Michiana, any incurring by Michiana of any other obligation or
liability (contingent or otherwise), except liabilities incurred in
the usual and ordinary course of Michiana's business (consistent with
past practices), or any endorsement, assumption or guarantee of
payment or performance of any loan or obligation of any other person
or entity by Michiana;
(f) Any material change in Michiana's method of
doing business or any change in its accounting principles or practices
or its method of application of such principles or practices;
- 13 -
<PAGE> 20
(g) Any mortgage, pledge, lien, security
interest, hypothecation, charge, or other encumbrance imposed or
agreed to be imposed on or with respect to the property or assets of
Michiana;
(h) Any sale, lease, or other disposition of, or
any agreement to sell, lease, or otherwise dispose of any of the
operating properties or assets of Michiana, other than sales of
inventory in the usual and ordinary course of business for fair
equivalent value to persons other than directors, officers,
shareholders, or other affiliates of Michiana;
(i) Any purchase of or any agreement to purchase
assets (other than inventory purchased in the ordinary course of
business consistent with past practices) for an amount in excess of
$50,000 for any one purchase or $100,000 for all such purchases made
by Michiana or any lease or any agreement to lease, as lessee, any
capital assets with payments over the term thereof to be made by
Michiana exceeding an aggregate of $100,000;
(j) Any loan or advance made by Michiana to any
person other than loans made to Michiana's customers in the ordinary
course of business consistent with past practices not exceeding
$50,000, in the aggregate, to any customer;
(k) Any modification, waiver, change, amendment,
release, rescission, or termination of, or accord and satisfaction
with respect to, any material term, condition, or provision of any
contract, agreement, license, or other instrument to which Michiana is
a party, other than any satisfaction by performance in accordance with
the terms thereof in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance adversely
affecting the business operations or condition (financial or
otherwise) of Michiana, including without limitation the filing of any
petition or charge of unfair labor practice with any governmental or
regulatory authority, efforts to effect a union representation
election, or actual or threatened employee strike, work stoppage, or
slow down.
Section 4.9 TAXES.
(a) Except as set forth and briefly described in
Schedule 4.9, Michiana has duly paid all taxes payable by Michiana.
Michiana has duly filed all federal, state, local, and foreign tax
returns and tax reports required to be filed by it and all such
returns and reports are true, correct, and complete. Except as
disclosed and briefly described in Schedule 4.9, since June 30, 1991,
none of such returns and reports have been amended, and except as set
forth and briefly described in Schedule 4.9, all taxes, arising under
or reflected on such returns and reports have been fully paid or were
fully accrued as liabilities in the Reviewed Statements and shall be
paid before the Closing. During the
- 14 -
<PAGE> 21
last five (5) years, no claim has been made by authorities in any
jurisdiction where Michiana did not file tax returns that it is or may
be subject to taxation therein.
(b) Michiana has delivered to Unimag copies of
all federal, state, local, and foreign income tax returns filed with
respect to it for taxable periods ended on or after June 30, 1991.
Schedule 4.9 sets forth the dates and results of any and all audits
conducted by taxing authorities within the last five years or
otherwise with respect to any tax year for which assessment is not
barred by any applicable statute of limitations. No waivers of any
applicable statute of limitations for the filing of any tax returns or
payment of any taxes or assessments of any deficient or unpaid taxes
are outstanding. Except as set forth and briefly described in
Schedule 4.9, all deficiencies proposed as a result of any audits have
been paid or settled or have been fully accrued as liabilities in the
Reviewed Statements and shall be paid before the Closing. Except as
set forth and briefly described in Schedule 4.9, there is no pending
or, to the best knowledge of Michiana and the Michiana Shareholders,
threatened federal, state, local, or foreign tax audit or assessment
relating to Michiana, and there is no agreement with any federal,
state, local, or foreign taxing authority that may affect the
subsequent tax liabilities of Michiana.
(c) Except as set forth and briefly described in
Schedule 4.9, all taxes attributable to the existence or operation of
Michiana as at or through June 30, 1995 are, to the extent not already
paid, accurately reflected in the Reviewed Statements.
(d) Except as set forth and briefly described in
Schedule 4.9, there exists no tax-sharing agreement or arrangement
pursuant to which Michiana is obligated to pay the tax liability of
any other person or entity or to indemnify any other person or entity
with respect to any tax.
(e) Schedule 4.9 includes a list of all states,
territories and jurisdictions to which any tax is properly payable by
Michiana or the Michiana Shareholders.
Section 4.10 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 4.10, to the best knowledge of Michiana and the Michiana
Shareholders, Michiana has complied and is in compliance in all material
respects with all nonenvironmental (environmental matters being addressed in
Section 4.15) laws, statutes, ordinances, orders, rules and regulations
promulgated, and all judgments, decisions, and orders entered, by any federal,
state, local, or foreign court or governmental authority or instrumentality
which are applicable or relate to it or to its business or properties including
without limitation: (a) all zoning, fire, safety, and building laws,
ordinances, regulations, and requirements; (b) Title VII of the Civil Rights
Act of 1964, as amended; (c) the Fair Labor Standards Act, as amended; (d) the
Occupational Safety and Health Act of 1970, as amended; (e) the Americans with
Disabilities Act of 1990; (f) all applicable federal, state and local laws,
rules and regulations relating to employment; (g) all applicable laws, rules
and regulations governing payment of minimum wages and overtime rates, and the
withholding
- 15 -
<PAGE> 22
and payment of taxes from compensation of employees; (h) federal and state
antitrust and trade regulation laws applicable to competition generally or to
agreements restricting, allocating, or otherwise affecting geographic or
product markets; and (i) the Controlled Substances Act (collectively, the
"Applicable Laws"). To the best knowledge of Michiana and the Michiana
Shareholders, Michiana has all franchises, licenses, permits, covenants,
authorizations, approvals, and certifications necessary or appropriate for the
operation of its business or the ownership of its properties. Schedule 4.10
includes a list of all material franchises, licenses, permits, consents,
authorizations, approvals, and certificates owned or held by Michiana
(collectively, the "Permits"), each of which is currently valid and in full
force and effect. To the best knowledge of Michiana and the Michiana
Shareholders, Michiana is not in violation of any of the Permits, and there is
no pending nor, to the best knowledge of Michiana and the Michiana
Shareholders, any threatened proceeding which could result in the revocation,
cancellation or inability of Michiana to renew any Permit. Except as disclosed
and briefly described in Schedule 4.10, Michiana has not been charged with or
given actual notice of any violation of any of the Applicable Laws which
violation has not been remedied in full (without any remaining liability of
Michiana).
Section 4.11 PROPRIETARY RIGHTS. Schedule 4.11 sets forth:
(a) All material names, patents, inventions,
trade secrets, proprietary rights, computer software, trademarks,
trade names, service marks, logos, copyrights, and franchises and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements in respect thereof which Michiana owns, has
the right to use, or to which Michiana is a party; and
(b) All filings, registrations, or issuances of
any of the foregoing with or by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices (all
items in (a) and (b) of this Section 4.11, together with the customer
lists described below, being sometimes hereinafter referred to
collectively as the "Proprietary Rights").
Except as set forth in Schedule 4.11,
Michiana is, to the best knowledge of Michiana and the Michiana
Shareholders, the sole and exclusive owner of all right, title, and
interest in and to all Proprietary Rights free and clear of all liens,
claims, charges, equities, rights of use, encumbrances, and
restrictions whatsoever, and there is not pending or, to the best
knowledge of Michiana and the Michiana Shareholders, threatened any
investigation, proceeding, inquiry, or other review by any federal,
state, local, or foreign regulatory, administrative, or governmental
office or offices with respect to Michiana's right, title, or interest
in any Proprietary Right.
Other than those Proprietary Rights listed in
Schedule 4.11, no name, patent, invention, trade secret, customer
list, proprietary right, computer software, trademark, trade name,
service mark, logo, copyright, franchise, license, sublicense, or
other such right is necessary for the operation of the business of
Michiana in substantially
- 16 -
<PAGE> 23
the same manner as such business is presently conducted. To the best
knowledge of Michiana and the Michiana Shareholders, the business of
Michiana has not been and is not being conducted in contravention of
any trademark, copyright, or other proprietary right of any person or
entity.
Except as set forth in Schedule 4.11, none of
the Proprietary Rights: (i) has been hypothecated, sold, assigned, or
licensed by Michiana, or to the best knowledge of Michiana and the
Michiana Shareholders, any other person or entity; (ii) to the best
knowledge of Michiana and the Michiana Shareholders, infringes upon or
violate the rights of any person or entity; (iii) to the best
knowledge of Michiana and the Michiana Shareholders, is subject to
challenge, claims of infringement, unfair competition, or other
claims; or (iv) to the best knowledge of Michiana and the Michiana
Shareholders, is being infringed upon or violated by any person or
entity. Except as set forth in Schedule 4.11, Michiana has not given
any indemnification against patent, trademark, or copyright
infringement as to any equipment, materials, products, services, or
supplies which Michiana uses, licenses, or sells. To the best
knowledge of Michiana and the Michiana Shareholders, no product,
process, method, or operation presently sold, engaged in, or employed
by Michiana infringes upon any rights owned by any other person or
entity. There is not pending or, to the best knowledge of Michiana
and the Michiana Shareholders, threatened any claim or litigation
against Michiana contesting the right of Michiana to sell, engage in,
or employ any such product, process, method, or operation.
Except as set forth in Schedule 4.11,
Michiana has exclusive rights to own and use the computer software
used by it (the "Software"). Schedule 4.11 lists and briefly
describes, all material licenses, agreements, documents, and other
materials relating to the Software and to Michiana's rights therein.
Except as set forth in Schedule 4.11, Michiana has not licensed or
otherwise authorized any other person to use or make use of all or any
part of the Software, nor granted, assigned, or otherwise conveyed any
right in or to the Software.
Section 4.12 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 4.12, Michiana is not a party to or bound under
any mortgage, lien, lease, agreement, contract, instrument, law, order,
judgment or decree, or any similar restriction not of general application which
materially and adversely affects, or reasonably could be expected to so affect
(a) the business, operations, assets, properties, prospects, rights, or
condition (financial or otherwise) of Michiana; (b) the continued operation by
Unimag of Michiana's business after the Closing Date on substantially the same
basis as such business is currently operated; or (c) the consummation of the
transactions contemplated by this Agreement.
Section 4.13 INSURANCE. Michiana has been and is insured with
respect to its properties and the conduct of its business in such amounts and
against such risks as are sufficient for compliance with applicable law and as
are adequate to protect its property and business in accordance with normal
industry practice. Such insurance is and has been provided by insurers
unaffiliated with
- 17 -
<PAGE> 24
Michiana, which insurers are, to the best knowledge of Michiana and the
Michiana Shareholders, financially sound and reputable. Set forth in Schedule
4.13 is a true, correct, and complete list of all insurance policies and bonds
in force in which Michiana is named as an insured party, or for which Michiana
has paid any premiums, and such list correctly states the name of the insurer,
the name of each insured party, the type and amount of coverage, deductible
amounts, if any, the expiration date, and the premium amount of each such
policy or bond. Except as disclosed in Schedule 4.13, all such policies or
bonds are currently in full force and effect and no notice of cancellation or
termination has been received by Michiana with respect to any such policy.
Michiana will continue all of such insurance in full force and effect through
the Closing Date. All premiums due and payable on such policies have been
paid. Except as disclosed in Schedule 4.13, Michiana is not a co-insurer under
any term of any insurance policy.
Section 4.14 BANK ACCOUNTS, DEPOSITORIES; POWERS OF ATTORNEY. Set
forth in Schedule 4.14 is a true, correct, and complete list of the names and
locations of all banks or other depositories in which Michiana has accounts or
safe deposit boxes, and the names of the persons authorized to draw thereon,
borrow therefrom, or have access thereto. Except as set forth in Schedule
4.14, no person has a power of attorney from Michiana.
Section 4.15 TITLE TO AND CONDITION OF PROPERTIES. Except as set
forth in Schedule 4.15, Michiana has good, valid, and indefeasible title to all
of its assets and properties of every kind, nature, and description, tangible
or intangible, wherever located, which constitute all of the property now used
in and necessary for the conduct of its business as presently conducted
(including without limitation all operating property and assets shown or
reflected on the Reviewed Statements, except inventory sold in the ordinary
course of business). Except as set forth in Schedule 4.15, to the best
knowledge of Michiana and the Michiana Shareholders, all such properties are
owned free and clear of all mortgages, pledges, liens, security interests,
encumbrances, and restrictions of any nature whatsoever, including without
limitation: (a) rights or claims of parties in possession; (b) easements or
claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes, or any other matters; (d) any lien or right to a lien for
services, labor, or material furnished; (e) special tax or other assessments;
(f) options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties; and (h)
violations of any Applicable Laws applicable to such properties. To the best
knowledge of Michiana and the Michiana Shareholders, all such properties are
usable for their current uses without violating any Applicable Laws, or any
applicable private restriction, and such uses are legal conforming uses.
Except as set forth in Schedule 4.15, no financing statement under the Uniform
Commercial Code or similar law naming Michiana or any of its predecessors is on
file in any jurisdiction in which Michiana owns property or does business, and
Michiana is not a party to or bound under any agreement or legal obligation
authorizing any party to file any such financing statement. Schedule 4.15
contains a complete and accurate list of the location of all real property
which is owned, leased, or operated by Michiana and describes the nature of
Michiana's interest in that real property. With respect to any real property
leased by Michiana, Michiana, except as set forth in Schedule 4.15, has an
insurable leasehold interest in that real property.
- 18 -
<PAGE> 25
Except as set forth in Schedule 4.15, to the best
knowledge of Michiana and the Michiana Shareholders, all real property and
structures, all machinery and equipment, and all tangible personal property
owned, leased or used by Michiana and material to the operation of its business
are reasonably suitable for the purpose or purposes for which they are being
used (including full compliance with all Applicable Laws) and are in good
condition and repair, ordinary wear and tear excepted. Except as set forth in
Schedule 4.15, to the best knowledge of Michiana and the Michiana Shareholders,
there are no material structural defects in the exterior walls or the interior
bearing walls, the foundation, or the roof of any building, garage or other
such structure owned, leased, or used by Michiana, and, to the best knowledge
of Michiana and the Michiana Shareholders, the electrical, plumbing, heating
systems, and air conditioning systems, of any such structure are in good
operating condition, ordinary wear and tear excepted. The utilities servicing
the real properties owned, leased, or used by Michiana are adequate to permit
the continued operation of its business, and there are no pending or, to the
best knowledge of Michiana and the Michiana Shareholders, threatened zoning,
condemnation or eminent domain proceedings, building, utility, or other
moratoria, or injunctions or court orders which would materially and adversely
affect such continued operation. Schedule 4.15 lists, and Michiana and the
Michiana Shareholders have furnished or made available to Unimag, copies of all
engineering, geologic, and environmental reports prepared by or for Michiana or
with respect to the real property owned, leased or used by Michiana in their
possession which Michiana and the Michiana Shareholders have been able to
reasonably locate after conducting a good-faith review.
Except as set forth in Schedule 4.15, no real or
personal property owned, leased, or used by Michiana has been used to produce,
process, store, handle, or transport any hazardous or toxic substance or waste
(as those terms are defined or described in any of the applicable laws relating
to the protection, preservation, conservation, restoration, or quality of the
environment), except to the extent immaterial quantities of hazardous
substances are used as an incidental aspect of the operation of its business.
Except as set forth in Schedule 4.15, no hazardous or toxic substance or waste
has been disposed of, released or discharged on, leaked from, or has otherwise
contaminated any real property owned, leased, or used by Michiana. Except as
set forth in Schedule 4.15, no asbestos or substances containing material
quantities of asbestos have been installed in any such property. Except as set
forth in Schedule 4.15, there are no oil or gas wells capped or uncapped or
piping, structures, fixtures or other appliances relating thereto on or about
any such property and no such property has been used as a landfill.
Section 4.16 BROKERS AND FINDERS. No investment banker, broker,
finder, or other intermediary: (a) has been retained by or is authorized to act
on behalf of Michiana or the Michiana Shareholders; (b) has submitted the
transactions contemplated by this Agreement to Michiana or the Michiana
Shareholders; or (c) is or might be entitled to any fee, commission, or other
payment from Michiana or any Michiana Shareholder as a direct or indirect
result of the transactions contemplated by this Agreement.
- 19 -
<PAGE> 26
Section 4.17 LEGAL PROCEEDINGS. Except as described in Schedule
4.17: (a) there are no (and over the last three years there have been no)
Actions pending or, to the best knowledge of Michiana and the Michiana
Shareholders, threatened against or relating to Michiana (or any of its
officers, directors, shareholders, agents, or representatives in connection
with the business or affairs of Michiana), before any federal, state, local, or
foreign court or governmental body in which the amount in dispute exceeds (or
exceeded) $25,000 or which has or could result in liability or loss for
Michiana or any Michiana Shareholder of more than $25,000; and (b) to the best
knowledge of Michiana and the Michiana Shareholders, there exist no disputes,
conflicts, or circumstances providing the basis for a dispute or conflict which
could reasonably be expected to result in any such Action. There are no
Actions pending or, to the best knowledge of Michiana and the Michiana
Shareholders, threatened for the purpose of enjoining or preventing this
Agreement or any other transaction contemplated by this Agreement or otherwise
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as disclosed in Schedule 4.17, Michiana is not subject to
any judgment, order or decree, or any governmental restriction, which has a
reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition (financial or otherwise), or
prospects of Michiana.
Section 4.18 ERISA.
(a) Schedule 4.18(a) identifies each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA") which (i) is subject to any
provision of ERISA, and (ii) is or was at any time during the last 5
years maintained, administered, or contributed to by Michiana or any
affiliate (as defined below) and covers any employee or former
employee of Michiana or any affiliate or under which Michiana or any
affiliate has any liability. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto have
been furnished to Unimag together with the three most recent annual
reports (Form 5500 and all related schedules) and actuarial valuation
reports, if any, prepared in connection with any such plan. Such
plans are referred to collectively herein as the "Employee Plans".
For purposes of this section, "affiliate" of any person or entity
means (A) any other person or entity which, together with such person
or entity, would be treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended (the "Code"), or (B) is
an "affiliate," whether or not incorporated, as defined in Section
407(d)(7) of ERISA, of such person or entity. The only Employee Plans
which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the
"Pension Plans") are identified as such on Schedule 4.18(a).
(b) Except as set forth in Schedule 4.18(b), no
Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in
Section 3(35) and subject to Title IV of ERISA, nor does Michiana have
any obligation to create, maintain, or contribute to any such
"multiemployer plan" or "defined benefit plan". No Employee Plan is
maintained in connection with any trust described in Section 501(c)(9)
of the Code. No "accumulated funding deficiency," as defined in
- 20 -
<PAGE> 27
Section 412 of the Code, has been incurred with respect to any
Employee Plan, whether or not waived. Full payment has been made of
all amounts which Michiana is required to have paid as contributions
to or benefits under any Employee Plan as of the end of the most
recent fiscal year thereof, and there are no unfunded obligations
under any Employee Plan. Michiana knows of no "reportable event,"
within the meaning of Section 4043 of ERISA, and no event described in
Section 4041, 4042, 4062 or 4063 of ERISA has occurred in connection
with any Employee Plan. No condition exists and no event has occurred
which could constitute grounds for termination of any Employee Plan,
and neither Michiana nor any of its affiliates has incurred any
material liability under Title IV of ERISA arising in connection with
the termination of, or complete or partial withdrawal from, any plan
covered or previously covered by Title IV of ERISA. Nothing done or
omitted to be done and no transaction or holding of any asset under or
in connection with any Employee Plan has or will make Michiana, or any
officer or director of Michiana, subject to any liability under Title
I of ERISA or liable for any tax pursuant to Section 4975 of the Code.
There is no pending or, to the best knowledge of Michiana and the
Michiana Shareholders, threatened litigation, arbitration, disputed
claim, adjudication, audit, examination, or other proceeding with
respect to any Employee Plan or any fiduciary or administrator thereof
in their capacities as such.
(c) Except as set forth in Schedule 4.18(c), each
Employee Plan which is intended to be qualified under Section 401(a)
of the Code is, to the best knowledge of Michiana and the Michiana
Shareholders, so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. Michiana has
furnished to Unimag copies of the most recent Internal Revenue Service
determination letters with respect to each such plan for which it is
the plan sponsor. Except as set forth in Schedule 4.18(c), to the
best knowledge of Michiana and the Michiana Shareholders, each
Employee Plan has been maintained in compliance with its terms and the
requirements prescribed by any and all statutes, orders, rules, and
regulations, including but not limited to ERISA and the Code, which
are applicable to such plan.
(d) Except as set forth in Schedule 4.18(d),
there is no contract, agreement, plan, or arrangement covering any
employee or former employee of Michiana or any affiliate that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of the Code.
(e) Schedule 4.18(e) identifies each employment,
severance, or other similar contract, arrangement, or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, or for deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not
an Employee Plan, (ii) is entered
- 21 -
<PAGE> 28
into, maintained, or contributed to, as the case may be, by Michiana
or any of its affiliates, and (iii) covers any employee or former
employee of Michiana or any of its affiliates. Such contracts, plans,
and arrangements as are described above, copies or descriptions of
which have been furnished previously to Unimag, are referred to
collectively herein as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in substantial compliance with its
terms and with requirements prescribed by any and all statutes,
orders, rules, and regulations that are applicable to such Benefit
Arrangement.
(f) Except as set forth in Schedule 4.18(f),
there is no liability in respect of post-retirement health and medical
benefits for current or retired employees of Michiana or any of its
affiliates. Except as set forth in Schedule 4.18(f), Michiana has
reserved its right to amend or terminate any Employee Plan or Benefit
Arrangement providing health or medical benefits in respect of any
active employee of Michiana under the terms of any such plan and
descriptions thereof given to employees. With respect to any of
Michiana's Employee Plans which are "group health plans" under Section
4980B of the Code and Section 607(1) of ERISA, there has been
substantial compliance with all requirements imposed thereunder .
(g) Except as set forth in Schedule 4.18(g),
there has been no amendment to, written interpretation, or
announcement (whether or not written) by Michiana or any of its
affiliates relating to any Employee Plan or Benefit Arrangement which
would increase the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect
thereof for the fiscal year ended immediately prior to the Closing
Date.
(h) Except as set forth in Schedule 4.18(h),
Michiana is not a party or subject to any union contract or any
material employment contract or arrangement providing for annual
future compensation of more than $25,000 to any officer, consultant,
director or employee, except for employment agreements to be entered
into as provided in Section 6.1(f).
(i) Except as set forth in Schedule 4.18(i), the
execution, delivery, and consummation of the transactions contemplated
by this Agreement do not constitute a triggering event under any
Employee Plan, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or
may result in any payment (of severance pay or any other type),
acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee, or director of Michiana.
(j) Any reference to ERISA or the Code or any
section thereof shall be construed to include all amendments thereto
and applicable regulations and administrative rulings issued
thereunder.
- 22 -
<PAGE> 29
Section 4.19 CONTRACTS. Schedule 4.19 lists and briefly describes
all contracts, agreements, leases, arrangements, and understandings (written or
oral) ("Contracts") to which Michiana is a party and which fall within any of
the following categories: (a) Contracts with any of Michiana's top 20
customers based on Michiana's revenues for the 12-month period ended June 30,
1996; (b) Contracts not entered into in the ordinary course of Michiana's
business (including without limitation Contracts with any present or former
shareholder, director, or officer of Michiana, or any person related by blood
or marriage to any such person, or any person controlling, controlled by, or
under common control with any such person, or with any employee, agent, or
consultant of Michiana not terminable at will); (c) Contracts which are service
contracts (excluding contracts for delivery services entered into in the
ordinary course of business) or equipment leases involving payments by Michiana
of more than $10,000 per year; (d) Contracts containing covenants or
restrictions purporting to limit the freedom of Michiana to compete in any line
of business in any geographic area or to employ or otherwise engage any person;
(e) Contracts which extend beyond one year, unless cancelable on 60 or fewer
days' notice without any liability, penalty, or premium; (f) Contracts which
relate to any borrowings or guarantees in excess of $25,000; (g) Contracts
containing any obligation or commitment which limits the freedom of Michiana to
sell, lease, or otherwise distribute any product or customer information; or
(h) Contracts which are not listed above but which are material to the
condition (financial or otherwise), operations, assets, prospects, or business
of Michiana. All such Contracts are valid and binding and in full force and
effect, and, to the best knowledge of Michiana and the Michiana Shareholders,
enforceable in accordance with their respective terms in all material respects.
Except as set forth in Schedule 4.19, neither Michiana nor, to the best
knowledge of Michiana and the Michiana Shareholders, any other party thereto,
is in violation of, in default in respect of, nor, to the best knowledge of
Michiana and the Michiana Shareholders, has there occurred an event or
condition which, with the passage of time or giving of notice (or both) would
constitute a default under any such Contract.
Section 4.20 ACCOUNTS RECEIVABLE. Except as set forth in Schedule
4.20 and excluding all amounts due and payable under the HOCAB Note (Defined in
Section 6.2(j), all accounts and notes receivable (customer, vendor, and other)
of Michiana as of June 30, 1996, are and will be collectible in full, after
application of a reserve for uncollectible accounts determined in accordance
with generally accepted accounting principles, and are and will be valid and
subsisting (unless previously paid) and represent and will represent sales
actually made (net of all applicable credits and rebates) in the ordinary and
usual course of business consistent with past practices.
From the date of this Agreement through the Closing
Date, no customer or vendor accounts receivable of Michiana will be converted
to notes receivable or written off without the prior written consent of Unimag.
- 23 -
<PAGE> 30
Section 4.21 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 4.21, neither the execution and delivery of this Agreement by Michiana
or the Michiana Shareholders, nor compliance by Michiana and the Michiana
Shareholders with the terms and provisions of this Agreement, including without
limitation the consummation of the transactions contemplated by this Agreement,
will: (a) violate any Applicable Laws or Permits; (b) conflict with or result
in the breach of any term, condition, or provision of (i) the articles of
incorporation, code of regulations, or other organizational document of
Michiana or (ii) any material agreement, deed, contract, undertaking, mortgage,
indenture, writ, order, decree, restriction, legal obligation, or instrument to
which Michiana or any Michiana Shareholder is a party or by which Michiana or
any Michiana Shareholder or any of their respective assets or properties are or
may be bound or affected; (c) constitute a default (or an event which, with the
giving of notice, the passage of time, or both, would constitute a default)
thereunder; (d) result in the creation or imposition of any lien, security
interest, charge or encumbrance, or restriction of any nature whatsoever with
respect to any material properties or assets of Michiana or any Michiana
Shareholder; or (e) give to others any interest or rights, including rights of
termination, acceleration, or cancellation in or with respect to any of the
material properties, assets, contracts, or business of Michiana.
Section 4.22 BOOKS OF ACCOUNT; RECORDS. Michiana's general
ledgers, stock record books, minute books and other material records relating
to the assets, properties, contracts, and outstanding legal obligations of
Michiana are, in all material respects, complete and correct, and have been
maintained in accordance with good business practices and the matters contained
therein are, to the extent required by generally accepted accounting
principles, accurately reflected in the Reviewed Statements, except as may be
set forth in Section 4.6.
Section 4.23 EMPLOYEES AND COMPENSATION. Schedule 4.23 lists and
describes the current compensation of the five most highly compensated managers
of Michiana and any other employee of Michiana whose total current salary and
bonus exceeds $50,000. Except as disclosed in Schedule 4.23: (a) there are no
other forms of compensation paid to any such employee of Michiana; (b) the
amounts accrued or to be accrued on the books and records of Michiana for
vacation pay, sick pay, and all commissions and other fees payable to agents,
salespersons and representatives of Michiana will be adequate to cover
Michiana's liabilities for all such items; (c) Michiana has not become
obligated, directly or indirectly, to any shareholder, director, or officer of
Michiana or any person related to any such person by blood or marriage, except
for current liability for such compensation; and (d) to the best knowledge of
Michiana and the Michiana Shareholders, no shareholder, director, officer,
agent, employee, or representative of Michiana or any person related to such
person by blood or marriage holds any position or office with or has any
material financial interest, direct or indirect, in any supplier, customer, or
account of, or other outside business which has material transactions with,
Michiana. Neither Michiana nor any Michiana Shareholder has any agreement or
understanding with any shareholder, director, officer, agent, employee, or
representative of Michiana which would influence any such person not to become
associated with Unimag from and after the Closing or not to serve Michiana
after the Closing in a capacity similar to the capacity presently held.
- 24 -
<PAGE> 31
Section 4.24 LABOR RELATIONS. Except as set forth in Schedule
4.24, there is no unfair labor practice complaint against Michiana pending
before the National Labor Relations Board. Except as set forth in Schedule
4.24, Michiana is not a party to or bound by any collective bargaining
agreement and there is no labor strike, dispute, slowdown or stoppage, or any
union organizing campaign, actually pending or, to the best knowledge of
Michiana and the Michiana Shareholders, threatened against or involving
Michiana. Except as set forth in Schedule 4.24, no labor grievance has been
filed against Michiana in the last three years, and no arbitration proceeding
has arisen out of or under a collective bargaining or other labor agreement and
is pending and no claim therefor has been asserted. Except as set forth in
Schedule 4.24, no collective bargaining or other labor agreement is currently
being negotiated by Michiana and no union or collective bargaining unit
represents any of Michiana's employees. Michiana has not experienced any work
stoppage or other material labor difficulty during the past five years.
Section 4.25 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 4.25, no supplier of Michiana has indicated that it shall stop, or
decrease the rate of, or substantially increase its fees for, supplying
products or services to Michiana either prior to, or following the consummation
of, the Closing. Schedule 4.25 sets forth a list of all customers which have
terminated their relationships with Michiana since September 30, 1995, or have
notified Michiana or the Michiana Shareholders since September 30, 1995, that
they intend to terminate their relationships with Michiana. Except as set
forth in Schedule 4.25, Michiana and the Michiana Shareholders do not know of
any customers of Michiana which alone or in the aggregate comprise more than 1%
of actual annualized sales as shown in the Reviewed Statements, which have
indicated that they are considering or planning to (a) discontinue being
customers of Michiana, (b) discontinue being customers of Unimag or Michiana
after the Escrow Closing or the Closing, or (c) substantially decrease the
amount of their purchasing from Michiana or Unimag or otherwise materially
alter the terms of such purchasing either before or after the Closing.
Section 4.26 SPECIAL TERMS; PRODUCT WARRANTIES. Schedule 4.26
sets forth the terms and conditions of any credit, discount, or other terms
given by Michiana to any customer outside the usual and ordinary course of
business.
Section 4.27 BUSINESS OF MICHIANA. Michiana is and since 1958 has
been engaged in the Wholesale Periodical Business and is presently engaged in
no other business whatsoever except as may be incidental to the foregoing.
Section 4.28 INVESTMENT REPRESENTATION. Each of the Michiana
Shareholders: (a) represents that such Michiana Shareholder owns beneficially
and of record the number of Michiana Shares set forth opposite such Michiana
Shareholder's name on Schedule 4.2; and (b) acknowledges, represents, and
warrants to Unimag that (i) such Michiana Shareholder is an "accredited
investor," as that term is defined in Regulation D, because he or she has a net
worth at this time
- 25 -
<PAGE> 32
in excess of $1 million or had income in each of the two most recent years in
excess of $200,000 and has a reasonable expectation of reaching the same income
level in the current year, or, in the case of a Michiana Shareholder that is a
trust, because such trust has total assets in excess of $5,000,000, was not
formed for the purpose of the transactions contemplated by this Agreement, and
the investment decision respecting the Unimag Shares and Unimag Debentures will
be directed by a person who has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks
of an investment in the Unimag Shares and Unimag Debentures, (ii) such Michiana
Shareholder has been provided the opportunity to ask questions and receive
answers from Unimag concerning the business operations and financial condition
of Unimag and the terms and conditions of the transactions described in this
Agreement, and to obtain any additional information necessary to verify the
accuracy of information provided to such Michiana Shareholder by Unimag, and
(iii) is acquiring the Unimag Shares and Unimag Debentures to be issued
pursuant to this Agreement for such Michiana Shareholder's own accounts for
investment only and not with a view to the distribution thereof.
Section 4.29 SECTION 351 EXCHANGE. It is the intention of
Michiana and the Michiana Shareholders to treat the acquisition of Michiana
pursuant to this Agreement, along with other exchanges and acquisitions
occurring before and after the closing of the transactions contemplated by this
Agreement, as an exchange under Section 351 of the Code, subject to the rules
of Section 351 of the Code and the regulations promulgated thereunder
applicable to the receipt and taxability of "boot" (within the meaning of such
rules). Michiana and the Michiana Shareholders shall be solely responsible for
evaluating (and determining the appropriate methods required for reporting) all
federal, state, and local income and other tax consequences to each of them
which will and may result from the transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable
efforts to take all actions and do all things necessary, proper, or
advisable to consummate the Exchange and the other transactions
contemplated by this Agreement, including without limitation using all
reasonable efforts to cause the conditions set forth in Article 6 of
this Agreement for which such Party is wholly or partially responsible
to be satisfied as soon as reasonably practicable and to prepare,
execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as
any other Party may reasonably request.
- 26 -
<PAGE> 33
(b) HSR Filings. The Parties shall cooperate
with each other with respect to the preparation and filing of any
Notification and Report Forms and related materials that they may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act
with respect to the Exchange and shall promptly make any further
filings pursuant the HSR Act that may be necessary, proper, or
advisable.
(c) Other Governmental Matters. Each Party shall
use all reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
(d) Tax-Free Treatment. Each of the Parties
shall use all reasonable efforts to cause the Exchange to constitute
(along with other exchanges and acquisitions occurring before and
after the Exchange) a tax- free exchange under Section 351 of the
Code, subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules). Each of the
Parties shall be solely responsible for evaluating (and determining
the appropriate methods required for reporting) all federal, state,
and local income and other tax consequences to each such Party which
will and may result from the transactions contemplated by this
Agreement.
Section 5.2 COVENANTS OF MICHIANA AND THE MICHIANA SHAREHOLDERS.
Michiana and the Michiana Shareholders, jointly and severally, covenant and
agree that:
(a) Conduct of Business. Except as otherwise
expressly contemplated by this Agreement, from the date of this
Agreement until the Closing (the "Pre-Exchange Period"): (i) neither
Michiana nor any Michiana Shareholder shall take or permit to be taken
any action or do or permit to be done anything in the conduct of the
business of Michiana, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of their representations and warranties contained in
this Agreement to be or become untrue in any material respect; (ii)
Michiana shall conduct its business in the ordinary course consistent
with past practices (iii) Michiana and the Michiana Shareholders shall
permit Unimag to manage and oversee the business operations of
Michiana as provided in Section 5.3(b) and consistent with the terms
and conditions of the Joint Operating Agreement between Unimag and
Michiana dated March 1, 1996 (the "Joint Operating Agreement"); and
(iv) Michiana and the Michiana Shareholders shall use all reasonable
efforts to assist Unimag in preserving the business organization
intact, keeping available to Michiana and Unimag the present service
of Michiana's employees, and preserving for Michiana and Unimag the
goodwill of Michiana's suppliers, customers, and others with whom
business relationships exist. Without limiting the generality of the
foregoing, during the Pre-
- 27 -
<PAGE> 34
Exchange Period, except as otherwise expressly contemplated by this
Agreement or with the prior written consent of Unimag, Michiana shall
not:
(A) Adopt or propose any change in its
articles of incorporation or code of regulations; adjust,
split, combine, or reclassify any of its capital stock; or
make any other changes in its authorized or issued capital
stock;
(B) Redeem, purchase, or otherwise
acquire any shares of its capital stock; grant any person or
entity any right to acquire any shares of its capital stock;
issue, deliver, sell, or agree to issue, deliver, or sell, any
additional shares of its capital stock or any other
securities; or enter into any agreement or arrangement with
respect to the sale or voting of its shares of capital stock;
(C) Merge or consolidate with any other
person or entity or acquire a material amount of assets of any
other person or entity except for the acquisition of inventory
in the ordinary course of business consistent with past
practices;
(D) Sell, lease, license, pledge,
encumber, or otherwise dispose of any operating assets other
than sales of inventory in the ordinary course of business
consistent with past practices;
(E) Incur, create, assume, or otherwise
become liable for any indebtedness other than indebtedness
incurred in the ordinary course of business consistent with
past practices;
(F) Except for those arrangements
disclosed in Schedule 5.2(a), enter into or modify any
employment, severance, termination, or similar agreement or
arrangement with, or grant any bonuses, salary increases,
severance, or termination pay to, any officer, director,
consultant, or employee;
(G) Adopt, amend, or terminate any
employee benefit plan or increase, amend, or terminate any
benefits to officers, directors, consultants, or employees;
(H) Modify in any material way or
terminate any of the contracts listed or required to be listed
in Schedule 4.19, except in the ordinary course of business
consistent with past practices;
(I) Except as disclosed in Schedule
4.17, settle any claims, litigation, or actions, whether now
pending or hereafter made or brought, unless such settlement
does not involve a payment by Michiana of more than $25,000;
- 28 -
<PAGE> 35
(J) Engage in any transaction, or enter
into any agreement, contract, lease, or other arrangement or
understanding, with any affiliate of Michiana, except for
transactions expressly permitted by this Agreement; or
(K) Agree or commit to do any of the
foregoing;
Provided, however, that nothing in this
Section 5.2(a) shall prohibit Michiana from transferring to the
Michiana Shareholders or their affiliates real estate, affiliate
accounts receivable, affiliate notes receivable, and life insurance
policies which are not necessary for the conduct of ordinary business
operations. Any such transfers and compensation arrangements shall be
utilized in determining the actual Tangible Net Worth of Michiana in
connection with the valuation adjustment provided for in Section
2.1(b).
Unimag acknowledges that, prior to the
execution of this Agreement, Michiana purchased all of the assets of
Twin City News Agency, Inc. ("Twin Cities"). The actual net wholesale
sales of Twin Cities for the 52-week period ended on or about December
31, 1995 shall be utilized in determining 1995 Sales, as if such sales
had been made by Michiana, and the amount of 1995 Sales so determined
shall be used to determine the actual value of Michiana pursuant to
Section 2.1(b). Arthur Andersen will review the sales of Twin Cities
in a manner consistent with its review of the 1995 Sales Report.
(b) Exclusive Rights. Neither Michiana nor any
Michiana Shareholder shall, directly or indirectly, solicit (including
without limitation by way of furnishing or making available any
non-public information concerning the business, properties, or assets
of Michiana) or engage in negotiations or discussions with, disclose
any of the terms of this Agreement to, accept any offer from, furnish
any information to, or otherwise cooperate, assist, or participate
with any person or organization (other than Unimag and its
representatives) regarding any Acquisition Proposal (defined below),
except that any person or entity making an Acquisition Proposal may be
informed of the restrictions contained in this sentence. Michiana and
the Michiana Shareholders shall notify Unimag promptly by telephone,
and thereafter promptly confirm in writing, if any such information is
requested from, or any Acquisition Proposal is received by, Michiana
or any of the Michiana Shareholders. For purposes of this Agreement,
"Acquisition Proposal" shall mean any offer or proposal received by
Michiana or any Michiana Shareholder prior to the Closing regarding
the acquisition by purchase, merger, lease, or otherwise of any
capital stock of Michiana, the business of Michiana, or any material
assets, customer relationships, or other operations of Michiana.
(c) Access to Records and Other Due Diligence.
During the Pre-Exchange Period, Michiana shall: (i) make or cause to
be made available to Unimag and its representatives, attorneys,
accountants, and agents, for examination, inspection, and review, the
assets and property of Michiana and all books, contracts, agreements,
commitments, records, and documents of every kind relating to
Michiana's business, and
- 29 -
<PAGE> 36
shall permit Unimag and its representatives, attorneys, accountants
and agents to have access to the same at all reasonable times,
including without limitation access to all tax returns filed and in
preparation and all review and other accounting work papers of Coopers
& Lybrand LLP and all reports to management and related responses; and
(ii) permit representatives of Unimag to interview suppliers,
customers, and personnel of Michiana, provided, however, that a
Michiana representative shall be entitled to be present at and
participate in each such interview.
(d) Disclosures. After the date of this
Agreement, neither Michiana nor any Michiana Shareholder shall: (i)
disclose to any person, association, firm, corporation or other entity
(other than Unimag or those designated in writing by Unimag) in any
manner, directly or indirectly, any proprietary information or data
relevant to the business of Michiana, whether of a technical or
commercial nature; or (ii) use, or permit or assist, by acquiescence
or otherwise, any person, association, firm, corporation, or other
entity (other than Unimag or those designated in writing by Unimag) to
use, in any manner, directly or indirectly, any such information or
data, excepting only use of such data or information as is at the time
generally known to the public and which did not become generally known
through any breach of any provision of this section by Michiana or any
Michiana Shareholder. Upon the termination of this Agreement for any
reason, Michiana shall promptly cause all copies of such information
and data in its possession, or in the possession of the Michiana
Shareholders, to be returned to Unimag.
(e) Employee Retention. Michiana and the
Michiana Shareholders understand that in Unimag's view it is essential
to the successful operation of the business of Michiana that Michiana
assist Unimag in retaining substantially unimpaired Michiana's
operating organization. During the Pre-Exchange Period, neither
Michiana nor any Michiana Shareholder shall take any action which
would induce any employee or representative of Michiana (other than
himself or herself) or Unimag not to become or continue as an employee
or representative of Michiana or Unimag.
(f) Dividends and Distributions. During the
Pre-Exchange Period, except as permitted in Section 5.2(a), Michiana
and the Michiana Shareholders shall not permit Michiana to declare,
set aside or pay any dividend or any distribution (in cash or in kind)
to its shareholders.
(g) Notices of Certain Events. Michiana and the
Michiana Shareholders shall promptly notify Unimag of:
(i) Any notice or other communication
from any person or entity alleging that the consent of such
person or entity is or may be required in connection with the
transactions contemplated by this Agreement;
- 30 -
<PAGE> 37
(ii) Any notice or other communication
from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this
Agreement; and
(iii) Any actions, suits, claims,
investigations, or proceedings commenced or, to the knowledge
of Michiana or any Michiana Shareholder, threatened against,
relating to, or involving or otherwise affecting Michiana or
any Michiana Shareholder, or any of their property which, if
in existence on the date of this Agreement would have been
required to have been disclosed by Michiana and the Michiana
Shareholders pursuant to Section 4.17 or which relate to the
consummation of the transactions contemplated by this
Agreement.
(h) Title Evidence. Michiana shall deliver to
Unimag as soon as practicable after the date of this Agreement title
opinions, title reports, or other evidence of title, in form and
substance reasonably satisfactory to Unimag, showing in Michiana
indefeasible fee simple title in all of the facilities and real
property owned by Michiana, subject only to such exceptions,
encumbrances, or other matters as are reasonably satisfactory to
Unimag.
(i) Audited Financial Statements. The Michiana
Shareholders shall deliver to Unimag audited financial statements for
the fiscal year ended June 30, 1995 and for the fiscal year ended June
30, 1996 within 75 days after the Escrow Closing Date, except for the
June 30th Balance Sheet which shall be delivered within 30 days after
the Escrow Closing Date. These audited financial statements shall be
prepared from and shall be in accordance with the books and records of
Michiana, prepared in conformity with generally accepted accounting
principles applied on a consistent basis, including without limitation
the generally accepted accounting principles set forth on Schedule
2.1(b), but subject to the exceptions to generally accepted accounting
principles also set forth on Schedule 2.1(b), and fairly present in
all material respects the financial condition of Michiana as of the
dates stated and the results of operations of Michiana for the periods
then ended in accordance with such practices. Michiana shall cause
Arthur Andersen LLP to perform the June 30, 1995 audit and Michiana
shall pay all costs and expenses incurred in connection with such
audit. Unimag shall cause Arthur Andersen LLP to perform the June 30,
1996 audit and Unimag shall pay all costs and expenses incurred in
connection with such audit.
Section 5.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as
otherwise expressly contemplated by this Agreement, during the
Pre-Exchange Period: (i) Unimag shall not take or permit to be taken
any action or do or permit to be done anything in the conduct of the
business of Unimag, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of its representations
- 31 -
<PAGE> 38
and warranties contained in this Agreement to be or become untrue in
any material respect; and (ii) Unimag shall conduct its business in
the ordinary course consistent with past practices.
(b) Joint Operations of Unimag and Michiana.
Notwithstanding anything in this Agreement to the contrary, from and
after the Escrow Closing Date, Unimag shall manage and oversee the
operation of the business of Michiana as if the Exchange had already
occurred. Without limiting the generality of the foregoing, such
management and oversight shall include all of Unimag's rights as to
such matters set forth in the Joint Operating Agreement.
(c) Consummation of Acquisitions. Unimag shall
use all reasonable efforts to take all actions and do all things
necessary, proper, or advisable to consummate the: (i) acquisition of
The Stoll Companies, an Ohio corporation ("Stoll"), pursuant to and
upon the terms and conditions of the Stock Transfer and Exchange
Agreement among Unimag, Stoll, and all of the shareholders of Stoll
(the "Stoll Acquisition"); and (ii) acquisitions of certain assets and
liabilities of Ohio Periodical Distributors, Inc., an Ohio
corporation, Northern News Company and its wholly-owned subsidiary,
MacGregor News Agency, Inc., both Michigan corporations ("Northern"),
Readmor Books, an Ohio corporation, The Scherer Company, an Ohio
corporation, and Wholesalers Leasing, an Ohio corporation
(collectively, the "Scherer Companies") pursuant to and upon the terms
and conditions of the respective Asset Purchase Agreements among
Unimag, the Scherer Companies, and all of the shareholders of the
Scherer Companies (the "Scherer Companies Acquisitions"). Neither the
acquisition agreement for the Stoll Acquisition (the "Stoll
Acquisition Agreement") nor the acquisition agreements for the Scherer
Companies Acquisitions (the "Scherer Companies Acquisition
Agreements") shall be modified or amended, in any material respect,
without the prior written consent of the Unimag Board of Directors,
Stoll, Michiana, and each of the Scherer Companies. In addition to
the transferors described in this Section 5.3(c), the remainder of the
control group (as defined in Section 368(c) of the Code) of Unimag is
specified in Schedule 1.1.
(d) Confidential Information. Upon the
termination of this Agreement for any reason, Unimag shall promptly
cause all proprietary information or data relevant to the business of
Michiana, whether of a technical, financial or commercial nature and
whether furnished by Michiana hereunder or otherwise received by
Unimag, and all copies, extracts and summaries thereof in its
possession or in the possession of any of its officers, shareholders
or agents, to be promptly returned to Michiana, except for any such
information obtained from Michiana in connection with the joint
business operations of Unimag and Michiana pursuant to the Joint
Operating Agreement.
ARTICLE 6
CONDITIONS
- 32 -
<PAGE> 39
Section 6.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
(a) Completion of Schedules and Exhibits. The
Parties acknowledge that at the time of the execution of this
Agreement the schedules and exhibits will not be attached. Unimag and
Michiana will proceed in good faith to finalize the form and content
of such schedules and exhibits in a manner consistent with the terms
and conditions of this Agreement and otherwise mutually acceptable to
both parties. Upon finalizing the form and content of such schedules
and exhibits they will be attached to and become a part of this
Agreement as if they had been attached to this Agreement at the time
of execution.
(b) Adverse Proceeding. No temporary
restraining order, preliminary or permanent injunction, or other order
or decree which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
(c) Certain Approvals. Unimag and Michiana each
shall have filed any Notification and Report Forms and related
materials that either such Party may be required to file with the
Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the
Exchange, and all waiting periods applicable to the consummation of
the Exchange under the HSR Act shall have expired or been terminated.
(d) Other Governmental Approvals. Any
governmental or other approvals or reviews of this Agreement and the
transactions contemplated by this Agreement required under any
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated thereunder, or any Company governance document
of Unimag or Michiana shall have been received, except for any filings
which Unimag must make with the SEC in connection with obtaining
approval from Unimag's Shareholders of the Exchange and other
transactions contemplated by this Agreement.
(e) Escrow Closing of Certain Acquisitions.
Michiana shall have received copies of the final form of the Stoll
Acquisition Agreement and the Scherer Companies Acquisition
Agreements, all of which shall be of a form and content substantially
similar to this Agreement, with the exception that the Scherer
Companies Acquisition Agreements shall be for the purchase and sale of
assets. In addition, Unimag shall have consummated the escrow closing
of the Scherer Companies Acquisition for Northern.
- 33 -
<PAGE> 40
(f) Tax Commentary. Unimag shall have received a
tax commentary, dated the Escrow Closing Date, of Arthur Andersen LLP,
in form and substance satisfactory to Unimag, as to the qualification
of the Exchange for Unimag as a tax-free exchange under Section 351 of
the Code, and Unimag shall have delivered a copy of such commentary to
Michiana.
(g) Employment Agreements. Michael Gilbert,
David W. Majerek, and Thaddeus A. Majerek ("Mr. Tad Majerek") shall
have entered into employment agreements with Michiana or Unimag in
substantially the form attached to this Agreement as Exhibits C-1, C-2
and C-3, and such employment agreements shall be in full force and
effect as of the Escrow Closing. In addition, Thaddeus S. Majerek
("Mr. Ted Majerek") shall have entered into a noncompetition agreement
in substantially the form attached to this Agreement as Exhibit C-4,
and such noncompetition agreement shall be in full force and effect as
of the Escrow Closing.
(h) Lease for Niles Building. Michiana or
Unimag, as the case may be, shall have entered into a lease for the
real property known as the "Niles Building", and such lease shall be
in full force and effect as of the Escrow Closing, upon the following
terms and conditions: (i) the lease shall be for a term of three
years from the Escrow Closing Date; (ii) the annual rent shall be
$3.00 per square foot multiplied times the total leaseable space (on a
triple net basis); (iii) Michiana or Unimag, as the case may be, shall
have the non-exclusive option to purchase the property at a price
equal to $900,000; (iv) Michiana or Unimag, as the case may be, shall
have a right of first refusal as to any proposed sale of the Niles
Building to a third party; (v) Michiana or Unimag, as the case may be,
shall have the right to sublease all or a portion of the Niles
Building, provided that Michiana shall not be released of any of its
obligations in connection with any such sublease; and (vi) such other
reasonable and customary terms and conditions as Unimag and Michiana
may agree upon. The Niles Building lease shall be in substantially
the form attached to this Agreement as Exhibit D, and such lease shall
be in full force and effect as of the Escrow Closing.
(i) Sale and Purchase of Ft. Wayne Building.
Michiana or Unimag shall have entered into a real estate purchase
agreement obligating either Michiana or Unimag to purchase the real
property known as the "Ft. Wayne Building" simultaneous with the
Closing, upon the following terms and conditions: (i) the purchase
price shall be equal to fair market value as determined by an
independent appraisal firm acceptable to both Michiana and Unimag;
(ii) the purchase price shall be paid in full at the Closing; and
(iii) such other reasonable and customary terms and conditions as
Unimag and Michiana may agree upon. The Purchase Agreement shall be
in substantially the form attached to this Agreement as Exhibit E, and
such Purchase Agreement shall be in full force and effect as of the
Escrow Closing.
- 34 -
<PAGE> 41
Section 6.2 CONDITIONS TO OBLIGATIONS OF MICHIANA AND THE
MICHIANA SHAREHOLDERS TO COMPLETE THE ESCROW CLOSING. The obligations of
Michiana and the Michiana Shareholders to complete the Escrow Closing and to
consummate the other transactions contemplated by this Agreement to be
completed at the Escrow Closing shall be subject to the fulfillment of all of
the following conditions unless waived by Michiana and the Michiana
Shareholders in writing:
(a) Representations and Warranties. The
representations and warranties of Unimag set forth in Article 3 of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Escrow Closing as though
made at and as of the Escrow Closing.
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing.
(c) Certificate. Unimag shall have furnished
Michiana and the Michiana Shareholders with a certificate dated the
Escrow Closing Date signed by its chairman, president, or any vice
president to the effect that the conditions set forth in Section
6.2(a) and Section 6.2(b) have been satisfied.
(d) Tax Commentary. Michiana shall have received
a tax commentary, dated the Escrow Closing Date, of Coopers & Lybrand
LLP, in form and substance satisfactory to Michiana, as to the
qualification of the Exchange for Michiana as a tax-free exchange
under Section 351 of the Code.
(e) Opinion of Counsel. Michiana and the
Michiana Shareholders shall have received the legal opinion, dated the
Escrow Closing Date, of Baker & Hostetler, counsel to Unimag, in
substantially the form attached to this Agreement as Exhibit B.
(f) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise), or prospects of Unimag since the date of the 10-Q or of
the Scherer Companies or Michiana since December 31, 1995.
(g) Termination of Stock Pledge Agreement. 1st
Source Bank shall have terminated its stock pledge agreement with Mr.
Ted Majerek, pursuant to which Mr. Ted Majerek has pledged the
Michiana Shares owned by him as security for certain loan obligations
of Michiana and HOCAB.
(h) Supply Agreement. Unimag shall have entered
into a supply agreement with HOCAB upon the following terms and
conditions: (i) Unimag will supply wholesale magazines to HOCAB at
Unimag's cost plus 10%; (ii) Unimag will supply wholesale books to
HOCAB at a discount of 43%; (iii) the supply agreement will be for an
initial
- 35 -
<PAGE> 42
term of five years from the Closing Date, provided that the supply
agreement will terminate at such time as 50% or more of the
outstanding shares of HOCAB are not owned by Mr. Ted Majerek, or any
of his children or grandchildren, or an entity controlled by any of
the foregoing; (iv) after the initial five year term, Unimag will
supply HOCAB wholesale magazines and wholesale books at a discount
equal to the average of the discount then being given by Unimag to its
three largest customers; and (v) such other reasonable and customary
terms and conditions as Unimag and Michiana may agree upon. The Supply
Agreement shall be in substantially the form attached to this
Agreement as Exhibit H., and such Supply Agreement shall be in full
force and effect as of the Escrow Closing.
(i) Purchase of Assets of Toman Distribution
Services, Inc. Unimag shall have purchased substantially all of the
assets, including customer contracts, accounts receivable, and six
trailers, and assumed certain liabilities, including leases for the
tractors, bank debt, and third party installment notes and other
contract obligations, of Toman Distribution Services, Inc., a Michigan
corporation ("Toman Trucking"), for a purchase price of $1.00 and
other good and valuable consideration. However, if, as of the Escrow
Closing Date, the value of the assets as mutually agreed upon by the
Parties of Toman Trucking does not exceed Toman Trucking's
liabilities, then Unimag shall not be obligated to assume certain
obligations of Toman Trucking in an amount equal to such difference,
with priority given to excluding liabilities not related to Toman
Trucking's ordinary business operations. The Asset Purchase Agreement
shall be in substantially the form attached to this Agreement as
Exhibit I, and such Asset Purchase Agreement shall be in full force
and effect as of the Escrow Closing.
(j) HOCAB Note. Hall of Cards and Books,
Inc., an Indiana corporation ("HOCAB"), shall have delivered to
Michiana or Unimag one or more Cognovit Promissory Notes (the "HOCAB
Note") upon the following terms and conditions: (i) the initial total
principal amount shall be $3,589,389.00; (ii) the interest rate shall
be equal to one percent in excess of the prime rate of Comerica Bank
(to be increased or decreased as such prime rate is adjusted from time
to time, but in no event shall the interest rate exceed 10%); (iii)
$1,250,000 of such principal amount shall be payable in 60 equal
monthly payments of principal of $20,833.33 beginning on January 1,
1997; (iv) interest shall begin accruing as of July 1, 1996, on the
entire principal balance from time to time outstanding and shall be
payable on a monthly basis beginning January 1, 1997; (v) $1,250,000
of such principal amount shall be payable in 20 equal quarterly
payments of $62,499.99, provided that such payments shall only be due
and payable if the Michiana Shareholders receive the principal payment
to which they are entitled to in that quarter pursuant to the terms of
the Senior Debentures, and this principal balance shall be subject to
mandatory prepayment, without penalty, in an amount equal to 35.7% of
pre-payment of principal payments received by the Michiana
Shareholders under the Senior Debentures and the Subordinated
Debentures; (vi) the remaining principal amount of $1,089,389 shall be
due and payable on January 15, 1997; (vii) the indebtedness under
- 36 -
<PAGE> 43
the HOCAB Note shall be secured by a pledge and assignment to Unimag
of all of the outstanding capital stock of HOCAB and a number of
Unimag shares (being issued to the Michiana Shareholders in connection
with the exchange), valued at $1.50 per share, equal to the total
principal balance of the HOCAB Note; and (ix) such other reasonable
and customary terms and conditions as Unimag and Michiana may agree
upon.
(k) Due Diligence. Michiana's completion of its
due diligence review of Unimag and Scherer with results satisfactory
to Michiana on or before July 26, 1996.
(l) Other Documents. Unimag shall have delivered
the following items to Michiana:
(i) Unimag's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of
Unimag, issued by the Ohio Secretary of State as of a
date not more than ten days prior to the Escrow
Closing Date;
(iii) The code of regulations of Unimag,
certified by the secretary of Unimag on the Escrow
Closing Date; and
(iv) Resolutions of the directors of
Unimag approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Unimag on
the Escrow Closing Date.
Section 6.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to complete the Escrow Closing and
to consummate the other transactions contemplated by this Agreement to be
completed at the Escrow Closing shall be subject to the fulfillment of all of
the following conditions unless waived by Unimag in writing:
(a) Representations and Warranties. The
representations and warranties of Michiana and the Michiana
Shareholders set forth in Article 4 of this Agreement shall be true
and correct in all material respects as of the date of this Agreement
and as of the Escrow Closing as though made at and as of the Escrow
Closing.
(b) Performance of Agreement. Michiana and the
Michiana Shareholders shall have performed and observed in all
material respects all covenants, agreements, obligations, and
conditions to be performed or observed by them under this Agreement at
or prior to the Escrow Closing.
(c) Certificate. Michiana shall have furnished
Unimag with a certificate dated the Escrow Closing Date signed on its
behalf by its chairman, president or any vice
- 37 -
<PAGE> 44
president to the effect that the conditions set forth in Section
6.3(a) and Section 6.3(b) have been satisfied.
(d) Opinion of Counsel. Unimag shall have
received the legal opinion, dated the Escrow Closing Date, of Sperry &
Bowman, counsel to Michiana and the Michiana Shareholders,
substantially in the form attached to this Agreement as Exhibit E.
(e) Books and Records. Michiana shall have
delivered to Unimag all corporate books and records and other
materials of Michiana, including without limitation stock books and
ledgers, minute books, bank account lists, tax returns, and financial
and operational records and materials.
(f) Third Party Consents. Unimag shall have
received all necessary customer, vendor, and other third party
consents and approvals of this Agreement and the transactions
contemplated by this agreement
(g) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise) or prospects of Michiana from that reflected in the
Reviewed Statements.
(h) Other Documents. Michiana shall have
delivered the following items to Unimag:
(i) Michiana's articles of
incorporation, certified by the Michigan Secretary of
State as of a date not more than ten days prior to
the Escrow Closing Date;
(ii) A good standing certificate of
Michiana, issued by the Michigan Secretary of State
as of a date not more than ten days prior to the
Escrow Closing Date;
(iii) The code of regulations of Michiana,
certified by the secretary of Michiana on the Escrow
Closing Date; and
(iv) The resolutions of the shareholders
and directors of Michiana approving, adopting, and
authorizing this Agreement and the transactions
contemplated by this Agreement, certified by the
secretary of Michiana on the Escrow Closing Date.
(i) Due Diligence. Unimag's completion of its
due diligence review with results satisfactory to Unimag on or before
July 31, 1996.
- 38 -
<PAGE> 45
Section 6.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth in
Sections 6.1, 6.2, and 6.3, the Parties shall hold the Escrow Closing at which
the Parties and Baker & Hostetler shall execute and deliver the document escrow
agreement in the form attached to this Agreement as Exhibit F (the "Document
Escrow Agreement"). The Document Escrow Agreement shall provide, among other
things, that at the Escrow Closing this Agreement and all of the Additional
Documents shall be deposited with Baker & Hostetler to be held pursuant to the
terms of the Document Escrow Agreement and that upon the escrow closing of
certain acquisitions and the approval of the Exchange by Unimag's shareholders,
this Agreement and the Additional Documents shall be released and delivered to
the appropriate Party at the Closing and the Exchange and other transactions
contemplated by this Agreement shall be consummated.
Section 6.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of Acquisitions. Unimag shall
have consummated the escrow closings of the Stoll Acquisition and all
of the Scherer Companies Acquisitions (except for the escrow closing
for the acquisition of Northern which was closed into escrow prior to
the Escrow Closing under this Agreement). Such escrow closings shall
be completed no later than August 31, 1996, and shall be substantially
similar to the Escrow Closing under this Agreement.
(b) Unimag Shareholder Approval. The Exchange,
the Stoll Acquisition, and the Scherer Companies Acquisitions shall
have been approved by the affirmative vote of the shareholders of
Unimag to the extent such approval is required by the provisions of
Ohio Revised Code Chapter 1701 and Unimag's articles of incorporation.
As of the date of this Agreement,
shareholders of Unimag who have the right to vote more than 50% of the
outstanding Unimag Shares have submitted letters to Unimag indicating
they intend to vote in favor of the Exchange, the Stoll Acquisition,
and the Scherer Companies Acquisitions at the Unimag shareholders
meeting to be held for that purpose. Copies of these letters have
been provided to Michiana by Unimag prior to the execution of this
Agreement.
ARTICLE 7
TERMINATION AND AMENDMENT
Section 7.1 TERMINATION.
- 39 -
<PAGE> 46
(a) Termination by Michiana and the Michiana
Shareholders. This Agreement may be terminated and canceled prior to
the Closing by Michiana and the Michiana Shareholders if: (i) (A) any
of the representations or warranties of Unimag contained in this
Agreement shall prove to be inaccurate in any material respect, or any
covenant, agreement, obligation, or condition to be performed or
observed by Unimag under this Agreement has not been performed or
observed in any material respect at or prior to the time specified in
this Agreement, and (B) such inaccuracy or failure shall not have been
cured within 15 business days after receipt by Unimag of written
notice of such occurrence from Michiana and the Michiana Shareholders;
(ii) any permanent injunction or other order of a court or other
competent authority preventing consummation of the Exchange or any
other transaction contemplated by this Agreement shall have become
final and nonappealable; or (iii) so long as Michiana and the Michiana
Shareholders are not in material breach of any representation,
warranty, covenant, or agreement, if the Closing has not occurred on
or before December 31, 1996.
(b) Termination by Unimag. This Agreement may be
terminated and canceled at any time prior to the Closing by Unimag if:
(i) (A) any of the representations or warranties of Michiana or any
Michiana Shareholder contained in this Agreement shall prove to be
inaccurate in any material respect, or any covenant, agreement,
obligation, or condition to be performed or observed by Michiana or
any Michiana Shareholder under this Agreement has not been performed
or observed in any material respect at or prior to the time specified
in this Agreement, and (B) such inaccuracy or failure shall not have
been cured within 15 business days after receipt by Michiana and the
Michiana Shareholders of written notice of such occurrence from
Unimag; (ii) any permanent injunction or other order of a court or
other competent authority preventing consummation of the Exchange or
any other transaction contemplated by this Agreement shall have become
final and nonappealable; or (iii) so long as Unimag is not in material
breach of any representation, warranty, covenant, or agreement, if the
Closing has not occurred on or before December 31, 1996.
Section 7.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the Michiana Shareholders and
Unimag Shareholders, but, after such adoption, no amendment shall be made which
by law requires further adoption by the Michiana Shareholders or Unimag
Shareholders without such further adoption. Notwithstanding the foregoing,
this Agreement may not be amended except by an instrument in writing signed by
each of the Parties.
Section 7.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing or Closing, as the case may be, Unimag (with respect to Michiana and
the Michiana Shareholders) and Michiana (with respect to Unimag) may, to the
extent legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of such Party; (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered
- 40 -
<PAGE> 47
pursuant hereto; or (c) waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a Party to
any such extension or waiver shall be valid only if set forth in a written
instrument signed by such Party.
ARTICLE 8
INDEMNIFICATION
Section 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS.
(a) Notwithstanding any investigation conducted
at any time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of Michiana, the
Michiana Shareholders and Unimag in this Agreement and in the Document
Escrow Agreement shall survive the execution, delivery, and
performance of this Agreement and the Document Escrow Agreement. All
representations and warranties of the Parties set forth in this
Agreement and in the Document Escrow Agreement shall be deemed to have
been made again by them at and as of the Escrow Closing.
(b) As used in this Article 8, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 8.2 INDEMNIFICATION BY MICHIANA SHAREHOLDERS.
(a) Subject to the provisions of this Section 8.2
and of Section 8.4, below, the Michiana Shareholders, jointly and
severally, shall indemnify and hold harmless Unimag from and against
any and all losses, liabilities, damages, demands, claims, suits,
actions, judgments or causes of action, assessments, costs and
expenses, including without limitation interest, penalties, reasonable
attorneys' fees, any and all reasonable expenses incurred in
investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively,
"Damages"), asserted against, resulting to, imposed upon, or incurred
or suffered by Unimag, directly or indirectly, as a result of or
arising from any material inaccuracy in or breach of any of the
representations, warranties, covenants, or agreements made by the
Michiana Shareholders in this Agreement or the Document Escrow
Agreement (collectively, "Indemnifiable Michiana Claims").
(b) Unimag shall be deemed to have suffered
Damages arising out of or resulting from the matters referred to in
Section 8.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
- 41 -
<PAGE> 48
(c) The Michiana Shareholders may satisfy any
obligation of indemnification under this Article 8 by delivery of
Unimag Shares to Unimag with a value equal to the amount of the
payment being satisfied. For purposes of this Section 8.2(c), Unimag
Shares shall be valued at the greater of (i) $1.50 per share, or (ii)
their market value at the time the indemnification obligation has been
finally established.
(d) Notwithstanding anything contained in this
Agreement to the contrary, the collective indemnification obligations
of the Michiana Shareholders as a group under this Agreement shall
never exceed, in the aggregate, the sum of $1,400,000 and no single
Michiana Shareholder shall have any indemnification obligation in
excess of the total consideration received by such Michiana
Shareholder in exchange for his or her Michiana Shares.
Section 8.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless each
of the Michiana Shareholders from and against any Damages asserted
against, resulting to, imposed upon, or incurred or suffered by any of
the Michiana Shareholders, directly or indirectly, as a result of or
arising from any (i) inaccuracy in or breach or nonfulfillment of any
of the representations, warranties, covenants, or agreements made by
Unimag in this Agreement or the Document Escrow Agreement, (ii)
subject to the limitations set forth in Section 8.3(c), below, any and
all claims, liabilities or obligations arising out of the operation of
the business of Michiana after the Escrow Closing Date, or (iii) any
and all claims, liabilities and obligations arising out of any failure
by Unimag to pay, following the Closing Date, any liability of
Michiana disclosed on the June 30 Balance Sheet or to pay any amount
or perform any obligation under any of the Contracts, (collectively,
"Indemnifiable Unimag Claims" and, together with Indemnifiable
Michiana Claims, the "Indemnifiable Claims").
(b) Unimag shall satisfy any obligation of
indemnification under this Article 8 in cash.
(c) Notwithstanding anything contained in this
Agreement to the contrary, the Michiana Shareholders hereby
acknowledge that Unimag shall not be liable to the Michiana
Shareholders, under this Article 8 or any other provision of this
Agreement, for any claims, liabilities, or obligations arising out of
the operation of the business of Michiana prior to the Escrow Closing
Date, if such claim, liability, or obligation is caused by or results
from any Indemnifiable Michiana Claim.
Section 8.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 8 are subject to the following limitations:
- 42 -
<PAGE> 49
(a) For purposes of this Article 8, all Damages
shall be computed net of any insurance coverage which reduces the
Damages that would otherwise be sustained; provided that in all cases
the timing of the receipt or realization of insurance proceeds shall
be taken into account in determining the amount of reduction of
Damages.
(b) Subject to the provisions of Section 8.4(c),
below, Unimag shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim or Claims unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $140,000. Once Unimag's Damages exceeds $140,000 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $140,000 of Damages.
(c) Notwithstanding and in lieu of the provisions
of Section 8.4(b), above, Unimag shall not be entitled to
indemnification with respect to an Indemnifiable Claim or Claims
resulting from a breach of the representations and warranties
contained in the last paragraph of Section 4.15 unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $25,000. Once Unimag's Damages for any such breach exceeds
$25,000 in the aggregate, Unimag shall only be entitled to be
indemnified to the extent of such Damages in excess of such initial
$25,000 of Damages.
(d) The obligations of indemnity under this
Article 8 with respect to any indemnifiable claim shall terminate two
years after the Closing Date.
(e) If, prior to the termination of the
obligation to indemnify, written notice of an Indemnifiable Claim is
given by Unimag or any of the Michiana Shareholders, as the case may be
(an "Indemnified Party") to the other Party or Parties, as the case may
be (the "Indemnifying Party"), or a suit or action based upon an
alleged Indemnifiable Claim is commenced against the Indemnifying
Party, the Indemnified Party shall not be precluded from pursuing such
Indemnifiable Claim (whether through the courts or otherwise) by reason
of the termination of the obligation of indemnity as described in
Section 8.4(d) above.
- 43 -
<PAGE> 50
Section 8.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 8 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted liability with counsel reasonably satisfactory to the
Indemnified Party. Notwithstanding the foregoing: (i) the
Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be
payable by the Indemnified Party; (ii) the Indemnified Party shall not
have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing; and (iii) the
rights of the Indemnified Party to be indemnified in respect of
Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only
to the extent that, the Indemnifying Party is prejudiced by such
failure. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party
fails to assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall have the right to defend, compromise, or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Party.
(c) Notwithstanding anything in this Section 8.5
to the contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party, to defend,
compromise, or settle such Indemnifiable Claim; and (ii) the
Indemnifying Party shall not, without the Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable Claim
unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party (and its subsidiaries and affiliates) a release from
all liability in respect of such Indemnifiable Claim.
- 44 -
<PAGE> 51
Section 8.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three disinterested arbitrators. The panel shall be composed of one
arbitrator appointed by the Indemnified Party, one appointed by the
Indemnifying Party, and the third, who shall be an attorney admitted to
practice in the State of Ohio who has experience in periodical distribution,
shall be appointed by the mutual agreement of the two arbitrators chosen by the
Indemnified Party and the Indemnifying Party. The panel shall sit in Columbus,
Ohio, and its procedures shall be governed by the Ohio Arbitration Act
contained in Chapter 2711 of the Ohio Revised Code. The rules of civil
procedure with respect to depositions and requests for production of documents
applicable in Ohio common pleas courts shall apply. A decision in any such
arbitration shall apply both to the particular question submitted and to all
similar questions arising thereafter. The determination made shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting, and other fees in connection with
such a contest; provided that if the contested claim is referred to and
ultimately determined by arbitration, the legal, auditing, and other fees of
the prevailing Party and the fees and expenses of any arbitrator shall be borne
by the nonprevailing Party.
Section 8.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 8.5 or Section 8.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 2.1(b)), the
Unimag Debentures, or the Additional Documents.
- 45 -
<PAGE> 52
ARTICLE 9
MISCELLANEOUS
Section 9.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Esq.
Facsimile No.: (614) 462-2616
(b) If to Michiana:
Michiana News Services, Inc.
2232 South 11 Street
Niles, Michigan 49120
Attention: Thaddeus A. Majerek
Facsimile No.: (616) 684-8740
- 46 -
<PAGE> 53
with a copy to:
Sperry & Bowman
317 Center Street, P. O. Box 465
South Haven, Michigan 49090
Attention: J. Glenn Sperry, Esq.
Facsimile No.: (616) 637-9174
(c) If to the Michiana Shareholders:
Thaddeus S. Majerek
2232 South 11 Street
Niles, Michigan 49120
Thaddeus A. Majerek, Trustee
2232 South 11 Street
Niles, Michigan 49120
Michael J. Majerek, Trustee
2232 South 11 Street
Niles, Michigan 49120
with a copy to:
Sperry & Bowman
317 Center Street, P. O. Box 465
South Haven, Michigan 49090
Attention: J. Glenn Sperry, Esq.
Facsimile No.: (616) 637-9174
Section 9.2 NON-WAIVER. No failure by any Party to insist upon
strict compliance with any term or provision of this Agreement, to exercise any
option, to enforce any right, or to seek any remedy upon any default of any
other Party shall affect, or constitute a waiver of, any other Party's right to
insist upon such strict compliance, exercise that option, enforce that right,
or seek that remedy with respect to that default or any prior, contemporaneous,
or subsequent default. No custom or practice of the Parties at variance with
any provisions of this Agreement shall affect or constitute a waiver of, any
Party's right to demand strict compliance with all provisions of this
Agreement.
Section 9.3 GENDERS AND NUMBERS. Where permitted by the context,
each pronoun used in this Agreement includes the same pronoun in other genders
and numbers, and each noun used in this Agreement includes the same noun in
other numbers.
- 47 -
<PAGE> 54
Section 9.4 HEADINGS. The headings of the various articles and
sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such articles and sections, and shall be
ignored in construing this Agreement.
Section 9.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same Agreement.
Section 9.6 ENTIRE AGREEMENT. This Agreement (including all
exhibits, schedules, and other documents referred to in this Agreement, all of
which are hereby incorporated herein by reference) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the Parties with respect to the subject matter of this
Agreement.
Section 9.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon or give to any person, firm, corporation, or other entity, other
than the Parties, any rights, remedies, or other benefits under or by reason of
this Agreement.
Section 9.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio without regard
to principles of conflicts of law.
Section 9.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors, and
assigns. Neither this Agreement nor any of the rights, interests, or
obligations under this Agreement shall be transferred or assigned by any of the
Parties without the prior written consent of the other Parties.
Section 9.10 EXPENSES. Except as otherwise specifically provided
in this Agreement: (a) Unimag shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its legal counsel, independent public accountants, and
other financial advisors; (b) the Michiana Shareholders shall pay their own
costs and expenses associated with this Agreement, including without limitation
the fees and expenses of their legal counsel, accountants, and financial
advisors; and (c) all such costs and expenses incurred by Michiana in
connection with this Agreement and the transactions contemplated hereby shall
be accrued and expensed, or otherwise accounted for, so that such costs and
expenses (if not paid prior to June 30, 1996) will be taken into consideration
when determining the Tangible Net Worth of Michiana pursuant to Section 2.1(b).
- 48 -
<PAGE> 55
Section 9.11 PUBLIC ANNOUNCEMENTS. Neither Michiana nor any
Michiana Shareholder shall, without the prior written consent of Unimag, make
any public announcement or statement with respect to the transactions
contemplated in the Agreement. The provisions of this section are subject to
each Party's obligation to comply with applicable requirements of the federal
or state securities laws or any governmental order or regulation.
Section 9.12 SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by applicable law, and
the Parties shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
UNITED MAGAZINE COMPANY
By /s/ Ronald E. Scherer
----------------------------------
Ronald E. Scherer, Chairman
MICHIANA NEWS SERVICE, INC.
By /s/ Thaddeus A. Majerek
----------------------------------
Thaddeus A. Majerek, President
THE MICHIANA SHAREHOLDERS:
/s/ Thaddeus S. Majerek
----------------------------------
THADDEUS S. MAJEREK, Trustee under a
Self-Declaration of Trust, dated July 6, 1990
/s/ Thaddeus A. Majerek
----------------------------------
THADDEUS A. MAJEREK, Trustee under an
Irrevocable Family Trust Agreement with
Thaddeus S. Majerek, dated January 22, 1986
- 49 -
<PAGE> 56
/s/ Michael J. Majerek
-------------------------------------------
MICHAEL J. MAJEREK, Trustee under an
Irrevocable Family Trust Agreement with
Thaddeus S. Majerek, dated January 22, 1986
- 50 -
<PAGE> 57
INDEX OF SCHEDULES
Schedule 1.1 Control Group
Schedule 2.1(b) Certain Generally Accepted Accounting Principles
Schedule 3.5 Litigation
Schedule 4.1 Qualification as Foreign Corporation
Schedule 4.2 Michiana Shareholders
Schedule 4.3 Restrictions on Michiana Shares
Schedule 4.5 Consents and Approvals
Schedule 4.7 Undisclosed Liabilities
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Taxes
Schedule 4.10 Compliance with Law
Schedule 4.11 Proprietary Rights
Schedule 4.12 Restrictive Documents and Laws
Schedule 4.13 Insurance
Schedule 4.14 Bank Accounts
Schedule 4.15 Properties
Schedule 4.17 Legal Proceedings
Schedule 4.18 Employee Benefit Plans (Schedules (a) through (j))
Schedule 4.19 Contracts
Schedule 4.20 Accounts Receivable
- 51 -
<PAGE> 58
Schedule 4.21 Conflicts or Defaults
Schedule 4.23 Employees and Compensation
Schedule 4.24 Labor Relations
Schedule 4.25 Customers and Suppliers
Schedule 4.26 Special Terms to Customers
- 52 -
<PAGE> 59
INDEX OF EXHIBITS
Exhibit A Debenture Agreement
Exhibit B Opinion of Baker & Hostetler
Exhibit C-1 Form of Employment Agreement with Michael Gilbert
Exhibit C-2 Form of Employment Agreement with David W. Majerek
Exhibit C-3 Form of Employment Agreement with Thaddeus A. Majerek
Exhibit C-4 Noncompetition Agreement with Thaddeus S. Majerek
Exhibit D Niles Building Lease
Exhibit E Fort Wayne Building Purchase Agreement
Exhibit F Opinion of Sperry & Bowman
Exhibit G Document Escrow Agreement
Exhibit H Supply Agreement
Exhibit I Asset Purchase Agreement
- 53 -
<PAGE> 1
STOCK TRANSFER AND EXCHANGE AGREEMENT
AMONG
UNITED MAGAZINE COMPANY,
THE STOLL COMPANIES
AND
ALL OF THE SHAREHOLDERS OF THE STOLL COMPANIES
EFFECTIVE DATE: JULY 31, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Escrow Closing; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 EXCHANGE OF CAPITAL STOCK AND DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Exchange of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Outstanding Stoll Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Valuation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Stoll Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 Exchange of Certificates; Issuance of Shares and Debentures . . . . . . . . . . . . . 4
(a) Delivery of Stoll Share Certificates . . . . . . . . . . . . . . . . . . . . . . 4
(b) Issuance of Unimag Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Issuance of Unimag Debentures . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Distributions with Respect to Unexchanged Shares . . . . . . . . . . . . . . . . 5
(e) Unimag Shares to be Restricted Securities . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.3 Capitalization of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.4 Conflicts; Consents; and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6 Brokerage and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7 Unimag 10-K and 10-Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.12 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
THE STOLL COMPANIES AND THE THE STOLL
COMPANIES' SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.2 Capitalization and Security Holders; Subsidiaries . . . . . . . . . . . . . . . . . . 10
Section 4.3 Ownership of Shares and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.4 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.10 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.11 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.12 Restrictive Documents or Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.14 Bank Accounts, Depositories; Powers of Attorney . . . . . . . . . . . . . . . . . . . 17
Section 4.15 Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.16 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.17 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.19 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.20 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.21 No Conflict or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.22 Books of Account; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.23 Officers, Employees, and Compensation . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.24 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.25 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.26 Special Terms; Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.27 Business of Stoll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.28 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.29 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Other Governmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Tax-Free Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Covenants of Stoll and the Stoll Shareholders . . . . . . . . . . . . . . . . . . . . 26
(a) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Access to Records and Other Due Diligence . . . . . . . . . . . . . . . . . . . 28
(d) Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(e) Employee Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(g) Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(h) Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.3 Covenants of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Conduct of Unimag's Business . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(b) Joint Operations of Unimag and Stoll . . . . . . . . . . . . . . . . . . . . . . 30
(c) Consummation of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(d) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.1 Mutual Conditions to Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Completion of Schedules and Exhibit . . . . . . . . . . . . . . . . . . . . . . . 31
(b) No Adverse Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Certain Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) Other Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Escrow Closing of Certain Acquisitions . . . . . . . . . . . . . . . . . . . . . 32
(f) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(g) Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Leases for Certain Real Property Owned by the Stoll Shareholders . . . . . . . . 32
Section 6.2 Conditions to Obligations of Stoll and the
Stoll Shareholders to Complete the Escrow Closing . . . . . . . . . . . . . . . . . . 32
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Unimag Shareholder Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.3 Conditions to Obligations of Unimag to Complete
the Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(e) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(f) Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(g) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(h) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(i) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.4 Document Escrow Agreement; Unimag Shareholder Approval . . . . . . . . . . . . . . . . 35
Section 6.5 Mutual Conditions to Consummate the Exchange . . . . . . . . . . . . . . . . . . . . . 35
(a) Escrow Closing of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 7 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Termination by Stoll and the Stoll Shareholders . . . . . . . . . . . . . . . . 36
(b) Termination by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 8 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.1 Survival of Representations, Warranties, Covenants,
and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.2 Indemnification by Stoll Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.3 Indemnification by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.4 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.5 Procedure for Indemnification with Respect to
Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.6 Procedure For Indemnification with Respect to
Non-Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.7 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.2 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.3 Genders and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.9 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
v
<PAGE> 7
STOCK TRANSFER AND EXCHANGE AGREEMENT
This Stock Transfer and Exchange Agreement (this "Agreement") is made
and entered into August 1, 1996, to be effective as of July 31, 1996, among
United Magazine Company, an Ohio corporation ("Unimag"), The Stoll Companies,
an Ohio corporation ("Stoll"), and all of Stoll's shareholders which are listed
on Schedule 4.2 (individually, a "Stoll Shareholder" and collectively, the
"Stoll Shareholders").
BACKGROUND INFORMATION
A. Unimag desires to acquire the magazine, book, newspaper and
sundries distribution, retail and related businesses of Stoll (the "Wholesale
Periodical Business") through an exchange (the "Exchange"), pursuant to which
Stoll's Class A common shares, voting, without par value, and Class B common
shares, nonvoting, without par value (each a "Stoll Share" and collectively,
the "Stoll Shares"), outstanding at the Escrow Closing (defined in Section 1.2,
below) shall be exchanged for (1) Unimag's common shares, without par value
("Unimag Shares"), and (2) senior and subordinated debentures of Unimag,
subject to and upon the terms and conditions set forth in this Agreement.
B. The respective boards of directors of Unimag and Stoll have
(1) determined that the Exchange and the other transactions contemplated in
this Agreement are desirable and in the best interests of their respective
shareholders, and (2) duly approved and adopted this Agreement.
C. Unimag and Stoll intend that the Exchange qualify, along with
other exchanges between other companies and Unimag occurring both before and
after the closing of the transactions contemplated by this Agreement, as a
tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules).
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
ARTICLE 1
EXCHANGE
Section 1.1 EXCHANGE. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the provisions
of Section 351 of the Code, the Stoll
1
<PAGE> 8
Shareholders shall transfer all of the Stoll Shares to Unimag in exchange for
Unimag's transfer to the Stoll Shareholders of Unimag Shares and senior and
subordinated debentures of Unimag (both in the amounts and as described in
Section 2.1). Immediately after this exchange, the former Stoll Shareholders
shall represent a part of the group of transferors, a list of whom is attached
as Schedule 1.1, who will be in control (as defined in Section 368(c) of the
Code) of Unimag.
Section 1.2 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange and the other transactions contemplated by this Agreement (the "Escrow
Closing") shall be held at the offices of Baker & Hostetler, 65 East State
Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus, Ohio time on
such date (the "Escrow Closing Date") as may be reasonably designated by
Unimag; provided that it is the intention of the Parties that the Escrow
Closing shall be held not later than August 31, 1996. As provided in Section
6.5, after the Escrow Closing the only conditions to the release of this
Agreement and the other documents executed in connection with the transactions
contemplated by this Agreement (the "Additional Documents") from the Document
Escrow Agreement (defined in Section 6.4) shall be the approval of the Exchange
by the shareholders of Unimag and the escrow closing of certain other
acquisitions. Within ten days after such shareholder approval (the "Closing
Date"), the Parties will cause the Agreement and the Additional Documents to be
delivered to the appropriate Party in accordance with the terms and conditions
of the Document Escrow Agreement and the Parties will close the Exchange (the
"Closing"). In no event shall the Closing be held later than December 31,
1996.
ARTICLE 2
EXCHANGE OF CAPITAL STOCK AND DEBENTURES
Section 2.1 EXCHANGE OF CAPITAL STOCK. At the Closing:
(a) Outstanding Stoll Shares. Each Stoll Share
which is issued and outstanding immediately prior to the Escrow
Closing shall, subject to the provisions of Section 2.2, and subject
to the adjustments provided for in Sections 2.1(b) and 3.3, be
exchanged for (i) 446.253 Unimag Shares (an aggregate of 22,312,668
Unimag Shares for all Stoll Shares exchanged), and (ii) $590.27
principal amount of Unimag debentures (an aggregate of $29,513,689
principal amount of Unimag debentures for all Stoll Shares exchanged)
(the "Unimag Debentures"). The Unimag Debentures shall be issued
pursuant to the terms of the Debenture Agreement attached hereto as
Exhibit A. An aggregate of $16,800,000 principal amount of the Unimag
Debentures ($336 per Stoll Share converted) will be Senior Debentures
(as defined in the Debenture Agreement), and the balance of the Unimag
Debentures will be Subordinated Debentures (as defined in the
Debenture Agreement).
(b) Valuation Adjustment. The amount of Unimag
Shares and the principal amount of Unimag Debentures to be received
upon exchange of the Stoll Shares is based upon a total valuation of
Stoll of $62,982,691, or $1,259.65 per Stoll Share, with 53.14% of
this value being exchanged for Unimag Shares at an agreed upon price
of
2
<PAGE> 9
$1.50 per Unimag Share, and 46.86% of this value being exchanged for
Unimag Debentures. The value of Stoll was determined by adding the
sum of:
(i) An amount equal to 60% of the net
annual wholesale and retail sales of Stoll for the
12-month period ended September 30, 1995, which is
currently estimated to be $49,721,990 ("1995 Sales");
plus
(ii) The tangible net worth of Stoll as
of June 30, 1996, which is currently estimated to be
$13,260,702 (the "Tangible Net Worth").
Within 30 days after the Escrow Closing
Date, the Stoll Shareholders shall cause to be prepared and delivered
to Unimag (A) the balance sheet of Stoll as of June 30, 1996 (the
"JUNE 30th Balance Sheet"), and (B) the 1995 Financial Statements
(defined in Section 5.2(i)). The June 30th Balance Sheet shall: (1)
be prepared from and in accordance with the books and records of
Stoll; (2) be prepared in conformity with generally accepted
accounting principles applied on a consistent basis, including without
limitation the generally accepted accounting principles set forth on
Schedule 2.1(b), but subject to the exceptions to generally accepted
accounting principles also set forth on Schedule 2.1(b); and (3)
fairly present in all material respects the financial condition of
Stoll as of such date in accordance with such practices. The Stoll
Shareholders shall also deliver to Unimag copies of the work papers
used in connection with the preparation of the June 30th Balance Sheet
and the 1995 Financial Statements.
As soon as practical after Stoll delivers to
Unimag the June 30th Balance Sheet, the 1995 Financial Statements, and
the related workpapers, Unimag shall cause Arthur Andersen LLP to
conduct an audit of the June 30th Balance Sheet to determine the
actual Tangible Net Worth of Stoll as of such date, and, if necessary,
to conduct a review of the 1995 Financial Statements to confirm the
accuracy of the recorded amount of 1995 Sales. The determination of
the Tangible Net Worth shall be made consistent with the generally
accepted accounting principles (and exceptions therefrom) set forth in
Schedule 2.1(b). Arthur Andersen LLP shall promptly deliver a report
as to its determination of the actual value of Stoll to Unimag and the
Stoll Shareholders. Within thirty (30) days after the delivery of
this report to them, the Stoll Shareholders shall deliver to Unimag a
written statement describing their objections (if any) to Arthur
Andersen LLP's determination of Tangible Net Worth, 1995 Sales, and
the actual value of Stoll. Unimag and the Stoll Shareholders shall
use reasonable efforts to resolve any disputes regarding these
determinations, and if they are unable to resolve any such disputes
within thirty (30) days after the Stoll Shareholders have submitted
their objections to Unimag, then Price Waterhouse LLP, an independent
accounting firm, shall resolve any such disputes. The parties shall
use reasonable efforts to cause Price Waterhouse LLP to decide all
disputed items as soon as practicable (but in any event within thirty
(30) days). All fees and expenses of Arthur Andersen LLP shall be
borne by Unimag, but the fees and expenses of Price Waterhouse LLP
shall be borne equally between Unimag, on the one hand, and the Stoll
Shareholders, on the other.
3
<PAGE> 10
If the actual value of Stoll, as so
determined, is more than $62,982,691, then Unimag shall issue
additional Unimag Shares, valued at $1.50 per share, equal to 53.14%
of, and additional Unimag Subordinated Debentures in a principal
amount equal to 46.86% of, the amount by which the actual value of
Stoll, as so determined, exceeds $62,982,691. If the actual value of
Stoll, as so determined, is less than $62,982,691, then the parties
shall reduce the number of Unimag Shares, valued at $1.50 per share,
issued to the Stoll Shareholders by an amount equal to 53.14% of, and
the Unimag Subordinated Debentures issued to the Stoll Shareholders by
an amount equal to 46.86% of, the amount by which the actual value of
Stoll, as so determined, is less than $62,982,691. Notwithstanding
the foregoing, if any reduction in the amount of Unimag Shares to be
issued would in any way prevent the Exchange, along with other
exchanges between other companies and Unimag occurring both before and
after the closing of the transactions contemplated by this Agreement,
from being treated as a tax-free exchange under Section 351 of the
Code, then the relative percentage of Unimag Shares and Unimag
Subordinated Debentures to be so returned shall be adjusted in order
to maintain the tax-free exchange nature of these transactions. In
the event that the Stoll Shareholders fail to return such Unimag
Shares and Unimag Subordinated Debentures within 30 days after a
determination that the actual value of Stoll is less than $62,982,691,
then, in addition to any other rights or remedies Unimag may have
under this Agreement or otherwise, Unimag shall have the right to
setoff the value of such Unimag Shares and Unimag Subordinated
Debentures against any amount owed to the Stoll Shareholders by
Unimag, whether pursuant to this Agreement or the Unimag Debentures.
(c) Stoll Treasury Shares. Each Stoll Share, if
any, which is held by Stoll as a treasury share immediately prior to
the Escrow Closing shall, by virtue of the Exchange and without any
required action on the part of Stoll, cease to exist and be canceled
and retired, and no cash or other property shall be issued in respect
thereof.
Section 2.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF SHARES AND
DEBENTURES.
(a) Delivery of Stoll Share Certificates. At the
Closing, each Stoll Shareholder shall surrender to Unimag the
certificates evidencing all the Stoll Shares (the "Stoll Share
Certificates") owned by such Stoll Shareholder immediately prior to
the Escrow Closing.
(b) Issuance of Unimag Shares. At the Closing,
upon delivery of the Stoll Share Certificates evidencing all of the
Stoll Shares owned by each Stoll Shareholder pursuant to Section
2.2(a), Unimag shall issue to each Stoll Shareholder that number of
Unimag Shares which such Stoll Shareholder is entitled to receive as
described in Section 2.1.
Unimag shall not be obligated to issue any
fractional Unimag Shares as a result of the Exchange described in
Section 2.1 and this subsection. To the extent that an outstanding
Stoll Share would otherwise become a fractional Unimag Share as a
result of
4
<PAGE> 11
such exchange, the holder of such Stoll Share shall be entitled to
receive a cash payment for such fractional interest in an amount equal
to such fractional interest multiplied by $1.50 upon presentation of
an appropriate Stoll Share Certificate representing such fractional
interest to Unimag pursuant to this Section 2.2. Such payment is
merely intended to provide a mechanical rounding off of, and is not a
separately bargained for, consideration. If more than one Stoll Share
Certificate is exchanged by the same Stoll Shareholder, the number of
Unimag Shares issuable to such Stoll Shareholder pursuant to Section
2.1 and this subsection shall be computed on the basis of the
aggregate number of Stoll Shares represented by such Stoll Share
Certificates.
(c) Issuance of Unimag Debentures. At the
Closing, upon the delivery of the Stoll Share Certificates evidencing
all of the Stoll Shares owned by each Stoll Shareholder pursuant to
Section 2.2(a), Unimag shall issue to each Stoll Shareholder the
Unimag Debentures which such Stoll Shareholder is entitled to receive
as described in Section 2.1.
(d) Distributions with Respect to Unexchanged
Shares. The Stoll Shareholders shall have no rights as shareholders
of Unimag and no rights as debenture holders of Unimag (except that the
Debenture Agreement shall provide that interest will begin accruing
under both the Unimag Senior and Subordinated Debentures effective as
of July 1, 1996) until they have exchanged their Stoll Shares, and no
dividends or other distributions or payments with respect to Unimag
Shares or Unimag Debentures having a record date either before or
after the Closing shall be paid to the holder of any delivered Stoll
Share Certificate until such holder delivers such certificate.
(e) Unimag Shares to be Restricted Securities.
The Unimag Shares to be received by the Stoll Shareholders in the
Exchange shall be restricted securities within the meaning of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The Stoll Shareholders understand and agree that such shares may not
be sold, pledged, hypothecated or otherwise transferred unless such
shares are registered under the Act or pursuant to an opinion of
counsel, which opinion and counsel are reasonably acceptable to Unimag
and its counsel, that an exemption from such registration is
available. The Stoll Shareholders agree that the following legend may
be placed on the certificates for the Unimag Shares to be received by
them and that appropriate stop-transfer instructions may be given to
Unimag's transfer agent and registrar:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED, UNLESS THEY ARE AT THE TIME SO
REGISTERED, OR THE SALE OR TRANSFER THEREOF IS NOT
REQUIRED TO BE SO REGISTERED, OR IS MADE PURSUANT TO
THE APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED
IN THE SECURITIES ACT OF 1933,
5
<PAGE> 12
AS AMENDED, OR IN THE RULES OR REGULATIONS THEREUNDER.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF UNIMAG
In order to induce Stoll and the Stoll Shareholders
to enter into this Agreement, Unimag hereby represents and warrants to Stoll
and the Stoll Shareholders that the statements set forth in this Article 3 are
true, correct and complete.
Section 3.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 3.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the shareholders of Unimag to be obtained after the date of
this Agreement). This Agreement has been duly executed and delivered by Unimag
and constitutes a legal, valid, and binding obligation of Unimag, enforceable
against Unimag in accordance with its terms, except as such enforceability may
be limited by (a) applicable bankruptcy, insolvency, or other similar laws from
time to time in effect which may affect the enforcement of creditors' rights in
general, and (b) general principles of equity.
Section 3.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 26,660,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. Stoll and the Stoll Shareholders acknowledge that prior to the
Closing, Unimag may (i) authorize additional capital stock, including
additional Unimag Shares, or (ii) reduce the number of outstanding Unimag
Shares by means of a reverse stock split, or any other method which would
result in a reduction in the number of outstanding Unimag Shares. Unimag will
deliver written notice to
6
<PAGE> 13
Stoll and the Stoll Shareholders if it authorizes any such action. In the
event that Unimag authorizes a reverse stock split or other reduction in the
number of outstanding Unimag Shares, then the $1.50 agreed upon price of a
Unimag Share for purposes of the exchange of Stoll Shares for Unimag Shares
pursuant to Section 2.1 shall be proportionately adjusted with the objective
that the Stoll Shareholders, in the aggregate, shall have the right to receive
the same proportionate ownership interest in Unimag as before the reduction in
the number of outstanding Unimag Shares. Stoll and the Stoll Shareholders also
acknowledge that prior to the Closing, Unimag will have issued Unimag Shares
and Unimag Debentures to Northern (defined in Section 5.3(c)) and that such
issuances will have no affect whatsoever on the amount of Unimag Shares and
Unimag Debentures to be issued to the Stoll Shareholders in connection with the
Exchange.
Section 3.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement, shall:
(a) Violate, conflict with, result in a violation
or breach of any provision of, constitute a default (or an event
which, with the giving of notice, the passage of time, or otherwise,
would constitute a default) under, entitle any third party (with the
giving of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease, or other instrument
or obligation to which Unimag is a party and which is material to
Unimag and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree,
statute, rule, or regulation, applicable to Unimag or its respective
properties or assets; or
(c) Require any action, consent, or approval of,
review by, or registration with any third party, court, governmental
body, or other agency, instrumentality, or authority, other than (i)
actions required by the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (ii) actions to be taken in respect of
federal and state securities laws as contemplated by this Agreement,
and (iii) approval by the shareholders of Unimag.
Section 3.5 LITIGATION. Except as disclosed in Schedule 3.5:
(a) there is no (and over the last three years there have been no) suits,
claims, actions, proceedings, or investigations (collectively, "Actions")
pending or, to the best knowledge of Unimag, threatened against Unimag or any
of its subsidiaries in which the amount in dispute exceeds (or exceeded)
$25,000, or which has or could result in liability or loss for Unimag or any of
its subsidiaries of more than $25,000, or which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on
7
<PAGE> 14
Unimag and its subsidiaries, taken as a whole, or a material adverse effect on
the ability of Unimag to consummate the Exchange and other transactions
contemplated by this Agreement; and (b) to the best knowledge of Unimag, there
exist no disputes, conflicts or circumstances providing the basis for a dispute
or conflict which could reasonably be expected to result in any such Action.
Neither Unimag nor any subsidiary is subject to any outstanding judgment,
order, writ, injunction, or decree which, individually or in the aggregate, has
a reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition (financial or otherwise), or
prospects of Unimag, or a material adverse effect on the ability of Unimag to
consummate the Exchange or other transactions contemplated by this Agreement.
Section 3.6 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 3.7 UNIMAG 10-K AND 10-Q. Unimag has previously made
available to Stoll and the Stoll Shareholders true, correct, and complete
copies of Unimag's most recent 10-KSB for the fiscal year ending September 30,
1995 (the "10-K"), and Unimag's most recent 10-QSB for the fiscal quarter
ending March 31, 1996 ("10-Q"), both of which have been filed with the
Securities and Exchange Commission ("SEC"). The financial statements of Unimag
included in the 10-K and 10-Q have been prepared from and in accordance with
the books and records of Unimag and in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the 10-Q,
as permitted by the SEC under the Securities and Exchange Act of 1934, as
amended) and fairly present (subject, in the case of the 10-Q, to normal and
recurring audit adjustments) the consolidated financial position of Unimag and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
Section 3.8 TAXES. Unimag has duly paid, or caused to be paid,
all taxes, assessments, fees, and other governmental charges (hereinafter,
"taxes") payable by Unimag or its subsidiaries. Unimag has duly filed, or
caused to be filed, all federal, state, local and foreign tax returns and tax
reports required to be filed by it or its subsidiaries and all such returns and
reports are true, correct, and complete. There is no pending or, to the best
knowledge of Unimag, threatened federal, state, local or foreign tax audit or
assessment relating to it or its subsidiaries and there is no agreement with
any federal, state, local, or foreign tax authority that may affect the
subsequent tax liabilities of Unimag and its subsidiaries.
Section 3.9 UNDISCLOSED LIABILITIES. Unimag has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent, or otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the 10-Q or
the financial statements therein set forth, which have not been paid
or discharged since the date thereof;
8
<PAGE> 15
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since March
31, 1996, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on its
books and which are not inconsistent with the other representations,
warranties and agreements of Unimag set forth in this Agreement; and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
its financial statements.
Section 3.10 COMPLIANCE WITH LAW. To the best knowledge of
Unimag, Unimag has complied and is in compliance in all material respects with
all laws, statutes, ordinances, orders, rules and regulations promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 3.11 NO MATERIAL ADVERSE CHANGE. Since the filing of the
10-Q with the SEC, there has been no material adverse change in the properties,
assets, liabilities, business, results of operations, or condition (financial
or otherwise) of Unimag. Unimag is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any entity.
Section 3.12 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of Stoll pursuant to this Agreement along with other
exchanges and acquisitions occurring before and after the closing of the
transactions contemplated by this Agreement, as an exchange under Section 351
of the Code, subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Unimag shall be solely responsible
for evaluating (and determining the appropriate methods required for reporting)
all federal, state, and local income and other tax consequences to Unimag which
will and may result from the transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
STOLL AND THE STOLL SHAREHOLDERS
In order to induce Unimag to enter into this
Agreement, Stoll and each of the Stoll Shareholders hereby jointly and
severally represent and warrant to Unimag that the statements contained in this
Article 4 are true, correct, and complete.
Section 4.1 ORGANIZATION AND STANDING. Stoll is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise) to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated and conducted. Stoll is duly qualified to do
9
<PAGE> 16
business and is in good standing in each state listed in Schedule 4.1, is not
qualified to do business in any other state and, except as set forth in
Schedule 4.1, neither the nature of the business or other activities conducted
by Stoll nor the properties it owns, leases, or operates requires it to qualify
to do business as a foreign corporation in any other state, except where the
failure to be so qualified would not have a material adverse effect on the
business, operations, assets, properties, condition (financial or otherwise) or
prospects of Stoll. Stoll has not received any written notice or assertion
within the last three years from any governmental official in any state to the
effect that Stoll is required to be qualified or authorized to do business in a
state in which Stoll is not so qualified or has not obtained such
authorization. Stoll is not in default or in violation of the performance,
observation or fulfillment of any material provision of its articles of
incorporation or code of regulations.
Section 4.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of Stoll consists solely of (a) 10,000 Class A
common shares, voting, without par value, (i) all of which are issued and
outstanding and (ii) none of which are held as treasury shares, and (b) 40,000
Class B common shares, nonvoting, without par value, (i) all of which are
issued and outstanding and (ii) none of which are held as treasury shares.
Schedule 4.2 contains a correct and complete list of the names and addresses of
all of the shareholders of Stoll and indicates all Stoll Shares owned
beneficially and of record by each such shareholder. Each outstanding Stoll
Share has been duly authorized and validly issued and is fully paid and
nonassessable, and no Stoll Share has been issued in violation of preemptive or
similar rights. Except as set forth and briefly described in Schedule 4.2,
there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims, or other commitments or rights of any type
relating to the issuance, sale, or transfer by Stoll or any Stoll Shareholder
of any securities of Stoll, nor are there outstanding any securities which are
convertible into or exchangeable for shares of capital stock of Stoll; and
Stoll has no obligations of any kind to issue any additional securities. The
issuance and sale of all securities of Stoll has been in full compliance with
all applicable federal and state securities laws. Stoll does not own, directly
or indirectly, any equity or other ownership interest in any corporation,
partnership, joint venture, or any other entity or enterprise. Stoll is not
subject to any obligation or requirement to provide funds to or make any
investment (in the form of a loan, capital contribution, or otherwise) in any
entity.
Section 4.3 OWNERSHIP OF SHARES AND AUTHORITY. Except as set
forth and briefly described in Schedule 4.3, all of the Stoll Shares are owned
free and clear of all liens, security interests, encumbrances, pledges,
charges, claims, voting trusts, and restrictions of any nature whatsoever,
except restrictions on transfer imposed by or pursuant to federal or state
securities laws. Each Stoll Shareholder owns beneficially and of record all of
the Stoll Shares disclosed as being owned by him or her on Schedule 4.2, and
each Stoll Shareholder has the full and unrestricted right, power and capacity
to transfer and deliver the same and to execute this Agreement and consummate
the transactions contemplated by this Agreement without the consent or approval
of any other person. This Agreement has been duly executed and delivered by
each Stoll Shareholder and constitutes the legal, valid and binding obligation
of each Stoll Shareholder, enforceable against such Stoll Shareholder in
accordance with its terms except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, or other similar laws
10
<PAGE> 17
from time to time in effect which may affect the enforcement of creditors'
rights in general, and (b) general principles of equity.
Section 4.4 CORPORATE POWER AND AUTHORITY. Stoll has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Stoll. This
Agreement has been duly executed and delivered by Stoll and constitutes the
legal, valid, and binding obligation of Stoll, enforceable against Stoll in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, or other similar laws from time to time in
effect which may affect the enforcement of creditors' rights in general, and
(b) general principles of equity.
Section 4.5 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 4.5, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by Stoll or the Stoll Shareholders nor the
consummation of the transactions contemplated by this Agreement requires or
will require any action, consent, or approval of, review by, or registration
with any third party, court, governmental body, or other agency,
instrumentality, or authority, other than (i) actions required by the HSR Act,
and (ii) actions to be taken in respect of federal and state securities laws as
contemplated by this Agreement.
Section 4.6 FINANCIAL STATEMENTS. Stoll has furnished to Unimag
the balance sheet of Stoll as of September 30, 1995, and the related statements
of income, changes in shareholders' equity, and cash flows for the fiscal year
then ended, including, in each case, the related notes (collectively, the
"Reviewed Statements"), which are accompanied by the review report of Ernst &
Young LLP. The Reviewed Statements have been prepared from and are in
accordance with the books and records of Stoll, have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis (except as disclosed in the Reviewed Statements), and fairly
present in all material respects the financial condition of Stoll as of the
date stated and the results of operations of Stoll for the period then ended in
accordance with such practices.
Section 4.7 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 4.7, Stoll has no liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent, or otherwise and
whether due or to become due) except:
(a) Those set forth or reflected in the Reviewed
Statements which have not been paid or discharged since the date
thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since
September 30, 1995, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on its
books
11
<PAGE> 18
and which are not inconsistent with the other representations,
warranties, and agreements of Stoll and the Stoll Shareholders set
forth in this Agreement; and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
the Reviewed Statements.
Section 4.8 ABSENCE OF CERTAIN CHANGES. Except as expressly
provided for or permitted under Section 5.2(a) or Section 5.2(f) of this
Agreement, or as set forth in Schedule 4.8, since September 30, 1995, there has
not been:
(a) Any material adverse change in the business,
operations, assets, properties, customer base, prospects, rights, or
condition (financial or otherwise) of Stoll or any occurrence,
circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change;
(b) Any declaration, setting aside, or payment of
any dividend or any distribution (in cash or in kind) to any Stoll
Shareholder, or any direct or indirect redemption, purchase, or other
acquisition by Stoll of any of its capital stock, or any options,
warrants, rights, or agreements to purchase or acquire such stock;
(c) Any increase in amounts payable by Stoll to
or for the benefit of, or committed to be paid by Stoll to or for the
benefit of, any shareholder, director, officer, or other consultant,
agent, or employee of Stoll whose total annual compensation exceeds
$50,000 or any relatives of such person, or any increase in any
benefits granted under any bonus, stock option, profit-sharing,
pension, retirement, severance, deferred compensation, group health,
insurance, or other direct or indirect benefit plan, payment or
arrangement made to, with, or for the benefit of any such person;
(d) Any transaction entered into or carried out
by Stoll other than in the ordinary and usual course of business
consistent with past practices;
(e) Any borrowing or agreement to borrow funds by
Stoll, any incurring by Stoll of any other obligation or liability
(contingent or otherwise), except liabilities incurred in the usual
and ordinary course of Stoll's business (consistent with past
practices), or any endorsement, assumption or guarantee of payment or
performance of any loan or obligation of any other person or entity by
Stoll;
(f) Any material change in Stoll's method of
doing business or any change in its accounting principles or practices
or its method of application of such principles or practices;
(g) Any mortgage, pledge, lien, security
interest, hypothecation, charge, or other encumbrance imposed or
agreed to be imposed on or with respect to the property or assets of
Stoll;
12
<PAGE> 19
(h) Any sale, lease, or other disposition of, or
any agreement to sell, lease, or otherwise dispose of any of the
operating properties or assets of Stoll, other than sales of inventory
in the usual and ordinary course of business for fair equivalent value
to persons other than directors, officers, shareholders, or other
affiliates of Stoll;
(i) Any purchase of or any agreement to purchase
assets (other than inventory purchased in the ordinary course of
business consistent with past practices) for an amount in excess of
$50,000 for any one purchase or $100,000 for all such purchases made
by Stoll or any lease or any agreement to lease, as lessee, any
capital assets with payments over the term thereof to be made by Stoll
exceeding an aggregate of $100,000;
(j) Any loan or advance made by Stoll to any
person other than loans made to Stoll's customers in the ordinary
course of business consistent with past practices not exceeding
$50,000, in the aggregate, to any customer;
(k) Any modification, waiver, change, amendment,
release, rescission, or termination of, or accord and satisfaction
with respect to, any material term, condition, or provision of any
contract, agreement, license, or other instrument to which Stoll is a
party, other than any satisfaction by performance in accordance with
the terms thereof in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance adversely
affecting the business operations or condition (financial or
otherwise) of Stoll, including without limitation the filing of any
petition or charge of unfair labor practice with any governmental or
regulatory authority, efforts to effect a union representation
election, or actual or threatened employee strike, work stoppage, or
slow down.
Section 4.9 TAXES.
(a) Except as set forth and briefly described in
Schedule 4.9, Stoll has duly paid all taxes payable by Stoll. Stoll
has duly filed all federal, state, local, and foreign tax returns and
tax reports required to be filed by it and all such returns and
reports are true, correct, and complete. Except as disclosed and
briefly described in Schedule 4.9, since September 30, 1991, none of
such returns and reports have been amended, and except as set forth
and briefly described in Schedule 4.9, all taxes, arising under or
reflected on such returns and reports have been fully paid or were
fully accrued as liabilities in the Reviewed Statements and shall be
paid before the Closing. During the last five (5) years, no claim has
been made by authorities in any jurisdiction where Stoll did not file
tax returns that it is or may be subject to taxation therein.
(b) Stoll has delivered to Unimag copies of all
federal, state, local, and foreign income tax returns filed with
respect to it for taxable periods ended on or after September 30,
1991. Schedule 4.9 sets forth the dates and results of any and all
audits
13
<PAGE> 20
conducted by taxing authorities within the last five years or
otherwise with respect to any tax year for which assessment is not
barred by any applicable statute of limitations. No waivers of any
applicable statute of limitations for the filing of any tax returns or
payment of any taxes or assessments of any deficient or unpaid taxes
are outstanding. Except as set forth and briefly described in
Schedule 4.9, all deficiencies proposed as a result of any audits have
been paid or settled or have been fully accrued as liabilities in the
Reviewed Statements and shall be paid before the Closing. Except as
set forth and briefly described in Schedule 4.9, there is no pending
or, to the best knowledge of Stoll and the Stoll Shareholders,
threatened federal, state, local, or foreign tax audit or assessment
relating to Stoll, and there is no agreement with any federal, state,
local, or foreign taxing authority that may affect the subsequent tax
liabilities of Stoll.
(c) Except as set forth and briefly described in
Schedule 4.9, all taxes attributable to the existence or operation of
Stoll as at or through September 30, 1995 are, to the extent not
already paid, accurately reflected in the Reviewed Statements.
(d) Except as set forth and briefly described in
Schedule 4.9, there exists no tax-sharing agreement or arrangement
pursuant to which Stoll is obligated to pay the tax liability of any
other person or entity or to indemnify any other person or entity with
respect to any tax.
(e) Schedule 4.9 includes a list of all states,
territories and jurisdictions to which any tax is properly payable by
Stoll.
(f) Stoll became an "S corporation," within the
meaning of Section 1361(a)(1) of the Code (an "S Corporation"), for
federal income tax purposes effective April 1, 1991, pursuant to a
valid election made by Stoll, with the consent of all of its
shareholders, effective as of such date, and Stoll is and from such
date always has been an S corporation.
Section 4.10 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 4.10, to the best knowledge of Stoll and the Stoll
Shareholders, Stoll has complied and is in compliance in all material respects
with all nonenvironmental (environmental matters being addressed in Section
4.15) laws, statutes, ordinances, orders, rules and regulations promulgated,
and all judgments, decisions, and orders entered, by any federal, state, local,
or foreign court or governmental authority or instrumentality which are
applicable or relate to it or to its business or properties including without
limitation: (a) all zoning, fire, safety, and building laws, ordinances,
regulations, and requirements; (b) Title VII of the Civil Rights Act of 1964,
as amended; (c) the Fair Labor Standards Act, as amended; (d) the Occupational
Safety and Health Act of 1970, as amended; (e) the Americans with Disabilities
Act of 1990; (f) all applicable federal, state and local laws, rules and
regulations relating to employment; (g) all applicable laws, rules and
regulations governing payment of minimum wages and overtime rates, and the
withholding and payment of taxes from compensation of employees; (h) federal
and state antitrust and trade regulation laws applicable to competition
generally or to agreements restricting, allocating, or
14
<PAGE> 21
otherwise affecting geographic or product markets; and (i) the Controlled
Substances Act (collectively, the "Applicable Laws"). To the best knowledge of
Stoll and the Stoll Shareholders, Stoll has all franchises, licenses, permits,
covenants, authorizations, approvals, and certifications necessary or
appropriate for the operation of its business or the ownership of its
properties. Schedule 4.10 includes a list of all material franchises,
licenses, permits, consents, authorizations, approvals, and certificates owned
or held by Stoll (collectively, the "Permits"), each of which is currently
valid and in full force and effect. To the best knowledge of Stoll and the
Stoll Shareholders, Stoll is not in violation of any of the Permits, and there
is no pending nor, to the best knowledge of Stoll and the Stoll Shareholders,
any threatened proceeding which could result in the revocation, cancellation or
inability of Stoll to renew any Permit. Except as disclosed and briefly
described in Schedule 4.10, Stoll has not been charged with or given actual
notice of any violation of any of the Applicable Laws which violation has not
been remedied in full (without any remaining liability of Stoll).
Section 4.11 PROPRIETARY RIGHTS. Schedule 4.11 sets forth:
(a) All material names, patents, inventions,
trade secrets, proprietary rights, computer software, trademarks,
trade names, service marks, logos, copyrights, and franchises and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements in respect thereof which Stoll owns, has
the right to use, or to which Stoll is a party; and
(b) All filings, registrations, or issuances of
any of the foregoing with or by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices (all
items in (a) and (b) of this Section 4.11, together with the customer
lists described below, being sometimes hereinafter referred to
collectively as the "Proprietary Rights").
Except as set forth in Schedule 4.11, Stoll
is, to the best knowledge of Stoll and the Stoll Shareholders, the
sole and exclusive owner of all right, title, and interest in and to
all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances, and restrictions whatsoever,
and there is not pending or, to the best knowledge of Stoll and the
Stoll Shareholders, threatened any investigation, proceeding, inquiry,
or other review by any federal, state, local, or foreign regulatory,
administrative, or governmental office or offices with respect to
Stoll's right, title, or interest in any Proprietary Right.
Other than those Proprietary Rights listed in
Schedule 4.11, no name, patent, invention, trade secret, customer
list, proprietary right, computer software, trademark, trade name,
service mark, logo, copyright, franchise, license, sublicense, or
other such right is necessary for the operation of the business of
Stoll in substantially the same manner as such business is presently
conducted. To the best knowledge of Stoll and the Stoll Shareholders,
the business of Stoll has not been and is not being conducted
15
<PAGE> 22
in contravention of any trademark, copyright, or other proprietary right of any
person or entity.
Except as set forth in Schedule 4.11, none of
the Proprietary Rights: (i) has been hypothecated, sold, assigned, or
licensed by Stoll, or to the best knowledge of Stoll and the Stoll
Shareholders, any other person or entity; (ii) to the best knowledge
of Stoll and the Stoll Shareholders, infringes upon or violate the
rights of any person or entity; (iii) to the best knowledge of Stoll
and the Stoll Shareholders, is subject to challenge, claims of
infringement, unfair competition, or other claims; or (iv) to the best
knowledge of Stoll and the Stoll Shareholders, is being infringed upon
or violated by any person or entity. Except as set forth in Schedule
4.11, Stoll has not given any indemnification against patent,
trademark, or copyright infringement as to any equipment, materials,
products, services, or supplies which Stoll uses, licenses, or sells.
To the best knowledge of Stoll and the Stoll Shareholders, no product,
process, method, or operation presently sold, engaged in, or employed
by Stoll infringes upon any rights owned by any other person or
entity. There is not pending or, to the best knowledge of Stoll and
the Stoll Shareholders, threatened any claim or litigation against
Stoll contesting the right of Stoll to sell, engage in, or employ any
such product, process, method, or operation.
Except as set forth in Schedule 4.11, Stoll
has exclusive rights to own and use the computer software used by it
(the "Software"). Schedule 4.11 lists and briefly describes, all
material licenses, agreements, documents, and other materials relating
to the Software and to Stoll's rights therein. Except as set forth in
Schedule 4.11, Stoll has not licensed or otherwise authorized any
other person to use or make use of all or any part of the Software,
nor granted, assigned, or otherwise conveyed any right in or to the
Software.
Section 4.12 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 4.12, Stoll is not a party to or bound under any
mortgage, lien, lease, agreement, contract, instrument, law, order, judgment or
decree, or any similar restriction not of general application which materially
and adversely affects, or reasonably could be expected to so affect (a) the
business, operations, assets, properties, prospects, rights, or condition
(financial or otherwise) of Stoll; (b) the continued operation by Unimag of
Stoll's business after the Closing Date on substantially the same basis as such
business is currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
Section 4.13 INSURANCE. Stoll has been and is insured with
respect to its properties and the conduct of its business in such amounts and
against such risks as are sufficient for compliance with applicable law and as
are adequate to protect its property and business in accordance with normal
industry practice. Such insurance is and has been provided by insurers
unaffiliated with Stoll, which insurers are, to the best knowledge of Stoll and
the Stoll Shareholders, financially sound and reputable. Set forth in Schedule
4.13 is a true, correct, and complete list of all insurance policies and bonds
in force in which Stoll is named as an insured party, or for which
16
<PAGE> 23
Stoll has paid any premiums, and such list correctly states the name of the
insurer, the name of each insured party, the type and amount of coverage,
deductible amounts, if any, the expiration date, and the premium amount of each
such policy or bond. Except as disclosed in Schedule 4.13, all such policies
or bonds are currently in full force and effect and no notice of cancellation
or termination has been received by Stoll with respect to any such policy.
Stoll will continue all of such insurance in full force and effect through the
Closing Date. All premiums due and payable on such policies have been paid.
Except as disclosed in Schedule 4.13, Stoll is not a co-insurer under any term
of any insurance policy.
Section 4.14 BANK ACCOUNTS, DEPOSITORIES; POWERS OF ATTORNEY. Set
forth in Schedule 4.14 is a true, correct, and complete list of the names and
locations of all banks or other depositories in which Stoll has accounts or
safe deposit boxes, and the names of the persons authorized to draw thereon,
borrow therefrom, or have access thereto. Except as set forth in Schedule
4.14, no person has a power of attorney from Stoll.
Section 4.15 TITLE TO AND CONDITION OF PROPERTIES. Except as set
forth in Schedule 4.15, Stoll has good, valid, and indefeasible title to all of
its assets and properties of every kind, nature, and description, tangible or
intangible, wherever located, which constitute all of the property now used in
and necessary for the conduct of its business as presently conducted (including
without limitation all operating property and assets shown or reflected on the
Reviewed Statements, except inventory sold in the ordinary course of business).
Except as set forth in Schedule 4.15, to the best knowledge of Stoll and the
Stoll Shareholders, all such properties are owned free and clear of all
mortgages, pledges, liens, security interests, encumbrances, and restrictions
of any nature whatsoever, including without limitation: (a) rights or claims of
parties in possession; (b) easements or claims of easements; (c) encroachments,
overlaps, boundary line or water drainage disputes, or any other matters; (d)
any lien or right to a lien for services, labor, or material furnished; (e)
special tax or other assessments; (f) options to purchase, leases, tenancies,
or land contracts; (g) contracts, covenants, or reservations which restrict the
use of such properties; and (h) violations of any Applicable Laws applicable to
such properties. To the best knowledge of Stoll and the Stoll Shareholders,
all such properties are usable for their current uses without violating any
Applicable Laws, or any applicable private restriction, and such uses are legal
conforming uses. Except as set forth in Schedule 4.15, no financing statement
under the Uniform Commercial Code or similar law naming Stoll or any of its
predecessors is on file in any jurisdiction in which Stoll owns property or
does business, and Stoll is not a party to or bound under any agreement or
legal obligation authorizing any party to file any such financing statement.
Schedule 4.15 contains a complete and accurate list of the location of all real
property which is owned, leased, or operated by Stoll and describes the nature
of Stoll's interest in that real property. With respect to any real property
leased by Stoll, Stoll, except as set forth in Schedule 4.15, has an insurable
leasehold interest in that real property.
Except as set forth in Schedule 4.15, to the best
knowledge of Stoll and the Stoll Shareholders, all real property and
structures, all machinery and equipment, and all tangible personal property
owned, leased or used by Stoll and material to the operation of its business
are
17
<PAGE> 24
reasonably suitable for the purpose or purposes for which they are being used
(including full compliance with all Applicable Laws) and are in good condition
and repair, ordinary wear and tear excepted. Except as set forth in Schedule
4.15, to the best knowledge of Stoll and the Stoll Shareholders, there are no
material structural defects in the exterior walls or the interior bearing
walls, the foundation, or the roof of any building, garage or other such
structure owned, leased, or used by Stoll, and, to the best knowledge of Stoll
and the Stoll Shareholders, the electrical, plumbing, heating systems, and air
conditioning systems, of any such structure are in good operating condition,
ordinary wear and tear excepted. The utilities servicing the real properties
owned, leased, or used by Stoll are adequate to permit the continued operation
of its business, and there are no pending or, to the best knowledge of Stoll
and the Stoll Shareholders, threatened zoning, condemnation or eminent domain
proceedings, building, utility, or other moratoria, or injunctions or court
orders which would materially and adversely affect such continued operation.
Schedule 4.15 lists, and Stoll and the Stoll Shareholders have furnished or
made available to Unimag, copies of all engineering, geologic, and
environmental reports prepared by or for Stoll or with respect to the real
property owned, leased or used by Stoll in their possession which Stoll and the
Stoll Shareholders have been able to reasonably locate after conducting a
good-faith review.
Except as set forth in Schedule 4.15, no real or
personal property owned, leased, or used by Stoll has been used to produce,
process, store, handle, or transport any hazardous or toxic substance or waste
(as those terms are defined or described in any of the applicable laws relating
to the protection, preservation, conservation, restoration, or quality of the
environment), except to the extent immaterial quantities of hazardous
substances are used as an incidental aspect of the operation of its business.
Except as set forth in Schedule 4.15, no hazardous or toxic substance or waste
has been disposed of, released or discharged on, leaked from, or has otherwise
contaminated any real property owned, leased, or used by Stoll. Except as set
forth in Schedule 4.15, no asbestos or substances containing material
quantities of asbestos have been installed in any such property. Except as set
forth in Schedule 4.15, there are no oil or gas wells capped or uncapped or
piping, structures, fixtures or other appliances relating thereto on or about
any such property and no such property has been used as a landfill.
Section 4.16 BROKERS AND FINDERS. Other than P&M Corporate
Finance, LLC ("P&M"), no investment banker, broker, finder, or other
intermediary: (a) has been retained by or is authorized to act on behalf of
Stoll or the Stoll Shareholders; (b) has submitted the transactions
contemplated by this Agreement to Stoll or the Stoll Shareholders; or (c) is or
might be entitled to any fee, commission, or other payment from Stoll or any
Stoll Shareholder as a direct or indirect result of the transactions
contemplated by this Agreement. The Stoll Shareholders shall indemnify Unimag
against any amounts payable to P&M.
Section 4.17 LEGAL PROCEEDINGS. Except as described in Schedule
4.17: (a) there are no (and over the last three years there have been no)
Actions pending or, to the best knowledge of Stoll and the Stoll Shareholders,
threatened against or relating to Stoll (or any of its officers, directors,
shareholders, agents, or representatives in connection with the business or
affairs of Stoll), before
18
<PAGE> 25
any federal, state, local, or foreign court or governmental body in which the
amount in dispute exceeds (or exceeded) $25,000 or which has or could result in
liability or loss for Stoll or any Stoll Shareholder of more than $25,000; and
(b) to the best knowledge of Stoll and the Stoll Shareholders, there exist no
disputes, conflicts, or circumstances providing the basis for a dispute or
conflict which could reasonably be expected to result in any such Action.
There are no Actions pending or, to the best knowledge of Stoll and the Stoll
Shareholders, threatened for the purpose of enjoining or preventing this
Agreement or any other transaction contemplated by this Agreement or otherwise
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as disclosed in Schedule 4.17, Stoll is not subject to any
judgment, order or decree, or any governmental restriction, which has a
reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition (financial or otherwise), or
prospects of Stoll.
Section 4.18 ERISA.
(a) Schedule 4.18(a) identifies each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA") which (i) is subject to any
provision of ERISA, and (ii) is or was at any time during the last 5
years maintained, administered, or contributed to by Stoll or any
affiliate (as defined below) and covers any employee or former
employee of Stoll or any affiliate or under which Stoll or any
affiliate has any liability. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto have
been furnished to Unimag together with the three most recent annual
reports (Form 5500 and all related schedules) and actuarial valuation
reports, if any, prepared in connection with any such plan. Such
plans are referred to collectively herein as the "Employee Plans".
For purposes of this section, "affiliate" of any person or entity
means (A) any other person or entity which, together with such person
or entity, would be treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended (the "Code"), or (B) is
an "affiliate," whether or not incorporated, as defined in Section
407(d)(7) of ERISA, of such person or entity. The only Employee Plans
which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the
"Pension Plans") are identified as such on Schedule 4.18(a).
(b) Except as set forth in Schedule 4.18(b), no
Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in
Section 3(35) and subject to Title IV of ERISA, nor does Stoll have
any obligation to create, maintain, or contribute to any such
"multiemployer plan" or "defined benefit plan". No Employee Plan is
maintained in connection with any trust described in Section 501(c)(9)
of the Code. No "accumulated funding deficiency," as defined in
Section 412 of the Code, has been incurred with respect to any
Employee Plan, whether or not waived. Full payment has been made of
all amounts which Stoll is required to have paid as contributions to
or benefits under any Employee Plan as of the end of the most recent
fiscal year thereof, and there are no unfunded obligations under any
Employee Plan. Stoll knows of no "reportable event," within the
meaning of Section
19
<PAGE> 26
4043 of ERISA, and no event described in Section 4041, 4042, 4062 or
4063 of ERISA has occurred in connection with any Employee Plan. No
condition exists and no event has occurred which could constitute
grounds for termination of any Employee Plan, and neither Stoll nor
any of its affiliates has incurred any material liability under Title
IV of ERISA arising in connection with the termination of, or complete
or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any
Employee Plan has or will make Stoll, or any officer or director of
Stoll, subject to any liability under Title I of ERISA or liable for
any tax pursuant to Section 4975 of the Code. There is no pending or,
to the best knowledge of Stoll and the Stoll Shareholders, threatened
litigation, arbitration, disputed claim, adjudication, audit,
examination, or other proceeding with respect to any Employee Plan or
any fiduciary or administrator thereof in their capacities as such.
(c) Except as set forth in Schedule 4.18(c), each
Employee Plan which is intended to be qualified under Section 401(a)
of the Code is, to the best knowledge of Stoll and the Stoll
Shareholders, so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. Stoll has
furnished to Unimag copies of the most recent Internal Revenue Service
determination letters with respect to each such plan for which it is
the plan sponsor. Except as set forth in Schedule 4.18(c), to the
best knowledge of Stoll and the Stoll Shareholders, each Employee Plan
has been maintained in compliance with its terms and the requirements
prescribed by any and all statutes, orders, rules, and regulations,
including but not limited to ERISA and the Code, which are applicable
to such plan.
(d) Except as set forth in Schedule 4.18(d),
there is no contract, agreement, plan, or arrangement covering any
employee or former employee of Stoll or any affiliate that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of the Code.
(e) Schedule 4.18(e) identifies each employment,
severance, or other similar contract, arrangement, or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, or for deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not
an Employee Plan, (ii) is entered into, maintained, or contributed to,
as the case may be, by Stoll or any of its affiliates, and (iii)
covers any employee or former employee of Stoll or any of its
affiliates. Such contracts, plans, and arrangements as are described
above, copies or descriptions of which have been furnished previously
to Unimag, are referred to collectively herein as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in
substantial
20
<PAGE> 27
compliance with its terms and with requirements prescribed by any and
all statutes, orders, rules, and regulations that are applicable to
such Benefit Arrangement.
(f) Except as set forth in Schedule 4.18(f),
there is no liability in respect of post-retirement health and medical
benefits for current or retired employees of Stoll or any of its
affiliates. Except as set forth in Schedule 4.18(f), Stoll has
reserved its right to amend or terminate any Employee Plan or Benefit
Arrangement providing health or medical benefits in respect of any
active employee of Stoll under the terms of any such plan and
descriptions thereof given to employees. With respect to any of
Stoll's Employee Plans which are "group health plans" under Section
4980B of the Code and Section 607(1) of ERISA, there has been
substantial compliance with all requirements imposed thereunder .
(g) Except as set forth in Schedule 4.18(g),
there has been no amendment to, written interpretation, or
announcement (whether or not written) by Stoll or any of its
affiliates relating to any Employee Plan or Benefit Arrangement which
would increase the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect
thereof for the fiscal year ended immediately prior to the Closing
Date.
(h) Except as set forth in Schedule 4.18(h),
Stoll is not a party or subject to any union contract or any material
employment contract or arrangement providing for annual future
compensation of more than $25,000 to any officer, consultant, director
or employee, except for employment agreements to be entered into as
provided in Section 6.1(g).
(i) Except as set forth in Schedule 4.18(i), the
execution, delivery, and consummation of the transactions contemplated
by this Agreement do not constitute a triggering event under any
Employee Plan, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or
may result in any payment (of severance pay or any other type),
acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee, or director of Stoll.
(j) Any reference to ERISA or the Code or any
section thereof shall be construed to include all amendments thereto
and applicable regulations and administrative rulings issued
thereunder.
Section 4.19 CONTRACTS. Schedule 4.19 lists and briefly describes
all contracts, agreements, leases, arrangements, and understandings (written or
oral) ("Contracts") to which Stoll is a party and which fall within any of the
following categories: (a) Contracts with any of Stoll's top 20 customers based
on Stoll's revenues for the 12-month period ended June 30, 1996; (b) Contracts
not entered into in the ordinary course of Stoll's business (including without
limitation Contracts with any present or former shareholder, director, or
officer of Stoll, or any person related by blood or marriage to any such
person, or any person controlling, controlled by, or under common
21
<PAGE> 28
control with any such person, or with any employee, agent, or consultant of
Stoll not terminable at will); (c) Contracts which are service contracts
(excluding contracts for delivery services entered into in the ordinary course
of business) or equipment leases involving payments by Stoll of more than
$10,000 per year; (d) Contracts containing covenants or restrictions purporting
to limit the freedom of Stoll to compete in any line of business in any
geographic area or to employ or otherwise engage any person; (e) Contracts
which extend beyond one year, unless cancelable on 60 or fewer days' notice
without any liability, penalty, or premium; (f) Contracts which relate to any
borrowings or guarantees in excess of $25,000; (g) Contracts containing any
obligation or commitment which limits the freedom of Stoll to sell, lease, or
otherwise distribute any product or customer information; or (h) Contracts
which are not listed above but which are material to the condition (financial
or otherwise), operations, assets, prospects, or business of Stoll. All such
Contracts are valid and binding and in full force and effect, and, to the best
knowledge of Stoll and the Stoll Shareholders, enforceable in accordance with
their respective terms in all material respects. Except as set forth in
Schedule 4.19, neither Stoll nor, to the best knowledge of Stoll and the Stoll
Shareholders, any other party thereto, is in violation of, in default in
respect of, nor, to the best knowledge of Stoll and the Stoll Shareholders, has
there occurred an event or condition which, with the passage of time or giving
of notice (or both) would constitute a default under any such Contract.
Section 4.20 ACCOUNTS RECEIVABLE. Except as set forth in Schedule
4.20, all accounts and notes receivable (customer, vendor, and other) of Stoll
as of June 30, 1996, are and will be collectible in full, after application of
a reserve for uncollectible accounts determined in accordance with generally
accepted accounting principles, and are and will be valid and subsisting
(unless previously paid) and represent and will represent sales actually made
(net of all applicable credits and rebates) in the ordinary and usual course of
business consistent with past practices.
From the date of this Agreement through the Closing
Date, no customer or vendor accounts receivable of Stoll will be converted to
notes receivable or written off without the prior written consent of Unimag.
Section 4.21 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 4.21, neither the execution and delivery of this Agreement by Stoll or
the Stoll Shareholders, nor compliance by Stoll and the Stoll Shareholders with
the terms and provisions of this Agreement, including without limitation the
consummation of the transactions contemplated by this Agreement, will: (a)
violate any Applicable Laws or Permits; (b) conflict with or result in the
breach of any term, condition, or provision of (i) the articles of
incorporation, code of regulations, or other organizational document of Stoll
or (ii) any material agreement, deed, contract, undertaking, mortgage,
indenture, writ, order, decree, restriction, legal obligation, or instrument to
which Stoll or any Stoll Shareholder is a party or by which Stoll or any Stoll
Shareholder or any of their respective assets or properties are or may be bound
or affected; (c) constitute a default (or an event which, with the giving of
notice, the passage of time, or both, would constitute a default) thereunder;
(d) result in the creation or imposition of any lien, security interest, charge
or encumbrance, or restriction of any nature whatsoever with respect to any
material properties or assets of
22
<PAGE> 29
Stoll or any Stoll Shareholder; or (e) give to others any interest or rights,
including rights of termination, acceleration, or cancellation in or with
respect to any of the material properties, assets, contracts, or business of
Stoll.
Section 4.22 BOOKS OF ACCOUNT; RECORDS. Stoll's general ledgers,
stock record books, minute books and other material records relating to the
assets, properties, contracts, and outstanding legal obligations of Stoll are,
in all material respects, complete and correct, and have been maintained in
accordance with good business practices and the matters contained therein are,
to the extent required by generally accepted accounting principles, accurately
reflected in the Reviewed Statements, except as may be set forth in Section
4.6.
Section 4.23 EMPLOYEES AND COMPENSATION. Schedule 4.23 lists and
describes the current compensation of the five most highly compensated managers
of Stoll and any other employee of Stoll whose total current salary and bonus
exceeds $50,000. Except as disclosed in Schedule 4.23: (a) there are no other
forms of compensation paid to any such employee of Stoll; (b) the amounts
accrued or to be accrued on the books and records of Stoll for vacation pay,
sick pay, and all commissions and other fees payable to agents, salespersons
and representatives of Stoll will be adequate to cover Stoll's liabilities for
all such items; (c) Stoll has not become obligated, directly or indirectly, to
any shareholder, director, or officer of Stoll or any person related to any
such person by blood or marriage, except for current liability for such
compensation; and (d) to the best knowledge of Stoll and the Stoll
Shareholders, no shareholder, director, officer, agent, employee, or
representative of Stoll or any person related to such person by blood or
marriage holds any position or office with or has any material financial
interest, direct or indirect, in any supplier, customer, or account of, or
other outside business which has material transactions with, Stoll. Neither
Stoll nor any Stoll Shareholder has any agreement or understanding with any
shareholder, director, officer, agent, employee, or representative of Stoll
which would influence any such person not to become associated with Unimag from
and after the Closing or not to serve Stoll after the Closing in a capacity
similar to the capacity presently held.
Section 4.24 LABOR RELATIONS. Except as set forth in Schedule
4.24, there is no unfair labor practice complaint against Stoll pending before
the National Labor Relations Board. Except as set forth in Schedule 4.24,
Stoll is not a party to or bound by any collective bargaining agreement and
there is no labor strike, dispute, slowdown or stoppage, or any union
organizing campaign, actually pending or, to the best knowledge of Stoll and
the Stoll Shareholders, threatened against or involving Stoll. Except as set
forth in Schedule 4.24, no labor grievance has been filed against Stoll in the
last three years, and no arbitration proceeding has arisen out of or under a
collective bargaining or other labor agreement and is pending and no claim
therefor has been asserted. Except as set forth in Schedule 4.24, no
collective bargaining or other labor agreement is currently being negotiated by
Stoll and no union or collective bargaining unit represents any of Stoll's
employees. Stoll has not experienced any work stoppage or other material labor
difficulty during the past five years.
23
<PAGE> 30
Section 4.25 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 4.25, no supplier of Stoll has indicated that it shall stop, or
decrease the rate of, or substantially increase its fees for, supplying
products or services to Stoll either prior to, or following the consummation
of, the Closing. Schedule 4.25 sets forth a list of all customers which have
terminated their relationships with Stoll since September 30, 1995, or have
notified Stoll or the Stoll Shareholders since September 30, 1995, that they
intend to terminate their relationships with Stoll. Except as set forth in
Schedule 4.25, Stoll and the Stoll Shareholders do not know of any customers of
Stoll which alone or in the aggregate comprise more than 1% of actual
annualized sales as shown in the Reviewed Statements, which have indicated that
they are considering or planning to (a) discontinue being customers of Stoll,
(b) discontinue being customers of Unimag or Stoll after the Escrow Closing or
the Closing, or (c) substantially decrease the amount of their purchasing from
Stoll or Unimag or otherwise materially alter the terms of such purchasing
either before or after the Closing.
Section 4.26 SPECIAL TERMS; PRODUCT WARRANTIES. Schedule 4.26
sets forth the terms and conditions of any credit, discount, or other terms
given by Stoll to any customer outside the usual and ordinary course of
business.
Section 4.27 BUSINESS OF STOLL. Stoll is and since 1938 has been
engaged in the Wholesale Periodical Business and is presently engaged in no
other business whatsoever except as may be incidental to the foregoing.
Section 4.28 INVESTMENT REPRESENTATION. Each of the Stoll
Shareholders: (a) represents that such Stoll Shareholder owns beneficially and
of record the number of Stoll Shares set forth opposite such Stoll
Shareholder's name on Schedule 4.2; and (b) acknowledges, represents, and
warrants to Unimag that (i) such Stoll Shareholder is an "accredited investor,"
as that term is defined in Regulation D, because he or she has a net worth at
this time in excess of $1 million or had income in each of the two most recent
years in excess of $200,000 and has a reasonable expectation of reaching the
same income level in the current year, or, in the case of a Stoll Shareholder
that is a trust, because such trust has total assets in excess of $5,000,000,
was not formed for the purpose of the transactions contemplated by this
Agreement, and the investment decision respecting the Unimag Shares and Unimag
Debentures will be directed by a person who has such knowledge and experience
in financial and business matters that he or she is capable of evaluating the
merits and risks of an investment in the Unimag Shares and Unimag Debentures,
(ii) such Stoll Shareholder has been provided the opportunity to ask questions
and receive answers from Unimag concerning the business operations and
financial condition of Unimag and the terms and conditions of the transactions
described in this Agreement, and to obtain any additional information necessary
to verify the accuracy of information provided to such Stoll Shareholder by
Unimag, and (iii) is acquiring the Unimag Shares and Unimag Debentures to be
issued pursuant to this Agreement for such Stoll Shareholder's own accounts for
investment only and not with a view to the distribution thereof.
24
<PAGE> 31
Section 4.29 SECTION 351 EXCHANGE. It is the intention of Stoll
and the Stoll Shareholders to treat the acquisition of Stoll pursuant to this
Agreement, along with other exchanges and acquisitions occurring before and
after the closing of the transactions contemplated by this Agreement, as an
exchange under Section 351 of the Code, subject to the rules of Section 351 of
the Code and the regulations promulgated thereunder applicable to the receipt
and taxability of "boot" (within the meaning of such rules). Stoll and the
Stoll Shareholders shall be solely responsible for evaluating (and determining
the appropriate methods required for reporting) all federal, state, and local
income and other tax consequences to each of them which will and may result
from the transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable
efforts to take all actions and do all things necessary, proper, or
advisable to consummate the Exchange and the other transactions
contemplated by this Agreement, including without limitation using all
reasonable efforts to cause the conditions set forth in Article 6 of
this Agreement for which such Party is wholly or partially responsible
to be satisfied as soon as reasonably practicable and to prepare,
execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as
any other Party may reasonably request.
(b) HSR Filings. The Parties shall cooperate
with each other with respect to the preparation and filing of any
Notification and Report Forms and related materials that they may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act
with respect to the Exchange and shall promptly make any further
filings pursuant the HSR Act that may be necessary, proper, or
advisable.
(c) Other Governmental Matters. Each Party shall
use all reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
(d) Tax-Free Treatment. Each of the Parties
shall use all reasonable efforts to cause the Exchange to constitute
(along with other exchanges and acquisitions occurring before and
after the Exchange) a tax-free exchange under Section 351 of the
Code, subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules). Each of the
Parties shall be solely responsible for evaluating (and determining
the
25
<PAGE> 32
appropriate methods required for reporting) all federal, state, and
local income and other tax consequences to each such Party which will
and may result from the transactions contemplated by this Agreement.
Section 5.2 COVENANTS OF STOLL AND THE STOLL SHAREHOLDERS. Stoll
and the Stoll Shareholders, jointly and severally, covenant and agree that:
(a) Conduct of Business. Except as otherwise
expressly contemplated by this Agreement, from the date of this
Agreement until the Closing (the "Pre-Exchange Period"): (i) neither
Stoll nor any Stoll Shareholder shall take or permit to be taken any
action or do or permit to be done anything in the conduct of the
business of Stoll, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of their representations and warranties contained in
this Agreement to be or become untrue in any material respect; (ii)
Stoll shall conduct its business in the ordinary course consistent
with past practices; (iii) Stoll and the Stoll Shareholders shall
permit Unimag to manage and oversee the business operations of Stoll
as provided in Section 5.3(b) and consistent with the terms and
conditions of the Joint Operating Agreement between Unimag and Stoll
dated July 3, 1996 (the "Joint Operating Agreement"); and (iv) Stoll
and the Stoll Shareholders shall use all reasonable efforts to assist
Unimag in preserving the business organization intact, keeping
available to Stoll and Unimag the present service of Stoll's
employees, and preserving for Stoll and Unimag the goodwill of Stoll's
suppliers, customers, and others with whom business relationships
exist. Without limiting the generality of the foregoing, during the
Pre-Exchange Period, except as otherwise expressly contemplated by
this Agreement or with the prior written consent of Unimag, Stoll
shall not:
(A) Adopt or propose any change in its
articles of incorporation or code of regulations;
adjust, split, combine, or reclassify any of its
capital stock; or make any other changes in its
authorized or issued capital stock;
(B) Redeem, purchase, or otherwise
acquire any shares of its capital stock; grant any
person or entity any right to acquire any shares of
its capital stock; issue, deliver, sell, or agree to
issue, deliver, or sell, any additional shares of its
capital stock or any other securities; or enter into
any agreement or arrangement with respect to the sale
or voting of its shares of capital stock;
(C) Merge or consolidate with any other
person or entity or acquire a material amount of
assets of any other person or entity except for the
acquisition of inventory in the ordinary course of
business consistent with past practices;
(D) Sell, lease, license, pledge,
encumber, or otherwise dispose of any operating
assets other than sales of inventory in the ordinary
course of business consistent with past practices;
26
<PAGE> 33
(E) Incur, create, assume, or otherwise
become liable for any indebtedness other than
indebtedness incurred in the ordinary course of
business consistent with past practices;
(F) Except for those arrangements
disclosed in Schedule 5.2(a), enter into or modify
any employment, severance, termination, or similar
agreement or arrangement with, or grant any bonuses,
salary increases, severance, or termination pay to,
any officer, director, consultant, or employee;
(G) Adopt, amend, or terminate any
employee benefit plan or increase, amend, or
terminate any benefits to officers, directors,
consultants, or employees;
(H) Modify in any material way or
terminate any of the contracts listed or required to
be listed in Schedule 4.19, except in the ordinary
course of business consistent with past practices;
(I) Except as disclosed in Schedule
4.17, settle any claims, litigation, or actions,
whether now pending or hereafter made or brought,
unless such settlement does not involve a payment by
Stoll of more than $25,000;
(J) Engage in any transaction, or enter
into any agreement, contract, lease, or other
arrangement or understanding, with any affiliate of
Stoll, except for transactions expressly permitted by
this Agreement; or
(K) Agree or commit to do any of the
foregoing;
provided, however, that nothing in this Section 5.2(a) shall prohibit
Stoll from (1) transferring to the Stoll Shareholders or their
affiliates real estate, affiliate accounts receivable, affiliate notes
receivable, airplanes and life insurance policies which are not
necessary for the conduct of ordinary business operations, or from (2)
entering into any financial or deferred compensation arrangements with
any employee of Stoll, as long as such arrangements are disclosed on
the books and records of Stoll. Any such transfers and compensation
arrangements shall be utilized in determining the actual Tangible Net
Worth of Stoll in connection with the valuation adjustment provided
for in Section 2.1(b).
(b) Exclusive Rights. Neither Stoll nor any
Stoll Shareholder shall, directly or indirectly, solicit (including
without limitation by way of furnishing or making available any
non-public information concerning the business, properties, or assets
of Stoll) or engage in negotiations or discussions with, disclose any
of the terms of this Agreement to, accept any offer from, furnish any
information to, or otherwise cooperate, assist, or participate with
any person or organization (other than Unimag and its representatives)
regarding any Acquisition Proposal (defined below), except that any
person or entity making an Acquisition Proposal may be informed of the
restrictions contained in this sentence. Stoll and the Stoll
Shareholders shall notify Unimag promptly by telephone,
27
<PAGE> 34
and thereafter promptly confirm in writing, if any such information is
requested from, or any Acquisition Proposal is received by, Stoll or
any of the Stoll Shareholders. For purposes of this Agreement,
"Acquisition Proposal" shall mean any offer or proposal received by
Stoll or any Stoll Shareholder prior to the Closing regarding the
acquisition by purchase, merger, lease, or otherwise of any capital
stock of Stoll, the business of Stoll, or any material assets,
customer relationships, or other operations of Stoll.
(c) Access to Records and Other Due Diligence.
During the Pre-Exchange Period, Stoll shall: (i) make or cause to be
made available to Unimag and its representatives, attorneys,
accountants, and agents, for examination, inspection, and review, the
assets and property of Stoll and all books, contracts, agreements,
commitments, records, and documents of every kind relating to Stoll's
business, and shall permit Unimag and its representatives, attorneys,
accountants and agents to have access to the same at all reasonable
times, including without limitation access to all tax returns filed
and in preparation and all review and other accounting work papers of
Coopers & Lybrand LLP and all reports to management and related
responses; and (ii) permit representatives of Unimag to interview
suppliers, customers, and personnel of Stoll, provided, however, that
a Stoll representative shall be entitled to be present at and
participate in each such interview.
(d) Disclosures. After the date of this
Agreement, neither Stoll nor any Stoll Shareholder shall: (i)
disclose to any person, association, firm, corporation or other entity
(other than Unimag or those designated in writing by Unimag) in any
manner, directly or indirectly, any proprietary information or data
relevant to the business of Stoll, whether of a technical or
commercial nature; or (ii) use, or permit or assist, by acquiescence
or otherwise, any person, association, firm, corporation, or other
entity (other than Unimag or those designated in writing by Unimag) to
use, in any manner, directly or indirectly, any such information or
data, excepting only use of such data or information as is at the time
generally known to the public and which did not become generally known
through any breach of any provision of this section by Stoll or any
Stoll Shareholder. Upon the termination of this Agreement for any
reason, Stoll shall promptly cause all copies of such information and
data in its possession, or in the possession of the Stoll
Shareholders, to be returned to Unimag.
(e) Employee Retention. Stoll and the Stoll
Shareholders understand that in Unimag's view it is essential to the
successful operation of the business of Stoll that Stoll assist Unimag
in retaining substantially unimpaired Stoll's operating organization.
During the Pre-Exchange Period, neither Stoll nor any Stoll
Shareholder shall take any action which would induce any employee or
representative of Stoll (other than himself or herself) or Unimag not
to become or continue as an employee or representative of Stoll or
Unimag.
(f) Dividends and Distributions. During the
Pre-Exchange Period, except as permitted in Section 5.2(a), Stoll and
the Stoll Shareholders shall not permit Stoll to declare, set
28
<PAGE> 35
aside or pay any dividend or any distribution (in cash or in kind) to
its shareholders, except cash dividends which shall be paid to the
Stoll Shareholders at the Closing in an aggregate amount equal to 50%
of the net taxable income of Stoll for that portion of the fiscal year
1996, which is allocable to the Stoll Shareholders as shareholders of
an S corporation.
(g) Notices of Certain Events. Stoll and the
Stoll Shareholders shall promptly notify Unimag of:
(i) Any notice or other communication
from any person or entity alleging that the consent
of such person or entity is or may be required in
connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication
from any governmental or regulatory agency or
authority in connection with the transactions
contemplated by this Agreement; and
(iii) Any actions, suits, claims,
investigations, or proceedings commenced or, to the
knowledge of Stoll or any Stoll Shareholder,
threatened against, relating to, or involving or
otherwise affecting Stoll or any Stoll Shareholder,
or any of their property which, if in existence on
the date of this Agreement would have been required
to have been disclosed by Stoll and the Stoll
Shareholders pursuant to Section 4.17 or which relate
to the consummation of the transactions contemplated
by this Agreement.
(h) Title Evidence. Stoll shall deliver to
Unimag as soon as practicable after the date of this Agreement title
opinions, title reports, or other evidence of title, in form and
substance reasonably satisfactory to Unimag, showing in Stoll
indefeasible fee simple title in all of the facilities and real
property owned by Stoll, subject only to such exceptions,
encumbrances, or other matters as are reasonably satisfactory to
Unimag.
(i) Audited Financial Statements. The Stoll
Shareholders shall deliver to Unimag audited financial statements for
the fiscal year ended September 30, 1995 (the "1995 Financial
Statements") within 30 days after the Escrow Closing Date and for the
nine-month period ended June 30, 1996 within 75 days after the Escrow
Closing Date. These audited financial statements shall be prepared
from and shall be in accordance with the books and records of Stoll,
prepared in conformity with generally accepted accounting principles
applied on a consistent basis, including without limitation the
generally accepted accounting principles set forth on Schedule 2.1(b),
but subject to the exceptions to generally accepted accounting
principles also set forth on Schedule 2.1(b), and fairly present in
all material respects the financial condition of Stoll as of the dates
stated and the results of operations of Stoll for the periods then
ended in accordance with such practices. Stoll shall cause Ernst &
Young LLP to perform the September 30, 1995 audit and Stoll shall pay
all costs and expenses incurred in connection with such audit. Unimag
29
<PAGE> 36
shall cause Arthur Andersen LLP to perform the June 30, 1996 audit and
Unimag shall pay all costs and expenses incurred in connection with
such audit.
Section 5.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as
otherwise expressly contemplated by this Agreement, during the
Pre-Exchange Period: (i) Unimag shall not take or permit to be taken
any action or do or permit to be done anything in the conduct of the
business of Unimag, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of its representations and warranties contained in
this Agreement to be or become untrue in any material respect; and
(ii) Unimag shall conduct its business in the ordinary course
consistent with past practices.
(b) Joint Operations of Unimag and Stoll.
Notwithstanding anything in this Agreement to the contrary, from and
after the Escrow Closing Date, Unimag shall manage and oversee the
operation of the business of Stoll as if the Exchange had already
occurred. Without limiting the generality of the foregoing, such
management and oversight shall include all of Unimag's rights as to
such matters set forth in the Joint Operating Agreement.
(c) Consummation of Acquisitions. Unimag shall
use all reasonable efforts to take all actions and do all things
necessary, proper, or advisable to consummate the: (i) acquisition of
Michiana News Services, Inc., a Michigan corporation ("Michiana"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Michiana, and all of the
shareholders of Michiana (the "Michiana Acquisition"); and (ii)
acquisitions of certain assets and liabilities of Ohio Periodical
Distributors, Inc., an Ohio corporation, Northern News Company and its
wholly-owned subsidiary, MacGregor News Agency, Inc., both Michigan
corporations ("Northern"), Readmor Books, an Ohio corporation, The
Scherer Company, an Ohio corporation, and Wholesalers Leasing, an Ohio
corporation (collectively, the "Scherer Companies") pursuant to and
upon the terms and conditions of the respective Asset Purchase
Agreements among Unimag, the Scherer Companies, and all of the
shareholders of the Scherer Companies (the "Scherer Companies
Acquisitions"). Neither the acquisition agreement for the Michiana
Acquisition (the "Michiana Acquisition Agreement") nor the acquisition
agreements for the Scherer Companies Acquisitions (the "Scherer
Companies Acquisition Agreements") shall be modified or amended, in
any material respect, without the prior written consent of the Unimag
Board of Directors, Stoll, and each of the Scherer Companies. In
addition to the transferors described in this Section 5.3(c), the
remainder of the control group (as defined in Section 368(c) of the
Code) of Unimag is specified in Schedule 1.1.
(d) Confidential Information. Upon the
termination of this Agreement for any reason, Unimag shall promptly
cause all proprietary information or data relevant to the
30
<PAGE> 37
business of Stoll, whether of a technical, financial or commercial
nature and whether furnished by Stoll hereunder or otherwise received
by Unimag, and all copies, extracts and summaries thereof in its
possession or in the possession of any of its officers, shareholders
or agents, to be promptly returned to Stoll, except for any such
information relating to customers of Stoll obtained from Stoll in
connection with the joint business operations of Unimag and Stoll
pursuant to the Joint Operating Agreement.
ARTICLE 6
CONDITIONS
Section 6.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
(a) Completion of Schedules and Exhibits. Except
for the Debenture Agreement attached as Exhibit A and the Employment
Agreements attached as Exhibits C-1 through C-3, the Parties
acknowledge that at the time of the execution of this Agreement the
schedules and exhibits will not be attached. Unimag and Stoll will
proceed in good faith to finalize the form and content of such
schedules and exhibits in a manner consistent with the terms and
conditions of this Agreement and otherwise mutually acceptable to both
Parties. Upon finalizing the form and content of such schedules and
exhibits they will be attached to and become a part of this Agreement
as if they had been attached to this Agreement at the time of
execution.
(b) No Adverse Proceeding. No temporary
restraining order, preliminary or permanent injunction, or other order
or decree which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
(c) Certain Approvals. Unimag and Stoll each
shall have filed any Notification and Report Forms and related
materials that either such Party may be required to file with the
Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the
Exchange, and all waiting periods applicable to the consummation of
the Exchange under the HSR Act shall have expired or been terminated.
(d) Other Governmental Approvals. Any
governmental or other approvals or reviews of this Agreement and the
transactions contemplated by this Agreement required under any
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated thereunder, or any governance document of
Unimag or Stoll shall have been received, except for any filings which
Unimag must make with the Securities and
31
<PAGE> 38
Exchange Commission in connection with obtaining approval from
Unimag's Shareholders of the Exchange and other transactions
contemplated by this Agreement.
(e) Escrow Closing of Certain Acquisitions. Stoll
shall have received copies of the final form of the Michiana
Acquisition Agreement and the Scherer Companies Acquisition
Agreements, all of which shall be of a form and content substantially
similar to this Agreement, with the exception that the Scherer
Companies Acquisition Agreements shall be for the purchase and sale of
assets. In additon, Unimag shall have consummated the escrow closings
of both the Michiana Acquisition and the Scherer Companies Acquisition
for Northern.
(f) Tax Commentary. Unimag shall have received a
tax commentary, dated the Escrow Closing Date, of Arthur Andersen LLP,
in form and substance satisfactory to Unimag, as to the qualification
of the Exchange for Unimag as a tax-free exchange under Section 351 of
the Code, and Unimag shall have delivered a copy of such commentary to
Stoll.
(g) Employment Agreements. Richard Stoll, Jr.,
John Heiniger, and Ron Lankerd shall have entered into employment
agreements with Stoll or Unimag in substantially the form attached to
this Agreement as Exhibits C-1, C-2 and C-3, and such employment
agreements shall be in full force and effect as of the Escrow Closing.
Richard Stoll, Sr. shall have entered into an employment agreement
with Stoll in substantially the form attached to this Agreement as
Exhibit C-4, and such employment agreement shall be in full force and
effect as of the Escrow Closing.
(h) Leases for Certain Real Property Owned by the
Stoll Shareholdes. Unimag or Stoll shall have entered into a lease
with Richard Stoll, Sr. for the Indianapolis warehouse leased by Stoll
from him, in form and substance reasonably satisfactory to Unimag and
Stoll, and such lease shall be in full force and effect as of the
Escrow Closing.
Section 6.2 CONDITIONS TO OBLIGATIONS OF STOLL AND THE STOLL
SHAREHOLDERS TO COMPLETE THE ESCROW CLOSING. The obligations of Stoll and the
Stoll Shareholders to complete the Escrow Closing and to consummate the other
transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to the fulfillment of all of the following conditions
unless waived by Stoll and the Stoll Shareholders in writing:
(a) Representations and Warranties. The
representations and warranties of Unimag set forth in Article 3 of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Escrow Closing as though
made at and as of the Escrow Closing.
32
<PAGE> 39
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing.
(c) Certificate. Unimag shall have furnished
Stoll and the Stoll Shareholders with a certificate dated the Escrow
Closing Date signed by its chairman, president, or any vice president
to the effect that the conditions set forth in Section 6.2(a) and
Section 6.2(b) have been satisfied.
(d) Tax Opinion. Stoll and the Stoll
Shareholders shall have received the opinion dated the Escrow Closing
Date, of Ernst & Young LLP, in form and substance satisfactory to
Stoll and the Stoll Shareholders, as to the qualification of the
Exchange for the Stoll Shareholders as a tax-free exchange under
Section 351 of the Code.
(e) Opinion of Counsel. Stoll and the Stoll
Shareholders shall have received the legal opinion, dated the Escrow
Closing Date, of Baker & Hostetler, counsel to Unimag, in
substantially the form attached to this Agreement as Exhibit B.
(f) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise), or prospects of Unimag since the date of the 10-Q or of
the Scherer Companies or Stoll since December 31, 1995.
(g) Unimag Shareholder Letters. As of the
date of this Agreement, shareholders of Unimag who have the right to
vote more than 50% of the outstanding Unimag Shares intend to submit
letters to Unimag indicating they intend to vote in favor of the
Exchange, the Stoll Acquisition, and the Scherer Companies
Acquisitions at the Unimag shareholders meeting to be held for that
purpose. Copies of these letters will be provided to Stoll by Unimag
prior to the Escrow Closing.
(h) Due Diligence. Stoll's completion of its due
diligence review of Unimag and The Scherer Companies with results
satisfactory to Stoll on or before August 9, 1996.
(i) Other Documents. Unimag shall have delivered
the following items to Stoll:
(i) Unimag's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of
Unimag, issued by the Ohio Secretary of State as of a
date not more than ten days prior to the Escrow
Closing Date;
33
<PAGE> 40
(iii) The code of regulations of Unimag,
certified by the secretary of Unimag on the Escrow
Closing Date; and
(iv) Resolutions of the directors of
Unimag approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Unimag on
the Escrow Closing Date.
Section 6.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to complete the Escrow Closing and
to consummate the other transactions contemplated by this Agreement to be
completed at the Escrow Closing shall be subject to the fulfillment of all of
the following conditions unless waived by Unimag in writing:
(a) Representations and Warranties. The
representations and warranties of Stoll and the Stoll Shareholders set
forth in Article 4 of this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the
Escrow Closing as though made at and as of the Escrow Closing.
(b) Performance of Agreement. Stoll and the
Stoll Shareholders shall have performed and observed in all material
respects all covenants, agreements, obligations, and conditions to be
performed or observed by them under this Agreement at or prior to the
Escrow Closing.
(c) Certificate. Stoll shall have furnished
Unimag with a certificate dated the Escrow Closing Date signed on its
behalf by its chairman, president or any vice president to the effect
that the conditions set forth in Section 6.3(a) and Section 6.3(b)
have been satisfied.
(d) Opinion of Counsel. Unimag shall have
received the legal opinion, dated the Escrow Closing Date, of Eastman
& Smith, counsel to Stoll and the Stoll Shareholders, substantially in
the form attached to this Agreement as Exhibit D.
(e) Books and Records. Stoll shall have
delivered to Unimag all corporate books and records and other
materials of Stoll, including without limitation stock books and
ledgers, minute books, bank account lists, tax returns, and financial
and operational records and materials.
(f) Third Party Consents. Unimag shall have
received all necessary customer, vendor, and other third party
consents and approvals of this Agreement and the transactions
contemplated by this agreement
(g) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise) or prospects of Stoll from that reflected in the Reviewed
Statements.
34
<PAGE> 41
(h) Other Documents. Stoll shall have delivered
the following items to Unimag:
(i) Stoll's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of
Stoll, issued by the Ohio Secretary of State as of a
date not more than ten days prior to the Escrow
Closing Date;
(iii) The code of regulations of Stoll,
certified by the secretary of Stoll on the Escrow
Closing Date; and
(iv) The resolutions of the shareholders
and directors of Stoll approving, adopting, and
authorizing this Agreement and the transactions
contemplated by this Agreement, certified by the
secretary of Stoll on the Escrow Closing Date.
(i) Due Diligence. Unimag's completion of its
due diligence review with results satisfactory to Unimag on or before
August 9, 1996.
Section 6.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth
in Section 6.1, 6.2, and 6.3, the Parties shall hold the Escrow Closing
at which the Parties and Baker & Hostetler shall execute and deliver the
document escrow agreement in the form attached to this Agreement as Exhibit E
(the "Document Escrow Agreement"). The Document Escrow Agreement shall
provide, among other things, that at the Escrow Closing this Agreement and all
of the Additional Documents shall be deposited with Baker & Hostetler to be
held pursuant to the terms of the Document Escrow Agreement and that upon the
escrow closing of certain acquisitions and the approval of the Exchange by
Unimag's shareholders, this Agreement and the Additional Documents shall be
released and delivered to the appropriate Party at the Closing and the Exchange
and other transactions contemplated by this Agreement shall be consummated.
Section 6.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of Remaining Scherer Companies
Acquisitions. Unimag shall have consummated the escrow closings of
all of the Scherer Companies Acquisitions (except for the escrow
closing for the acquisition of Northern which was closed into escrow
prior to the Escrow Closing under this Agreement). Such escrow
closings shall be completed no later than August 31, 1996, and shall
be substantially similar to the Escrow Closing under this Agreement.
35
<PAGE> 42
(b) Unimag Shareholder Approval. The Exchange,
the Stoll Acquisition, and the Scherer Companies Acquisitions shall
have been approved by the affirmative vote of the shareholders of
Unimag to the extent such approval is required by the provisions of
Ohio Revised Code Chapter 1701 and Unimag's articles of incorporation.
ARTICLE 7
TERMINATION AND AMENDMENT
Section 7.1 TERMINATION.
(a) Termination by Stoll and the Stoll
Shareholders. This Agreement may be terminated and canceled prior to
the Closing by Stoll and the Stoll Shareholders if: (i) (A) any of the
representations or warranties of Unimag contained in this Agreement
shall prove to be inaccurate in any material respect, or any covenant,
agreement, obligation, or condition to be performed or observed by
Unimag under this Agreement has not been performed or observed in any
material respect at or prior to the time specified in this Agreement,
and (B) such inaccuracy or failure shall not have been cured within 15
business days after receipt by Unimag of written notice of such
occurrence from Stoll and the Stoll Shareholders; (ii) any permanent
injunction or other order of a court or other competent authority
preventing consummation of the Exchange or any other transaction
contemplated by this Agreement shall have become final and
nonappealable; (iii) so long as Stoll and the Stoll Shareholders are
not in material breach of any representation, warranty, covenant, or
agreement, if the Escrow Closing has not occurred on or before August
31, 1996; or (iv) so long as Stoll and the Stoll Shareholders are not
in material breach of any representation, warranty, covenant, or
agreement, if the Closing has not occurred on or before December 31,
1996.
(b) Termination by Unimag. This Agreement may be
terminated and canceled at any time prior to the Closing by Unimag if:
(i) (A) any of the representations or warranties of Stoll or any Stoll
Shareholder contained in this Agreement shall prove to be inaccurate
in any material respect, or any covenant, agreement, obligation, or
condition to be performed or observed by Stoll or any Stoll
Shareholder under this Agreement has not been performed or observed in
any material respect at or prior to the time specified in this
Agreement, and (B) such inaccuracy or failure shall not have been
cured within 15 business days after receipt by Stoll and the Stoll
Shareholders of written notice of such occurrence from Unimag; (ii)
any permanent injunction or other order of a court or other competent
authority preventing consummation of the Exchange or any other
transaction contemplated by this Agreement shall have become final and
nonappealable; (iii) so long as Unimag is not in material breach of
any representation, warranty, covenant, or agreement, if the Escrow
Closing has not occurred on or before August 31, 1996; or (iv) so long
as Unimag is not in material breach of any representation, warranty,
covenant, or agreement, if the Closing has not occurred on or before
December 31, 1996.
36
<PAGE> 43
Section 7.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the Stoll Shareholders and Unimag
Shareholders, but, after such adoption, no amendment shall be made which by law
requires further adoption by the Stoll Shareholders or Unimag Shareholders
without such further adoption. Notwithstanding the foregoing, this Agreement
may not be amended except by an instrument in writing signed by each of the
Parties.
Section 7.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing or Closing, as the case may be, Unimag (with respect to Stoll and the
Stoll Shareholders) and Stoll (with respect to Unimag) may, to the extent
legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of such Party; (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto; or (c) waive compliance with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a
Party to any such extension or waiver shall be valid only if set forth in a
written instrument signed by such Party.
ARTICLE 8
INDEMNIFICATION
Section 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS, AND
AGREEMENTS.
(a) Notwithstanding any investigation conducted
at any time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of Stoll, the
Stoll Shareholders and Unimag in this Agreement and in the Document
Escrow Agreement shall survive the execution, delivery, and
performance of this Agreement and the Document Escrow Agreement. All
representations and warranties of the Parties set forth in this
Agreement and in the Document Escrow Agreement shall be deemed to have
been made again by them at and as of the Escrow Closing.
(b) As used in this Article 8, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 8.2 INDEMNIFICATION BY STOLL SHAREHOLDERS.
(a) Subject to the provisions of this Section 8.2
and of Section 8.4, below, the Stoll Shareholders, jointly and
severally, shall indemnify and hold harmless Unimag from and against
any and all losses, liabilities, damages, demands, claims, suits,
actions, judgments or causes of action, assessments, costs and
expenses, including without limitation interest,
37
<PAGE> 44
penalties, reasonable attorneys' fees, any and all reasonable expenses
incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any
and all amounts paid in settlement of any claim or litigation
(collectively, "Damages"), asserted against, resulting to, imposed
upon, or incurred or suffered by Unimag, directly or indirectly, as a
result of or arising from any material inaccuracy in or breach of any
of the representations, warranties, covenants, or agreements made by
the Stoll Shareholders in this Agreement or the Document Escrow
Agreement (collectively, "Indemnifiable Stoll Claims").
(b) Unimag shall be deemed to have suffered
Damages arising out of or resulting from the matters referred to in
Section 8.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
(c) The Stoll Shareholders may satisfy any
obligation of indemnification under this Article 8 by delivery of
Unimag Shares to Unimag with a value equal to the amount of the
payment being satisfied. For purposes of this Section 8.2(c), Unimag
Shares shall be valued at the greater of (i) $1.50 per share, or (ii)
their market value at the time the indemnification obligation has been
finally established.
(d) Notwithstanding anything contained in this
Agreement to the contrary, the collective indemnification obligations
of the Stoll Shareholders as a group under this Agreement shall never
exceed, in the aggregate, the sum of $6,200,000 and no single Stoll
Shareholder shall have any indemnification obligation in excess of the
total consideration received by such Stoll Shareholder in exchange for
his or her Stoll Shares.
Section 8.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless each
of the Stoll Shareholders from and against any Damages asserted
against, resulting to, imposed upon, or incurred or suffered by any of
the Stoll Shareholders, directly or indirectly, as a result of or
arising from any (i) material inaccuracy in or breach or
nonfulfillment of any of the representations, warranties, covenants,
or agreements made by Unimag in this Agreement or the Document Escrow
Agreement, (ii) subject to the limitations set forth in Section
8.3(c), below, any and all claims, liabilities or obligations arising
out of the operation of the business of Stoll after the Escrow Closing
Date, or (iii) any and all claims, liabilities and obligations arising
out of any failure by Unimag to pay, following the Escrow Closing
Date, any liability of Stoll disclosed on the June 30th Balance Sheet
or to pay any amount or perform any obligation under any of the
Contracts, (collectively, "Indemnifiable Unimag Claims" and, together
with Indemnifiable Stoll Claims, the "Indemnifiable Claims").
(b) Unimag shall satisfy any obligation of
indemnification under this Article 8 in cash.
38
<PAGE> 45
(c) Notwithstanding anything contained in this
Agreement to the contrary, the Stoll Shareholders hereby acknowledge
that Unimag shall not be liable to the Stoll Shareholders, under this
Article 8 or any other provision of this Agreement, for any claims,
liabilities, or obligations arising out of the operation of the
business of Stoll prior to the Escrow Closing Date, if such claim,
liability, or obligation is caused by or results from any
Indemnifiable Stoll Claim.
Section 8.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 8 are subject to the following limitations:
(a) For purposes of this Article 8, all Damages
shall be computed net of any insurance coverage which reduces the
Damages that would otherwise be sustained; provided that in all cases
the timing of the receipt or realization of insurance proceeds shall
be taken into account in determining the amount of reduction of
Damages.
(b) Subject to the provisions of Section 8.4(c),
below, Unimag shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim or Claims unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $620,000. Once Unimag's Damages exceeds $620,000 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $620,000 of Damages.
(c) Notwithstanding and in lieu of the provisions
of Section 8.4(b), above, Unimag shall not be entitled to
indemnification with respect to an Indemnifiable Claim or Claims
resulting from a breach of the representations and warranties
contained in the last paragraph of Section 4.15 unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $100,000. Once Unimag's Damages for any such breach exceeds
$100,000 in the aggregate, Unimag shall only be entitled to be
indemnified to the extent of such Damages in excess of such initial
$100,000 of Damages.
(d) The obligations of indemnity under this
Article 8 with respect to any indemnifiable claim shall terminate two
years after the Escrow Closing Date.
(e) If, prior to the termination of the
obligation to indemnify, written notice of an Indemnifiable Claim is
given by Unimag or any of the Stoll Shareholders, as the case may be
(an "Indemnified Party") to the other Party or Parties, as the case
may be (the "Indemnifying Party"), or a suit or action based upon an
alleged Indemnifiable Claim is commenced against the Indemnifying
Party, the Indemnified Party shall not be precluded from pursuing such
Indemnifiable Claim (whether through the courts or otherwise) by
reason of the termination of the obligation of indemnity as described
in Section 8.4(d) above.
39
<PAGE> 46
Section 8.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 8 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted liability with counsel reasonably satisfactory to the
Indemnified Party. Notwithstanding the foregoing: (i) the
Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be
payable by the Indemnified Party; (ii) the Indemnified Party shall not
have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing; and (iii) the
rights of the Indemnified Party to be indemnified in respect of
Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only
to the extent that, the Indemnifying Party is prejudiced by such
failure. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party
fails to assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall have the right to defend, compromise, or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Party.
(c) Notwithstanding anything in this Section 8.5
to the contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party, to defend,
compromise, or settle such Indemnifiable Claim; and (ii) the
Indemnifying Party shall not, without the Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable Claim
unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party (and its subsidiaries and affiliates) a release from
all liability in respect of such Indemnifiable Claim.
40
<PAGE> 47
Section 8.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three disinterested arbitrators. The panel shall be composed of one
arbitrator appointed by the Indemnified Party, one appointed by the
Indemnifying Party, and the third, who shall be an attorney admitted to
practice in the State of Ohio who has experience in periodical distribution,
shall be appointed by the mutual agreement of the two arbitrators chosen by the
Indemnified Party and the Indemnifying Party. The panel shall sit in Columbus,
Ohio, and its procedures shall be governed by the Ohio Arbitration Act
contained in Chapter 2711 of the Ohio Revised Code. The rules of civil
procedure with respect to depositions and requests for production of documents
applicable in Ohio common pleas courts shall apply. A decision in any such
arbitration shall apply both to the particular question submitted and to all
similar questions arising thereafter. The determination made shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting, and other fees in connection with
such a contest; provided that if the contested claim is referred to and
ultimately determined by arbitration, the legal, auditing, and other fees of
the prevailing Party and the fees and expenses of any arbitrator shall be borne
by the nonprevailing Party.
Section 8.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 8.5 or Section 8.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 2.1(b)), the
Unimag Debentures, or the Additional Documents.
41
<PAGE> 48
ARTICLE 9
MISCELLANEOUS
Section 9.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Esq.
Facsimile No.: (614) 462-2616
(b) If to Stoll:
The Stoll Companies
2021 Adams Street
Toledo, Ohio 43624
Attention: Richard Stoll, Jr., President
Facsimile No.: (419) 243-4629
with a copy to:
Eastman & Smith
One SeaGate, 24th Floor
P.O. Box 10032
Toledo, Ohio 43699-0032
Attention: Kenneth C. Baker, Esq.
Facsimile No.: (419) 247-1777
42
<PAGE> 49
(c) If to the Stoll Shareholders:
Virginia Hiteshew
1404 N. Astor Street
Chicago, IL 60610
Nancy A. Lyman
214 E. Chestnut Street, #1201
Chicago, IL 60611
Stephanie Hamilton
7015 Williamsburg Drive
Sylvania, OH 43560
Francis Stoll
4840 California Avenue S/W
Apt. 45
Seattle, WA 98116
Mary Oelerich
260 E. Chestnut Street, #2707
Chicago, IL 60611
John Stoll
1050 Autumn Ridge, NE9
Ada, MI 49301
James Stoll
c/o John Stoll
1050 Autumn Ridge, NE9
Ada, MI 49301
Richard Stoll, Jr.
2457 Gradwohl
Toledo, OH 43617
Susan Voss
1474 West Byron Street
Chicago, IL 60613
William Stoll
43
<PAGE> 50
2604 College Avenue
Berkeley, CA 94704
Margaret Stoll
538 West Wrightwood, Apt. #2W
Chicago, IL 60614
Richard Stoll, Sr.
22 Wolf Ridge Drive
Toledo, OH 43528
with a copy to:
Eastman & Smith
One SeaGate, 24th Floor
P.O. Box 10032
Toledo, Ohio 43699-0032
Attention: Kenneth C. Baker, Esq.
Facsimile No.: (419) 247-1777
Section 9.2 NON-WAIVER. No failure by any Party to insist upon
strict compliance with any term or provision of this Agreement, to exercise any
option, to enforce any right, or to seek any remedy upon any default of any
other Party shall affect, or constitute a waiver of, any other Party's right to
insist upon such strict compliance, exercise that option, enforce that right,
or seek that remedy with respect to that default or any prior, contemporaneous,
or subsequent default. No custom or practice of the Parties at variance with
any provisions of this Agreement shall affect or constitute a waiver of, any
Party's right to demand strict compliance with all provisions of this
Agreement.
Section 9.3 GENDERS AND NUMBERS. Where permitted by the context,
each pronoun used in this Agreement includes the same pronoun in other genders
and numbers, and each noun used in this Agreement includes the same noun in
other numbers.
Section 9.4 HEADINGS. The headings of the various articles and
sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such articles and sections, and shall be
ignored in construing this Agreement.
Section 9.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same Agreement.
44
<PAGE> 51
Section 9.6 ENTIRE AGREEMENT. This Agreement (including all
exhibits, schedules, and other documents referred to in this Agreement, all of
which are hereby incorporated herein by reference) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the Parties with respect to the subject matter of this
Agreement.
Section 9.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon or give to any person, firm, corporation, or other entity, other
than the Parties, any rights, remedies, or other benefits under or by reason of
this Agreement.
Section 9.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio without regard
to principles of conflicts of law.
Section 9.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors, and
assigns. Neither this Agreement nor any of the rights, interests, or
obligations under this Agreement shall be transferred or assigned by any of the
Parties without the prior written consent of the other Parties.
Section 9.10 EXPENSES. Except as otherwise specifically provided
in this Agreement: (a) Unimag shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its legal counsel, independent public accountants, and
other financial advisors; (b) the Stoll Shareholders shall pay their own costs
and expenses associated with this Agreement, including without limitation the
fees and expenses of their legal counsel, accountants, and financial advisors;
and (c) all such costs and expenses incurred by Stoll in connection with this
Agreement and the transactions contemplated hereby shall be accrued and
expensed, or otherwise accounted for, so that such costs and expenses (if not
paid prior to June 30, 1996) will be taken into consideration when determining
the Tangible Net Worth of Stoll pursuant to Section 2.1(b).
Section 9.11 PUBLIC ANNOUNCEMENTS. Neither Stoll nor any Stoll
Shareholder shall, without the prior written consent of Unimag, make any public
announcement or statement with respect to the transactions contemplated in the
Agreement The provisions of this section are subject to each Party's obligation
to comply with applicable requirements of the federal or state securities laws
or any governmental order or regulation.
Section 9.12 SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent
45
<PAGE> 52
permitted by applicable law, and the Parties shall abide by such court's
determination. In the event that any provision of this Agreement cannot be
reformed, such provision shall be deemed to be severed from this Agreement, but
every other provision of this Agreement shall remain in full force and effect.
[SIGNATURES ON FOLLOWING PAGE]
UNITED MAGAZINE COMPANY
By /s/ Ronald E. Scherer
----------------------------------
Ronald E. Scherer, Chairman
THE STOLL COMPANIES
By /s/ Richard Stoll, Sr.
----------------------------------
Richard Stoll, Sr., Chairman
By /s/ Richard Stoll, Jr.
----------------------------------
Richard Stoll, Jr., President
THE STOLL SHAREHOLDERS:
/s/ Virginia Hiteshew
----------------------------------
VIRGINIA HITESHEW
/s/ Nancy A. Lyman
----------------------------------
NANCY A. LYMAN
/s/ Stephanie Hamilton
----------------------------------
STEPHANIE HAMILTON
/s/ Francis Stoll
----------------------------------
FRANCIS STOLL
/s/ Mary Oelerich
----------------------------------
MARY OELERICH
/s/ John Stoll
----------------------------------
JOHN STOLL
46
<PAGE> 53
/s/ James Stoll
----------------------------------
JAMES STOLL
/s/ Richard H. Stoll, Jr.
----------------------------------
RICHARD H. STOLL, JR.
/s/ Susan Voss
----------------------------------
SUSAN VOSS
/s/ William Stoll
----------------------------------
WILLIAM STOLL
/s/ Margaret Stoll
----------------------------------
MARGARET STOLL
/s/ Richard H. Stoll, Sr.
----------------------------------
RICHARD H. STOLL, SR.
47
<PAGE> 54
INDEX OF SCHEDULES
Schedule 1.1 Control Group
Schedule 2.1(b) Certain Generally Accepted Accounting Principles
Schedule 3.5 Litigation
Schedule 4.1 Qualification as Foreign Corporation
Schedule 4.2 Stoll Shareholders
Schedule 4.3 Restrictions on Stoll Shares
Schedule 4.5 Consents and Approvals
Schedule 4.7 Undisclosed Liabilities
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Taxes
Schedule 4.10 Compliance with Law
Schedule 4.11 Proprietary Rights
Schedule 4.12 Restrictive Documents and Laws
Schedule 4.13 Insurance
Schedule 4.14 Bank Accounts
Schedule 4.15 Properties
Schedule 4.17 Legal Proceedings
Schedule 4.18 Employee Benefit Plans (Schedules (a) through (j))
Schedule 4.19 Contracts
Schedule 4.20 Accounts Receivable
48
<PAGE> 55
Schedule 4.21 Conflicts or Defaults
Schedule 4.23 Employees and Compensation
Schedule 4.24 Labor Relations
Schedule 4.25 Customers and Suppliers
Schedule 4.26 Special Terms to Customers
Schedule 5.2(a) Employment Arrangements
49
<PAGE> 56
INDEX OF EXHIBITS
Exhibit A Debenture Agreement
Exhibit B Opinion of Baker & Hostetler
Exhibit C-1 Form of Employment Agreement with Richard Stoll, Jr.
Exhibit C-2 Form of Employment Agreement with John Heiniger
Exhibit C-3 Form of Employment Agreement with Ron Lankerd
Exhibit C-4 Form of Employment Agreement with Richard Stoll, Sr.
Exhibit D Opinion of Eastman & Smith
Exhibit E Document Escrow Agreement
50
<PAGE> 1
ASSET TRANSFER AND EXCHANGE AGREEMENT
BETWEEN
UNITED MAGAZINE COMPANY
AND
OHIO PERIODICAL DISTRIBUTORS, INC.
EFFECTIVE DATE: AUGUST 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Description of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Control Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.3 Non-Assignment of Certain Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 OBLIGATIONS TO BE ASSUMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Obligations to be Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 Non-Assignment of Certain Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 CLOSING; EXCHANGE CONSIDERATION; AND
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Escrow Closing; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Valuation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.3 Transfer Documents and Issuance of Unimag Shares and Debentures . . . . . . . . . . . . . . . . . 8
(a) Contributions by OPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Issuance of Unimag Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Issuance of Unimag Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Unimag Shares to be Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.3 Capitalization of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.4 Conflicts; Consents; and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.6 Brokerage and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.7 Unimag 10-K and 10-Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.10 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.12 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF OPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.2 Capitalization and Security Holders; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.3 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.5 Unaudited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.6 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.7 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.9 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.10 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.11 Restrictive Documents or Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.13 Bank Accounts, Depositories; Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.14 Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.15 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.16 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.18 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.20 No Conflict or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.21 Books of Account; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.22 Officers, Employees, and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.23 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.24 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.25 Special Terms; Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.26 Businesses of OPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.27 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.28 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 6 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Other Governmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Tax-Free Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(e) Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.2 Covenants of OPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Access to Records and Other Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Employee Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(f) Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(g) Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(i) Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.3 Covenants of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(a) Conduct of Unimag's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(b) Joint Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Consummation of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 7 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.1 Mutual Conditions to Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Completion of Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) No Adverse Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(c) Certain Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(d) Other Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(e) Escrow Closing of Certain Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 35
(f) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.2 Conditions to Obligations of OPD to Complete the Escrow Closing . . . . . . . . . . . . . . . . . 36
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(e) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(f) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(g) Unimag Shareholder Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(h) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.3 Conditions to Obligations of Unimag to Complete the Escrow Closing . . . . . . . . . . . . . . . 37
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(e) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(f) Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(g) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(h) Opinion of Independent Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(i) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(j) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.4 Document Escrow Agreement; Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . 39
Section 7.5 Mutual Conditions to Consummate the Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Escrow Closing of Other Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Unimag Board of Directors Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(c) Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 8 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Termination by OPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Termination by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.1 Survival of Representations, Warranties, Covenants, and Agreements . . . . . . . . . . . . . . . 41
Section 9.2 Indemnification by OPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.3 Indemnification by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.4 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.5 Procedure for Indemnification with Respect to Third Party Claims . . . . . . . . . . . . . . . . 43
Section 9.6 Procedure For Indemnification with Respect to Non-Third
Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.7 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10.2 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.3 Genders and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.9 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
- v -
<PAGE> 7
ASSET TRANSFER AND EXCHANGE AGREEMENT
This Asset Transfer and Exchange Agreement (this "Agreement") is made
and entered into August 30, 1996, to be effective as of August 1, 1996, between
United Magazine Company, an Ohio corporation ("Unimag"), and Ohio Periodical
Distributors, Inc., an Ohio corporation ("OPD").
BACKGROUND INFORMATION
A. Pursuant to the transactions described in this Agreement (the
"Exchange"), Unimag desires to acquire substantially all of the assets and
business operations of OPD which comprise, are used in, and relate to OPD's
wholesale magazine, book, newspaper, and sundries distribution and related
businesses (the "Wholesale Periodical Business") in exchange for (1) Unimag's
common shares, without par value ("Unimag Shares"), and (2) senior and
subordinated debentures of Unimag, subject to and upon the terms and conditions
set forth in this Agreement.
B. The respective boards of directors of Unimag and OPD have (1)
determined that the Exchange and the other transactions contemplated in this
Agreement are desirable and in the best interests of their respective
shareholders, and (2) duly approved and adopted this Agreement.
C. Unimag and OPD intend that the Exchange qualify, along with
other exchanges with Unimag occurring both before and after the closing of the
transactions contemplated by this Agreement, as a tax-free exchange under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"),
subject to the rules of Section 351 of the Code and the regulations promulgated
thereunder applicable to the receipt and taxability of "boot" (within the
meaning of such rules).
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
- 1 -
<PAGE> 8
ARTICLE 1
EXCHANGE
Section 1.1 DESCRIPTION OF ASSETS. Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with the
provisions of Section 351 of the Code, OPD shall transfer, convey, and
contribute (and cause to be transferred, conveyed, and contributed) to the
capital of Unimag, in exchange for Unimag Shares and senior and subordinated
debentures of Unimag (both in the amounts and as otherwise described in Article
3), all of OPD's right, title, and interest, at the Escrow Closing Date, in and
to all of the assets and business operations of OPD which comprise, are used
in, and relate to OPD's Wholesale Periodical Business (the "Acquired Assets")
consisting of all of the Wholesale Periodical Business assets, properties,
rights (contractual or otherwise), and business operations of OPD of every
kind, nature, and description, real, personal, and mixed, tangible and
intangible, known and unknown, wherever located (other than those assets,
properties, rights (contractual or otherwise), and businesses specifically
excluded in this Article), including, without in any way limiting the
generality of the foregoing, the following:
(a) All real property, including without
limitation the real property described on Schedule 1.1(a), along with
all easements, rights-of-way, and other appurtenant rights and
privileges relating thereto and all buildings, fixtures, and other
improvements located thereon and therein (the "Real Property");
(b) All rights and claims under leases and
subleases of real property and improvements, including without
limitation the leases and subleases listed on Schedule 1.1(b), along
with all easements, rights-of-way, and other appurtenant rights and
privileges relating thereto (the "Real Property Leases");
(c) All leasehold improvements and fixtures not
described in Section 1.1(a) and 1.1(b), all machinery, equipment,
tooling, parts, furniture, magazine racks, supplies, and other
tangible personal property (the "Personal Property"), including
without limitation the Personal Property described on Schedule 1.1(c);
(d) All raw materials, supplies, component parts,
work-in-process, finished goods inventory, and other inventory (the
"Inventory"), including without limitation the Inventory listed on
Schedule 1.1(d);
(e) All automobiles and other vehicles (the
"Vehicles"), including without limitation the Vehicles described on
Schedule 1.1(e);
(f) All franchises, licenses, permits, consents,
authorizations, approvals, orders, registrations, variances,
certificates, and similar rights obtained from any regulatory,
administrative, or other government agency or body (to the extent the
same are transferable) (the "Permits"), including without limitation
the Permits listed on Schedule 1.1(f);
- 2 -
<PAGE> 9
(g) All patents, inventions, trade secrets,
processes, proprietary rights, proprietary knowledge, know-how,
computer software, trademarks, names, service marks, trade names,
copyrights, marks, symbols, logos, franchises, and permits, and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements with respect thereto, which OPD owns or has
the right to use or to which OPD is a party, and all filings,
registrations, or issuances of any of the foregoing with or by any
federal, state, or local regulatory, administrative, or governmental
office (collectively, the "Proprietary Rights"), including without
limitation the Proprietary Rights described on Schedule 1.1(g);
(h) All claims and rights under leases of
equipment, vehicles, or other tangible personal property (the
"Personal Property Leases"), including without limitation the Personal
Property Leases listed on Schedule 1.1(h);
(i) All claims and rights under contracts,
agreements, contract rights, leases, license agreements, franchise
rights and agreements, insurance policies, purchase and sales orders,
quotations and executory commitments, mortgages and other security
interests, instruments, guaranties, indemnifications, arrangements,
and understandings of OPD, whether oral or written, to which OPD is a
party (whether or not legally bound thereby) (the "Contracts"),
including without limitation the Contracts listed on Schedule 1.1(i);
(j) All accounts, notes, and other receivables,
and all prepaid expenses, including without limitation the items
listed on Schedule 1.1(j);
(k) All causes of action, judgments, claims,
demands, and rights of set off and recoupment against others of
whatever kind or description;
(l) All books of account, customer and supplier
lists, order and regulatory records, advertising and promotional
materials, marketing studies, operating manuals, and all other files,
papers, and records (the "Business Records");
(m) All telephone numbers for OPD's offices and
facilities, including without limitation the telephone numbers listed
on Schedule 1.1(m); and
(n) All rights in and with respect to the assets
or other features of any kind or nature associated with OPD's Employee
Plans and Benefit Arrangements (both defined in Section 5.17), listed
on Schedule 1.1(n).
Notwithstanding anything in this Section 1.1 to the
contrary, the following items shall be excluded from the definition of Acquired
Assets: (i) OPD's corporate charters, qualifications to conduct business as a
foreign corporation, arrangements with registered agents relating to foreign
qualification, taxpayer and other identification numbers, minute books, stock
transfer books, and other documents relating to the organization and existence
of OPD as a corporation; (ii) all of the rights of OPD under this Agreement;
(iii) all of OPD's investments, cash, and cash equivalents including, without
limitation, all bank accounts of OPD; (iv) the leases (and all rights
- 3 -
<PAGE> 10
and claims thereunder) pursuant to which OPD leases delivery trucks from
Wholesalers Leasing Corp. (the "Delivery Truck Leases"); and (v) all assets and
business operations of OPD which do not comprise any part of, and otherwise are
not used in or related to, OPD's Wholesale Periodical Business.
Section 1.2 CONTROL GROUP. In addition to the Exchange and other
transactions contemplated by this Agreement, Unimag shall complete similar
exchange and related transactions with the other transferors identified in
Schedule 1.2. Immediately after completion of the Exchange and such portion of
the other exchanges with such other parties as Unimag is able to complete, OPD
and such other transferors shall constitute a group which is in control of
Unimag, as defined in Section 368(c) of the Code.
Section 1.3 NON-ASSIGNMENT OF CERTAIN ACQUIRED ASSETS. OPD
represents and warrants to Unimag that Schedule 1.3 lists and describes all
Acquired Assets which are non-assignable or the assignment of which pursuant to
this Agreement requires the consent of a third party. Notwithstanding anything
in this Agreement to the contrary, to the extent that the assignment of any of
the Acquired Assets shall require the consent of a third party (or in the event
that any of the same shall be non-assignable), neither this Agreement nor any
action taken pursuant to the provisions of this Agreement shall constitute an
assignment or an agreement to assign if such assignment or attempted assignment
would constitute a breach thereof or affect adversely the rights of OPD
thereunder. OPD shall use its best efforts to obtain the consent of such third
parties to an assignment to Unimag. If such consent is not obtained, OPD shall
cooperate with Unimag in any reasonable arrangement designed to provide for
Unimag the benefits of such Acquired Asset, including without limitation
enforcement, for the account and benefit of Unimag, of any and all rights of
OPD against any other person with respect to such Acquired Asset.
ARTICLE 2
OBLIGATIONS TO BE ASSUMED
Section 2.1 OBLIGATIONS TO BE ASSUMED. Upon the terms and
subject to the conditions set forth in this Agreement, from and after the
Escrow Closing Date Unimag shall assume all obligations and liabilities of OPD
of any kind whatsoever incurred by OPD in connection with or otherwise related
to the Wholesale Periodical Business, whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due
(other than those obligations and liabilities specifically excluded in this
Article), to the extent the same have not been discharged or satisfied prior to
the Escrow Closing Date, including without limitation the following
(collectively, the "Assumed Liabilities"):
(a) All obligations and liabilities of OPD under
the Real Property Leases, Permits, Personal Property Leases,
Contracts, and other arrangements referred to in paragraphs (a)
through (n) of Section 1.1;
- 4 -
<PAGE> 11
(b) All liabilities of OPD arising out of its
conduct of the Wholesale Periodical Business for unpaid federal,
state, or local income, gross receipts, license, payroll, employment,
excise, severance, occupation, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest or penalty, whether disputed or not
(collectively, the "Taxes"), excluding, however, any liability of OPD
for Taxes arising in connection with the Exchange and the other
transactions contemplated by this Agreement;
(c) All liabilities, responsibilities, and
obligations of OPD under, or in any way related to, any of OPD's
Employee Plans and Benefit Arrangements; and
(d) Any other obligation or liability not
otherwise included above but disclosed in the Schedules to be attached
to this Agreement as provided in Article 5.
Notwithstanding anything in this Section 2.1 to the contrary,
the following items shall be excluded from the definition of Assumed
Liabilities: (i) any liability or obligation of OPD under this Agreement; (ii)
any liability or obligation not incurred by OPD in connection with or otherwise
related to the Wholesale Periodical Business; (iii) any liability of the
shareholders of OPD for Taxes of any nature attributable to their respective
shares of S corporation taxable income of OPD (including, without limitation,
their respective shares of gain, if any, arising in connection with the
Exchange and the other transactions contemplated by this Agreement); (iv) any
liability or obligation identified on Schedule 2.1; (v) any liability or
obligation of OPD under the Delivery Truck Leases which is attributable to
periods following the Escrow Closing Date; and (vi) any liability or obligation
with respect to OPD's Wholesale Periodical Business which would constitute a
breach of the representations and warranties of OPD under Section 5.6.
Section 2.2 NON-ASSIGNMENT OF CERTAIN ASSUMED LIABILITIES. With
respect to any Assumed Liability which exists pursuant to an Acquired Asset
which is non-assignable (as described in Section 1.1) and is to be transferred
or assigned subject to obtaining the consent or approval of the appropriate
third party (because such consent or approval is not obtained prior to the
Escrow Closing, Unimag shall indemnify, hold harmless, and defend OPD against
such Assumed Liability and any obligations, liabilities, costs, and expenses
relating to such Assumed Liability.
With respect to any Assumed Liability which is, as of the
Escrow Closing Date or at any time thereafter, in litigation and which is not
assumed by Unimag pursuant to the provisions of the preceding paragraph (a
"Litigated Third Party Claim"), OPD shall promptly notify Unimag thereof in
writing. Unimag shall assume the defense of any Litigated Third Party Claim
with legal counsel of its choice as of the Escrow Closing Date, or at any time
within 20 days after OPD has given notice of the Litigated Third Party Claim,
if after the Escrow Closing Date. OPD may retain separate legal counsel at its
sole cost and expense and participate in the defense of the Litigated Third
Party Claim. OPD: (a) will not consent to the entry of any judgement or enter
into any settlement with respect to any Litigated Third Party Claim without the
prior written consent of Unimag; (b) will cooperate with Unimag in the defense
of any Litigated Third Party Claim; and (c) will conduct the defense of any
Litigated Third Party
- 5 -
<PAGE> 12
Claim, including the settlement or other disposition thereof, in all respects
as directed by Unimag.
ARTICLE 3
CLOSING; EXCHANGE CONSIDERATION; AND OTHER MATTERS
Section 3.1 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange, including the contribution of the Acquired Assets, assumption of the
Assumed Liabilities, and the other transactions contemplated by this Agreement
(the "Escrow Closing") shall be held at the offices of Baker & Hostetler, 65
East State Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus,
Ohio time on such date (the "Escrow Closing Date") as may be reasonably
designated by Unimag; provided that the Escrow Closing shall be held not later
than September 28, 1996. As provided in Section 7.5, after the Escrow Closing
the only conditions to the release of this Agreement and the other documents
executed in connection with the transactions contemplated by this Agreement
(the "Additional Documents") from the Document Escrow Agreement (defined in
Section 7.4) shall be the approval of the Exchange by the board of directors
and the shareholders of Unimag and the escrow closing of certain other
acquisitions. Within ten days after such shareholder approval (the "Closing
Date"), the Parties shall cause the Agreement and the Additional Documents to
be delivered to the appropriate Party in accordance with the terms and
conditions of the Document Escrow Agreement and the Parties shall close the
Exchange (the "Closing"). In no event shall the Closing be held later than
December 31, 1996.
Section 3.2 EXCHANGE CONSIDERATION.
(a) Valuation. Upon the terms and subject to the
conditions set forth in this Agreement, in exchange for the
contribution of the Acquired Assets and in full consideration
therefor, at the Closing Unimag shall assume the Assumed Liabilities
as provided in Article 2 and shall, subject to the provisions of
Section 3.3 and subject to the adjustments provided for in Sections
3.2(b) and 4.3, issue to OPD (i) 9,277,483 Unimag Shares, and
(ii) $13,370,490 principal amount of Unimag debentures (the "Unimag
Debentures"). The Unimag Debentures shall be issued pursuant to the
terms of the Debenture Agreement attached hereto as Exhibit A (the
"Debenture Agreement"). An aggregate of $7,471,744 principal amount
of the Unimag Debentures shall be Senior Debentures (as defined in the
Debenture Agreement), and the balance of the Unimag Debentures shall
be Subordinated Debentures (as defined in the Debenture Agreement).
(b) Valuation Adjustment. The amount of Unimag
Shares and the principal amount of Unimag Debentures to be received by
OPD in exchange for OPD's contribution of the Acquired Assets is based
upon a total valuation of such contributions of $27,286,716, with 51%
of this value being exchanged for Unimag Shares at an agreed upon
price of $1.50 per Unimag Share, and 49% of this value being exchanged
for Unimag Debentures. Such value was determined by adding the sum
of:
- 6 -
<PAGE> 13
(i) An amount equal to 60% of the net
annual sales of OPD's Wholesale Periodical Business
for the 12-month period ended December 31, 1995,
which is currently estimated to be $30,723,244 ("1995
Sales"); plus or minus
(ii) An amount equal to the tangible net
worth (the "Tangible Net Worth") of OPD's Wholesale
Periodical Business as of June 30, 1996 (which
Tangible Net Worth is currently estimated to be a
deficit of $3,436,528).
Within 30 days after the Escrow Closing Date, OPD
shall cause to be prepared and delivered to Unimag (A) the balance sheet of OPD
for the Wholesale Periodical Business as of June 30, 1996 (the "June 30th
Balance Sheet"), and (B) the 1995 Wholesale Periodical Business Financial
Statements (defined in Section 6.2(h)). The June 30th Balance Sheet shall: (1)
be prepared from and in accordance with the books and records of OPD; (2) be
prepared in conformity with generally accepted accounting principles applied on
a consistent basis, including without limitation the generally accepted
accounting principles set forth on Schedule 3.2, but subject to the exceptions
to generally accepted accounting principles also set forth on Schedule 3.2; and
(3) fairly present in all material respects the financial condition of OPD's
Wholesale Periodical Business as of such date in accordance with such
practices. OPD shall also deliver to Unimag copies of the work papers used in
connection with the preparation of the June 30th Balance Sheet and the 1995
Wholesale Periodical Business Financial Statements.
As soon as practical after delivery to Unimag of the
June 30th Balance Sheet, the 1995 Wholesale Periodical Business Financial
Statements, and the related workpapers, Unimag shall cause Arthur Andersen LLP
to conduct an audit of the June 30th Balance Sheet to determine the actual
Tangible Net Worth as of such date, and, if necessary, to conduct a review of
the 1995 Wholesale Periodical Business Financial Statements to confirm the
accuracy of the recorded amounts of 1995 Sales. The determination of the
Tangible Net Worth shall be made consistent with the generally accepted
accounting principles (and exceptions therefrom) set forth in Schedule 3.2.
Arthur Andersen LLP shall promptly thereafter deliver to Unimag and OPD a
report as to its determination of the actual value of OPD's contribution of the
Acquired Assets in accordance with the provisions of subparagraphs (i) and (ii)
of Section 3.2(b) (the "Actual Value"). Within thirty (30) days after the
delivery of this report to it, OPD shall deliver to Unimag a written statement
describing its objections (if any) to Arthur Andersen LLP's determination of
the Tangible Net Worth, the 1995 Sales, and the Actual Value. Unimag and OPD
shall use reasonable efforts to resolve any disputes regarding these
determinations, and if they are unable to resolve any such disputes within
thirty (30) days after OPD has submitted its objections to Unimag, then KPGM
Peat Marwick, an independent accounting firm, shall resolve any such disputes.
The Parties shall use reasonable efforts to cause KPGM Peat Marwick to decide
all disputed items as soon as practicable (but in any event within thirty (30)
days). All fees and expenses of Arthur Andersen LLP shall be borne by Unimag,
but the fees and expenses of KPGM Peat Marwick shall be borne equally between
Unimag, on the one hand, and OPD, on the other.
- 7 -
<PAGE> 14
If the Actual Value, as so determined, is more than $
27,286,716, then Unimag shall issue additional Unimag Shares, valued at $1.50
per share, equal to 51% of, and additional Unimag Subordinated Debentures in a
principal amount equal to 49% of, the amount by which the Actual Value, as so
determined, exceeds $ 27,286,716. If the Actual Value, as so determined, is
less than $ 27,286,716, then the parties shall reduce the number of Unimag
Shares, valued at $1.50 per share, issued to OPD by an amount equal to 51% of,
and the Unimag Subordinated Debentures issued to OPD by an amount equal to 49%
of, the amount by which the Actual Value, as so determined, is less than $
27,286,716. Notwithstanding the foregoing, if any reduction in the amount of
Unimag Shares to be issued would in any way prevent the Exchange, along with
other exchanges between other companies and Unimag occurring both before and
after the closing of the transactions contemplated by this Agreement, from
being treated as a tax-free exchange under Section 351 of the Code, then the
relative percentage of Unimag Shares and Unimag Subordinated Debentures to be
so returned shall be adjusted in order to maintain the tax-free exchange nature
of these transactions. In the event that OPD fails to return such Unimag Shares
and Unimag Subordinated Debentures within 30 days after a determination that
the Actual Value is less than $ 27,286,716, then, in addition to any other
rights or remedies Unimag may have under this Agreement or otherwise, Unimag
shall have the right to setoff the value of such Unimag Shares and Unimag
Subordinated Debentures against any amount owed to OPD by Unimag, whether
pursuant to this Agreement or the Unimag Debentures.
Section 3.3 TRANSFER DOCUMENTS AND ISSUANCE OF UNIMAG SHARES AND
DEBENTURES.
(a) Contributions by OPD. At the Closing, OPD
shall transfer, convey, and contribute (and shall cause to be
transferred, conveyed, and contributed) to the capital of Unimag the
Acquired Assets, free and clear of all claims and encumbrances except
for the Assumed Liabilities, by delivering to Unimag the following
duly executed transfer instruments and documents (collectively the
"Transfer Documents"):
(i) General warranty deeds for the Real
Property, conveying to Unimag merchantable, fee
simple title.
(ii) Assignments of (including all rights
and claims related to) the Real Property Leases, the
Personal Property Leases, the Contracts, and all
other items of the type described in paragraphs (k)
and (n) of Section 1.1.
(iii) All certificates of title to the
Vehicles, endorsed for transfer to Unimag.
(iv) Bills of sale, assignments, and such
other instruments of transfer as may be required in
order to convey to Unimag ownership of the Personal
Property, the Inventory, the Permits, the Proprietary
Rights, all assets of the type described in paragraph
(j) of Section 1.1, the Business Records, and all
items of the type described in paragraph (m) of
Section 1.1.
- 8 -
<PAGE> 15
(v) Any and all other instruments of
transfer reasonably requested by Unimag in order to
complete the conveyances to Unimag of all of the
Acquired Assets in accordance with the terms and
conditions of this Agreement.
(b) Issuance of Unimag Shares. At the Closing,
upon delivery of all of the Transfer Documents by OPD, Unimag shall
issue to OPD that number of Unimag Shares which OPD is entitled to
receive as described in Section 3.2(a). Unimag shall not be obligated
to issue any fractional Unimag Shares as a result of the Exchange. To
the extent that OPD otherwise would become entitled to a fractional
Unimag share as a result of the Exchange, OPD shall be entitled to
receive a cash payment for such fractional interest in an amount equal
to such fractional interest multiplied by $1.50. Such payment is
merely intended to provide a mechanical rounding off of, and is not a
separately bargained for, consideration.
(c) Issuance of Unimag Debentures. At the
Closing, upon delivery of all of the Transfer Documents by OPD, Unimag
shall issue to OPD the Unimag Debentures which OPD is entitled to
receive as described in Section 3.2(a).
(d) Unimag Shares to be Restricted Securities.
The Unimag Shares to be received by OPD in the Exchange shall be
restricted securities within the meaning of Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Act"). OPD understands
and agrees that such shares may not be sold, pledged, hypothecated or
otherwise transferred unless such shares are registered under the Act
or pursuant to an opinion of counsel, which opinion and counsel are
reasonably acceptable to Unimag and its counsel, that an exemption
from such registration is available. OPD agrees that the following
legend may be placed on the certificates for the Unimag Shares to be
received by it and that appropriate stop-transfer instructions may be
given to Unimag's transfer agent and registrar:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED, UNLESS THEY ARE AT THE TIME SO
REGISTERED, OR THE SALE OR TRANSFER THEREOF IS NOT
REQUIRED TO BE SO REGISTERED, OR IS MADE PURSUANT TO
THE APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED
TO THE APPLICABLE EXEMPTION FROM REGISTRATION
PROVIDED IN THE SECURITIES ACT OF 1933, AS AMENDED,
OR IN THE RULES OR REGULATIONS THEREUNDER.
Section 3.4 EMPLOYEES. As of the Closing Date, upon delivery of
all of the Transfer Documents by OPD, Unimag shall hire as its employees all of
the persons who are on such date employees of OPD and who are willing to accept
employment with Unimag. All of such persons will be hired initially at the
compensation, and on and subject to all of the terms and conditions,
- 9 -
<PAGE> 16
which existed as part of their employment with OPD immediately prior to their
employment with Unimag, including any terms and conditions which exist under or
relate to OPD's Employee Plans and Benefit Arrangements.
Section 3.5 NAME. OPD will change its name, effective as of the
Closing Date, to a name which does not include the words "news" or "periodical"
or "distributors" or any similar words. OPD will cause appropriate filings to be
made with the Ohio Secretary of State and any other jurisdiction in which OPD
is qualified to do business.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF UNIMAG
In order to induce OPD to enter into this Agreement, Unimag hereby
represents and warrants to OPD that the statements set forth in this Article 4
are true, correct, and complete:
Section 4.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 4.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the board of directors and the shareholders of Unimag to be
obtained after the date of this Agreement). This Agreement has been duly
executed and delivered by Unimag and constitutes a legal, valid, and binding
obligation of Unimag, enforceable against Unimag in accordance with its terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, or other similar laws from time to time in effect which may affect
the enforcement of creditors' rights in general, and (b) general principles of
equity.
Section 4.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 26,760,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
- 10 -
<PAGE> 17
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. OPD acknowledges that prior to the Closing, Unimag may (i)
authorize additional capital stock, including additional Unimag Shares, or (ii)
reduce the number of outstanding Unimag Shares by means of a reverse stock
split, or any other method which would result in a reduction in the number of
outstanding Unimag Shares. Unimag will deliver written notice to OPD if it
authorizes any such action. Except as otherwise described in this Agreement,
and except as disclosed on Schedule 4.3, Unimag has not entered into any
agreement which would require it to reduce or increase the number of Unimag
Shares outstanding. In the event that Unimag authorizes a reverse stock split
or other reduction in the number of outstanding Unimag Shares, then the $1.50
agreed upon price of a Unimag Share for purposes of determining the number of
Unimag Shares to be issued to OPD pursuant to Section 3.2 shall be
proportionately adjusted with the objective that OPD shall have the right to
receive the same proportionate ownership interest in Unimag as before the
reduction in the number of outstanding Unimag Shares.
Section 4.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement shall:
(a) Violate, conflict with, result in a violation
or breach of any provision of, constitute a default (or an event
which, with the giving of notice, the passage of time, or otherwise,
would constitute a default) under, entitle any third party (with the
giving of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease, or other instrument
or obligation to which Unimag is a party and which is material to
Unimag and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree,
statute, rule, or regulation, applicable to Unimag or its respective
properties or assets; or
(c) Require any action, consent, or approval of,
review by, or registration with any third party, court, governmental
body, or other agency, instrumentality, or authority, other than (i)
actions required, if any, by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), (ii) actions to be taken in
respect of federal and state securities laws as contemplated by this
Agreement, and (iii) approval by the shareholders of Unimag.
Section 4.5 LITIGATION. Except as disclosed in Schedule 4.5:
(a) there is no (and over the last three years there have been no) suits,
claims, actions, proceedings, or investigations (collectively, "ACTIONS")
pending or, to the best knowledge of Unimag, threatened against Unimag or any
of its subsidiaries in which the amount in dispute exceeds (or exceeded)
$25,000, or which has or could result in liability or loss for Unimag or any of
its subsidiaries of more
- 11 -
<PAGE> 18
than $25,000, or which, individually or in the aggregate, is reasonably likely
to have a material adverse effect on Unimag and its subsidiaries, taken as a
whole, or a material adverse effect on the ability of Unimag to consummate the
Exchange and other transactions contemplated by this Agreement; and (b) to the
best knowledge of Unimag, there exist no disputes, conflicts or circumstances
providing the basis for a dispute or conflict which could reasonably be
expected to result in any such Action. Neither Unimag nor any subsidiary is
subject to any outstanding judgment, order, writ, injunction, or decree which,
individually or in the aggregate, has a reasonable probability of having a
material adverse effect on the business operations, assets, properties,
condition (financial or otherwise), or prospects of Unimag, or a material
adverse effect on the ability of Unimag to consummate the Exchange or other
transactions contemplated by this Agreement.
Section 4.6 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 4.7 UNIMAG 10-K AND 10-Q. Unimag has previously made
available to OPD true, correct, and complete copies of Unimag's most recent
10-KSB for the fiscal year ending September 30, 1995 (the "10-K"), and Unimag's
most recent 10-QSB for the fiscal quarter ending June 30, 1996 ("10-Q"), both
of which have been filed with the Securities and Exchange Commission ("SEC").
The financial statements of Unimag included in the 10-K and 10-Q have been
prepared from and in accordance with the books and records of Unimag and in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the 10-Q, as permitted by the SEC under the
Securities and Exchange Act of 1934, as amended) and fairly present (subject,
in the case of the 10-Q, to normal and recurring audit adjustments) the
consolidated financial position of Unimag and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended.
Section 4.8 TAXES. Unimag has duly paid, or caused to be paid,
all taxes, assessments, fees, and other governmental charges (hereinafter,
"taxes") payable by Unimag or its subsidiaries. Unimag has duly filed, or
caused to be filed, all federal, state, local and foreign tax returns and tax
reports required to be filed by it or its subsidiaries and all such returns and
reports are true, correct, and complete. There is no pending or, to the best
knowledge of Unimag, threatened federal, state, local or foreign tax audit or
assessment relating to it or its subsidiaries and there is no agreement with
any federal, state, local, or foreign tax authority that may affect the
subsequent tax liabilities of Unimag and its subsidiaries.
Section 4.9 UNDISCLOSED LIABILITIES. Unimag has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent, or otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the 10-Q or
the financial statements therein set forth, which have not been paid
or discharged since the date thereof;
- 12 -
<PAGE> 19
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since June 30,
1996, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
which are not inconsistent with the other representations, warranties
and agreements of Unimag set forth in this Agreement; and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
its financial statements.
Section 4.10 COMPLIANCE WITH LAW. To the best knowledge of
Unimag, Unimag has complied and is in compliance in all material respects with
all laws, statutes, ordinances, orders, rules and regulations promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 4.11 NO MATERIAL ADVERSE CHANGE. Since the filing of the
10-Q with the SEC, there has been no material adverse change in the properties,
assets, liabilities, business, results of operations, or condition (financial
or otherwise) of Unimag. Unimag is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any entity.
Section 4.12 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of the Acquired Assets pursuant to this Agreement
along with other exchanges and acquisitions occurring before and after the
closing of the transactions contemplated by this Agreement, as an exchange
under Section 351 of the Code, subject to the rules of Section 351 of the Code
and the regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules). Unimag shall be solely
responsible for evaluating (and determining the appropriate methods required
for reporting) all federal, state, and local income and other tax consequences
to Unimag which will and may result from the transactions contemplated by this
Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF OPD
In order to induce Unimag to enter into this Agreement, OPD hereby
represents and warrants to Unimag that the statements contained in this Article
5 are true, correct, and complete:
Section 5.1 ORGANIZATION AND STANDING. OPD is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio with full power and authority (corporate and otherwise) to own, lease,
use, and operate its properties and to conduct its business as and where now
owned, leased, used, operated and conducted. OPD is duly qualified to do
business and is in good standing in each state listed in Schedule 5.1, is not
qualified to do business in any other state and, except as set forth in
Schedule 5.1, neither the nature of the
- 13 -
<PAGE> 20
business or other activities conducted by it nor the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation in any other state, except where the failure to be so qualified
would not have a material adverse effect on the business, operations, assets,
properties, condition (financial or otherwise) or prospects of such
corporation. OPD has not received any written notice or assertion within the
last three years from any governmental official in any state to the effect that
it is required to be qualified or authorized to do business in a state in which
it is not so qualified or has not obtained such authorization. OPD is not in
default or in violation of the performance, observation or fulfillment of any
material provision of its articles of incorporation or code of regulations.
Section 5.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of OPD consists solely of 500 shares of common
stock, no par value, (a) all of which are issued and outstanding, and (b) none
of which are held as treasury shares (the "OPD Shares"). Schedule 5.2 contains
a correct and complete list of the names and addresses of all of the
shareholders of OPD and indicates all OPD Shares owned beneficially and of
record by each such shareholder. Each outstanding OPD Share has been duly
authorized and validly issued and is fully paid and nonassessable, and no OPD
Share has been issued in violation of preemptive or similar rights. Except as
set forth and briefly described in Schedule 5.2, there are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims, or other commitments or rights of any type relating to the issuance,
sale, or transfer by OPD or any shareholder of OPD of any securities of OPD,
nor are there outstanding any securities which are convertible into or
exchangeable for shares of capital stock of OPD, and OPD has no obligations of
any kind to issue any additional securities. The issuance and sale of all
securities of OPD have been in full compliance with all applicable federal and
state securities laws. OPD does not own, directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint venture, or any
other entity or enterprise. OPD is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution, or otherwise) in any entity.
Section 5.3 CORPORATE POWER AND AUTHORITY. OPD has all requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and to consummate the Exchange and other transactions
contemplated by this Agreement. This Agreement and the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action on the part of OPD. This Agreement has been duly
executed and delivered by OPD and constitutes the legal, valid, and binding
obligation of OPD , enforceable against OPD in accordance with its terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, or other similar laws from time to time in effect which may affect
the enforcement of creditors' rights in general, and (b) general principles of
equity.
Section 5.4 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 5.4, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by OPD nor the consummation of the Exchange and
other transactions contemplated by this Agreement requires or will require any
action, consent, or approval of, review by, or registration with any third
party, court, governmental body, or other agency, instrumentality, or
authority, other than actions, required
- 14 -
<PAGE> 21
by the HSR Act, and (ii) actions to be taken in respect of federal and state
securities laws as contemplated by this Agreement.
Section 5.5 UNAUDITED FINANCIAL STATEMENTS. OPD has furnished to
Unimag the "Unaudited Statements" consisting of the unaudited balance sheet of
OPD (with respect to its Wholesale Periodical Business) as of December 31,
1995, and the related statement of income for the fiscal year then ended,
including, in each case, the related notes, if any. The Unaudited Statements
have been prepared by management from and in accordance with the books and
records of OPD, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as disclosed
therein), and fairly present in all material respects the financial condition
of the Wholesale Periodical Business as of the date stated and the results of
the Wholesale Periodical Business for the period then ended in accordance with
such practices.
Section 5.6 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 5.6, OPD, with respect to its Wholesale Periodical Business, does not
have any liability or obligation of any nature (whether liquidated,
unliquidated, accrued, absolute, contingent, or otherwise and whether due or to
become due) except:
(a) Those set forth or reflected in the Unaudited
Statements which have not been paid or discharged since the date
thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since December
31, 1995, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on their
books and which are not inconsistent with the other representations,
warranties, and agreements of OPD set forth in this Agreement; and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
the Unaudited Statements.
Section 5.7 ABSENCE OF CERTAIN CHANGES. Except as expressly
provided for or permitted under Section 6.2(a) of this Agreement, or as set
forth in Schedule 5.7, since December 31, 1995, there has not been:
(a) Any material adverse change in the business,
operations, assets, properties, customer base, prospects, rights, or
condition (financial or otherwise) of OPD's Wholesale Periodical
Business or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse
change;
(b) Any declaration, setting aside, or payment of
any dividend or any distribution (in cash or in kind) to any
shareholder of OPD, or any direct or indirect redemption, purchase, or
other acquisition by OPD of any of its capital stock, or any options,
warrants, rights, or agreements to purchase or acquire such stock;
(c) Any increase in amounts payable by OPD to or
for the benefit of, or committed to be paid by OPD to or for the
benefit of, any shareholder, director, officer,
- 15 -
<PAGE> 22
or other consultant, agent, or employee of OPD whose total annual
compensation exceeds $50,000 or any relatives of such person, or any
increase in any benefits granted under any bonus, stock option,
profit-sharing, pension, retirement, severance, deferred compensation,
group health, insurance, or other direct or indirect benefit plan,
payment or arrangement made to, with, or for the benefit of any such
person;
(d) Any transaction entered into or carried out
by OPD (with respect to its Wholesale Periodical Business) other than
in the ordinary and usual course of business consistent with past
practices;
(e) Any borrowing or agreement to borrow funds by
OPD (with respect to its Wholesale Periodical Business), any incurring
by OPD (with respect to its Wholesale Periodical Business) of any
other obligation or liability (contingent or otherwise), except
liabilities incurred in the usual and ordinary course of business
(consistent with past practices), or any endorsement, assumption or
guarantee of payment or performance of any loan or obligation of any
other person or entity by OPD (with respect to its Wholesale
Periodical Business);
(f) Any material change by OPD (with respect to
its Wholesale Periodical Business) in its method of doing business or
any change in its accounting principles or practices or its method of
application of such principles or practices;
(g) Any mortgage, pledge, lien, security
interest, hypothecation, charge, or other encumbrance imposed or
agreed to be imposed on or with respect to the property or assets of
OPD (with respect to its Wholesale Periodical Business);
(h) Any sale, lease, or other disposition of, or
any agreement to sell, lease, or otherwise dispose of any of the
properties or assets of OPD (with respect to its Wholesale Periodical
Business), other than sales of inventory in the usual and ordinary
course of business for fair equivalent value to persons other than
directors, officers, shareholders, or other affiliates of such
corporation;
(i) Any purchase of or any agreement to purchase
assets (other than inventory purchased in the ordinary course of
business consistent with past practices) for an amount in excess of
$50,000 for any one purchase or $100,000 for all such purchases made
by OPD (with respect to its Wholesale Periodical Business) or any
lease or any agreement to lease, as lessee, any capital assets with
payments over the term thereof to be made by OPD (with respect to its
Wholesale Periodical Business) exceeding an aggregate of $100,000;
(j) Any loan or advance made by OPD (with respect
to its Wholesale Periodical Business) to any person other than loans
made to customers in the ordinary course of business consistent with
past practices not exceeding $50,000, in the aggregate, to any
customer;
- 16 -
<PAGE> 23
(k) Any modification, waiver, change, amendment,
release, rescission, or termination of, or accord and satisfaction
with respect to, any material term, condition, or provision of any
contract, agreement, license, or other instrument to which OPD (with
respect to its Wholesale Periodical Business) is a party, other than
any satisfaction by performance in accordance with the terms thereof
in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance adversely
affecting the business operations or condition (financial or
otherwise) of OPD (with respect to its Wholesale Periodical Business),
including without limitation the filing of any petition or charge of
unfair labor practice with any governmental or regulatory authority,
efforts to effect a union representation election, or actual or
threatened employee strike, work stoppage, or slow down.
Section 5.8 TAXES.
(a) Except as set forth and briefly described in
Schedule 5.8, OPD (with respect to its Wholesale Periodical Business)
has duly paid all taxes payable by it. OPD (with respect to its
Wholesale Periodical Business) has duly filed all federal, state,
local, and foreign tax returns and tax reports required to be filed by
it and all such returns and reports are true, correct, and complete.
Except as disclosed and briefly described in Schedule 5.8, since
December 31, 1991, none of such returns and reports have been amended,
and except as set forth and briefly described in Schedule 5.8, all
taxes, arising under or reflected on such returns and reports have
been fully paid or were fully accrued as liabilities in the Unaudited
Statements and shall be paid before the Escrow Closing. During the
last five (5) years, no claim has been made by authorities in any
jurisdiction where OPD (with respect to is Wholesale Periodical
Business) did not file tax returns that it is or may be subject to
taxation therein.
(b) OPD (with respect to its Wholesale Periodical
Business) has delivered to Unimag copies of all federal, state, local,
and foreign income tax returns filed with respect to it for taxable
periods ended on or after December 31, 1991. Schedule 5.8 sets forth
the dates and results of any and all audits conducted by taxing
authorities within the last five years or otherwise with respect to
any tax year for which assessment is not barred by any applicable
statute of limitations. No waivers of any applicable statute of
limitations for the filing of any tax returns or payment of any taxes
or assessments of any deficient or unpaid taxes are outstanding.
Except as set forth and briefly described in Schedule 5.8, all
deficiencies proposed as a result of any audits have been paid or
settled or have been fully accrued as liabilities in the Unaudited
Statements and shall be paid before the Closing. Except as set forth
and briefly described in Schedule 5.8, there is no pending or, to the
best knowledge of OPD, threatened federal, state, local, or foreign
tax audit or assessment relating to OPD (with respect to its Wholesale
Periodical Business), and there is no agreement with any federal,
state, local, or foreign taxing authority that may affect the
subsequent tax liabilities of OPD (with respect to its Wholesale
Periodical Business).
- 17 -
<PAGE> 24
(c) Except as set forth and briefly described in
Schedule 5.8, all Taxes attributable to the existence or operation of
OPD (with respect to its Wholesale Periodical Business) as at or
through December 31, 1995 are, to the extent not already paid,
accurately reflected in the Unaudited Statements.
(d) Except as set forth and briefly described in
Schedule 5.8, there exists no tax-sharing agreement or arrangement
pursuant to which OPD (with respect to its Wholesale Periodical
Business) is obligated to pay the tax liability of any other person or
entity or to indemnify any other person or entity with respect to any
tax.
(e) Schedule 5.8 includes a list of all states,
territories and jurisdictions to which any Tax is properly payable by
OPD (with respect to its Wholesale Periodical Business).
(f) OPD became an "S Corporation," within the
meaning of Section 1361(a)(1) of the Code (an "S Corporation"),
for federal income tax purposes effective _______
_______, pursuant to a valid election made by OPD, with the consent of
all of its shareholders, effective as of such date, and OPD is and from
such date always has been an S corporation.
Section 5.9 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 5.9, to the best knowledge of OPD, OPD (with respect to
its Wholesale Periodical Business) has complied and is in compliance in all
material respects with all nonenvironmental (environmental matters being
addressed in Section 5.14) laws, statutes, ordinances, orders, rules and
regulations promulgated, and all judgments, decisions, and orders entered, by
any federal, state, local, or foreign court or governmental authority or
instrumentality which are applicable or relate to it or to its business or
properties including without limitation: (a) all zoning, fire, safety, and
building laws, ordinances, regulations, and requirements; (b) Title VII of the
Civil Rights Act of 1964, as amended; (c) the Fair Labor Standards Act, as
amended; (d) the Occupational Safety and Health Act of 1970, as amended; (e)
the Americans with Disabilities Act of 1990; (f) all applicable federal, state
and local laws, rules and regulations relating to employment; (g) all
applicable laws, rules and regulations governing payment of minimum wages and
overtime rates, and the withholding and payment of taxes from compensation of
employees; (h) federal and state antitrust and trade regulation laws applicable
to competition generally or to agreements restricting, allocating, or otherwise
affecting geographic or product markets; and (i) the Controlled Substances Act
(collectively, the "Applicable Laws"). To the best knowledge of OPD, OPD (with
respect to its Wholesale Periodical Business) has all franchises, licenses,
permits, covenants, authorizations, approvals, and certifications necessary or
appropriate for the operation of its business or the ownership of its
properties. Schedule 5.9 includes a list of all material franchises, licenses,
permits, consents, authorizations, approvals, and certificates owned or held by
OPD (with respect to its Wholesale Periodical Business) (collectively, the
"Permits"), each of which is currently valid and in full force and effect. To
the best knowledge of OPD, OPD (with respect to its Wholesale Periodical
Business) is not in violation of any of the Permits, and there is no pending
nor, to the best knowledge of OPD, any threatened proceeding which could result
in the revocation, cancellation or inability to renew any Permit. Except as
disclosed and briefly described in Schedule 5.9, OPD (with respect to its
Wholesale Periodical Business)
- 18 -
<PAGE> 25
has not been charged with or given notice of any violation of any of the
Applicable Laws which violation has not been remedied in full (without any
remaining liability).
Section 5.10 PROPRIETARY RIGHTS. Schedule 5.10 sets forth:
(a) All material names, patents, inventions,
trade secrets, proprietary rights, computer software, trademarks,
trade names, service marks, logos, copyrights, and franchises and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements in respect thereof which OPD (with respect
to its Wholesale Periodical Business) owns, has the right to use, or
to which each is a party; and
(b) All filings, registrations, or issuances of
any of the foregoing with or by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices (all
items in (a) and (b) of this Section 5.10, together with the customer
lists described below, being sometimes hereinafter referred to
collectively as the "Proprietary Rights").
OPD (with respect to its Wholesale Periodical
Business) is, to the best knowledge of OPD, the sole and exclusive owner of all
right, title, and interest in and to all of its respective Proprietary Rights
free and clear of all liens, claims, charges, equities, rights of use,
encumbrances, and restrictions whatsoever, and there is not pending or, to the
best knowledge of OPD, threatened any investigation, proceeding, inquiry, or
other review by any federal, state, local, or foreign regulatory,
administrative, or governmental office or offices with respect to OPD's right,
title, or interest in any Proprietary Right.
Other than those Proprietary Rights listed in
Schedule 5.10, no name, patent, invention, trade secret, customer list,
proprietary right, computer software, trademark, trade name, service mark,
logo, copyright, franchise, license, sublicense, or other such right is
necessary for the operation of the business of OPD (with respect to its
Wholesale Periodical Business) in substantially the same manner as such
business is presently conducted. To the best knowledge of OPD, such business
has not been and is not being conducted in contravention of any trademark,
copyright, or other proprietary right of any person or entity.
Except as set forth in Schedule 5.10, none of the
Proprietary Rights: (i) has been hypothecated, sold, assigned, or licensed by
OPD, or to the best knowledge of OPD, any other person or entity; (ii) to the
best knowledge of OPD, infringes upon or violates the rights of any person or
entity; (iii) to the best knowledge of OPD is subject to challenge, claims of
infringement, unfair competition, or other claims; or (iv) to the best
knowledge of OPD, is being infringed upon or violated by any person or entity.
Except as set forth in Schedule 5.10, OPD has not given any indemnification
against patent, trademark, or copyright infringement as to any equipment,
materials, products, services, or supplies which either of them uses, licenses,
or sells. To the best knowledge of OPD, no product, process, method, or
operation presently sold, engaged in, or employed by them infringes upon any
rights owned by any other person or entity. There is not pending or, to the
best knowledge of OPD, threatened any claim or litigation against OPD
contesting its right to sell, engage in, or employ any such product, process,
method, or operation.
- 19 -
<PAGE> 26
Except as set forth in Schedule 5.10, OPD has
exclusive rights to own and use the computer software used by it (the
"Software"). Schedule 5.10 lists and briefly describes, all material licenses,
agreements, documents, and other materials relating to the Software and to
OPD's rights therein. Except as set forth in Schedule 5.10, OPD has not
licensed or otherwise authorized any other person to use or make use of all or
any part of the Software, nor granted, assigned, or otherwise conveyed any
right in or to the Software.
Section 5.11 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 5.11, OPD (with respect to its Wholesale
Periodical Business) is not a party to or bound under any mortgage, lien,
lease, agreement, contract, instrument, law, order, judgment or decree, or any
similar restriction not of general application which materially and adversely
affects, or reasonably could be expected to so affect (a) its business,
operations, assets, properties, prospects, rights, or condition (financial or
otherwise); (b) the continued operation by Unimag of such business after the
Closing Date on substantially the same basis as such business is currently
operated; or (c) the consummation of the transactions contemplated by this
Agreement.
Section 5.12 INSURANCE. OPD (with respect to its Wholesale
Periodical Business) has been and is insured with respect to its properties and
the conduct of its business in such amounts and against such risks as are
sufficient for compliance with applicable law and as are adequate to protect
its property and business in accordance with normal industry practice. Such
insurance is and has been provided by insurers unaffiliated with OPD, which
insurers are, to the best knowledge of OPD, financially sound and reputable.
Set forth in Schedule 5.12 is a true, correct, and complete list of all
insurance policies and bonds in force in which OPD (with respect to its
Wholesale Periodical Business) is named as an insured party, or for which it
has paid any premiums, and such list correctly states the name of the insurer,
the name of each insured party, the type and amount of coverage, deductible
amounts, if any, the expiration date, and the premium amount of each such
policy or bond. Except as disclosed in Schedule 5.12, all such policies or
bonds are currently in full force and effect and no notice of cancellation or
termination has been received with respect to any such policy. OPD will
continue all of such insurance in full force and effect through the Closing
Date. All premiums due and payable on such policies have been paid. Except as
disclosed in Schedule 5.12, OPD is not a co-insurer under any term of any
insurance policy.
Section 5.13 BANK ACCOUNTS, DEPOSITORIES; POWERS OF ATTORNEY. Set
forth in Schedule 5.13 is a true, correct, and complete list of the names and
locations of all banks or other depositories in which OPD (with respect to its
Wholesale Periodical Business) has accounts or safe deposit boxes, and the
names of the persons authorized to draw thereon, borrow therefrom, or have
access thereto. Except as set forth in Schedule 5.13, no person has a power of
attorney from OPD (with respect to its Wholesale Periodical Business).
Section 5.14 TITLE TO AND CONDITION OF PROPERTIES. Except as set
forth in Schedule 5.14, OPD (with respect to its Wholesale Periodical Business)
has good, valid, and indefeasible title to all of its assets and properties of
every kind, nature, and description, tangible or intangible, wherever located,
which constitute all of the property now used in and necessary for the conduct
of its business as presently conducted (including without limitation all
operating property and
- 20 -
<PAGE> 27
assets shown or reflected on the Unaudited Statements, except inventory sold in
the ordinary course of business). Except as set forth in Schedule 5.14, to the
best knowledge of OPD, all such properties are owned free and clear of all
mortgages, pledges, liens, security interests, encumbrances, and restrictions
of any nature whatsoever, including without limitation: (a) rights or claims of
parties in possession; (b) easements or claims of easements; (c) encroachments,
overlaps, boundary line or water drainage disputes, or any other matters; (d)
any lien or right to a lien for services, labor, or material furnished; (e)
special tax or other assessments; (f) options to purchase, leases, tenancies,
or land contracts; (g) contracts, covenants, or reservations which restrict the
use of such properties; and (h) violations of any Applicable Laws applicable to
such properties. All such properties are usable for their current uses without
violating any Applicable Laws, or any applicable private restriction, and such
uses are legal conforming uses. Except as set forth in Schedule 5.14, no
financing statement under the Uniform Commercial Code or similar law naming OPD
or any of its predecessors is on file in any jurisdiction in which it owns
property or does business, and OPD is not a party to or bound under any
agreement or legal obligation authorizing any party to file any such financing
statement. Schedule 5.14 contains a complete and accurate list of the location
of all real property which is owned, leased, or operated by OPD and describes
the nature of its interest in that real property. With respect to any leased
real property, except as set forth in Schedule 5.14, OPD has an insurable
leasehold interest in that real property.
Except as set forth in Schedule 5.14, to the best
knowledge of OPD, all real property and structures, all machinery and
equipment, and all tangible personal property owned, leased or used by OPD
(with respect to its Wholesale Periodical Business) and material to the
operation of its business are reasonably suitable for the purpose or purposes
for which they are being used (including full compliance with all Applicable
Laws and are in good condition and repair, ordinary wear and tear excepted.
Except as set forth in Schedule 5.14, to the best knowledge of OPD, there are
no material structural defects in the exterior walls or the interior bearing
walls, the foundation, or the roof of any building, garage or other such
structure so owned, leased, or used by OPD, and the electrical, plumbing,
heating systems, and air conditioning systems, of any such structure are in
good operating condition, ordinary wear and tear excepted. The utilities
servicing the real properties owned, leased, or used by OPD are adequate to
permit the continued operation of their respective businesses, and there are no
pending or, to the best knowledge of OPD, threatened zoning, condemnation or
eminent domain proceedings, building, utility, or other moratoria, or
injunctions or court orders which would materially and adversely affect such
continued operation. Schedule 5.14 lists, and OPD has furnished or made
available to Unimag, copies of all engineering, geologic, and environmental
reports prepared by or for OPD or with respect to the real property so owned,
leased or used by it in its possession which OPD has been able to reasonably
locate after conducting a good-faith review.
Except as set forth in Schedule 5.14, no real or
personal property owned, leased, or used by OPD (with respect to its Wholesale
Periodical Business) has been used to produce, process, store, handle, or
transport any hazardous or toxic substance or waste (as those terms are defined
or described in any of the applicable laws relating to the protection,
preservation, conservation, restoration, or quality of the environment), except
to the extent immaterial quantities of hazardous substances are used as an
incidental aspect of the operation of its
- 21 -
<PAGE> 28
business. Except as set forth in Schedule 5.14, no hazardous or toxic
substance or waste has been disposed of, released or discharged on, leaked
from, or has otherwise contaminated any real property so owned, leased, or used
by OPD. Except as set forth in Schedule 5.14, no asbestos or substances
containing material quantities of asbestos have been installed in any such
property. Except as set forth in Schedule 5.14, there are no oil or gas wells
capped or uncapped or piping, structures, fixtures or other appliances relating
thereto on or about any such property and no such property has been used as a
landfill.
Section 5.15 BROKERS AND FINDERS. No investment banker, broker,
finder, or other intermediary: (a) has been retained by or is authorized to act
on behalf of OPD or any of its shareholders; (b) has submitted the transactions
contemplated by this Agreement to OPD or any of its shareholders; or (c) is or
might be entitled to any fee, commission, or other payment from OPD as a direct
or indirect result of the transactions contemplated by this Agreement.
Section 5.16 LEGAL PROCEEDINGS. Except as described in Schedule
5.16: (a) there are no (and over the last three years there have been no)
Actions pending or, to the best knowledge of OPD, threatened against or
relating to OPD (with respect to its Wholesale Periodical Business), or any of
its officers, directors, shareholders, agents, or representatives in connection
with its business or affairs, before any federal, state, local, or foreign
court or governmental body in which the amount in dispute exceeds (or exceeded)
$25,000 or which has or could result in liability or loss for OPD of more than
$25,000; and (b) to the best knowledge of OPD, there exist no disputes,
conflicts, or circumstances providing the basis for a dispute or conflict which
could reasonably be expected to result in any such Action. There are no
Actions pending or, to the best knowledge of OPD, threatened for the purpose of
enjoining or preventing this Agreement or any other transaction contemplated by
this Agreement or otherwise challenging the validity or propriety of the
transactions contemplated by this Agreement. Except as disclosed in Schedule
5.16, OPD (with respect to its Wholesale Periodical Business) is not subject to
any judgment, order or decree, or any governmental restriction, which has a
reasonable probability of having a material adverse effect on its business
operations, assets, properties, condition (financial or otherwise), or
prospects.
Section 5.17 ERISA.
(a) Schedule 5.17(a) identifies each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA") which (i) is subject to any
provision of ERISA, and (ii) is or was at any time during the last 5
years maintained, administered, or contributed to by OPD (with respect
to its Wholesale Periodical Business) or any affiliate (as defined
below) and covers any employee or former employee of OPD or any
affiliate or under which OPD or any affiliate has any liability.
Copies of such plans (and, if applicable, related trust agreements)
and all amendments thereto have been furnished to Unimag together with
the three most recent annual reports (Form 5500 and all related
schedules) and actuarial valuation reports, if any, prepared in
connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans". For purposes of this
section, "affiliate" of any person or entity means (A) any other
person or entity which, together with such person or entity, would be
treated as a single employer under Section 414 of
- 22 -
<PAGE> 29
the Internal Revenue Code of 1986, as amended (the "Code"), or (B) is
an "affiliate," whether or not incorporated, as defined in Section
407(d)(7) of ERISA, of such person or entity. The only Employee Plans
which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the
"Pension Plans") are identified as such on Schedule 5.17(a).
(b) Except as set forth in Schedule 5.17(b), no
Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in
Section 3(35) and subject to Title IV of ERISA, nor does OPD (with
respect to its Wholesale Periodical Business) have any obligation to
create, maintain, or contribute to any such "multiemployer plan" or
"defined benefit plan". No Employee Plan is maintained in connection
with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the
Code, has been incurred with respect to any Employee Plan, whether or
not waived. Full payment has been made of all amounts which OPD is
required to have paid as contributions to or benefits under any
Employee Plan as of the end of the most recent fiscal year thereof,
and there are no unfunded obligations under any Employee Plan. OPD
knows of no "reportable event," within the meaning of Section 4043 of
ERISA, and no event described in Section 4041, 4042, 4062 or 4063 of
ERISA has occurred in connection with any Employee Plan. No condition
exists and no event has occurred which could constitute grounds for
termination of any Employee Plan, and neither OPD nor any of its
affiliates has incurred any material liability under Title IV of ERISA
arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of
ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has
or will make OPD or any officer or director of OPD, subject to any
liability under Title I of ERISA or liable for any tax pursuant to
Section 4975 of the Code. There is no pending or, to the best
knowledge of OPD, threatened litigation, arbitration, disputed claim,
adjudication, audit, examination, or other proceeding with respect to
any Employee Plan or any fiduciary or administrator thereof in their
capacities as such.
(c) Except as set forth in Schedule 5.17(c), each
Employee Plan which is intended to be qualified under Section 401(a)
of the Code is, to the best knowledge of OPD, so qualified and has
been so qualified during the period from its adoption to date, and
each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. OPD has furnished to Unimag copies of the
most recent Internal Revenue Service determination letters with
respect to each such plan for which it is the plan sponsor. Except as
set forth in Schedule 5.17(c), to the best knowledge of OPD, each
Employee Plan has been maintained in compliance with its terms and the
requirements prescribed by any and all statutes, orders, rules, and
regulations, including but not limited to ERISA and the Code, which
are applicable to such plan.
(d) Except as set forth in Schedule 5.17(d),
there is no contract, agreement, plan, or arrangement covering any
employee or former employee of OPD or any affiliate
- 23 -
<PAGE> 30
that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of the
Code.
(e) Schedule 5.17(e) identifies each employment,
severance, or other similar contract, arrangement, or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, or for deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not
an Employee Plan, (ii) is entered into, maintained, or contributed to
by OPD (with respect to its Wholesale Periodical Business) or any of
its affiliates, and (iii) covers any employee or former employee of
OPD or any affiliates. Such contracts, plans, and arrangements as are
described above, copies or descriptions of which have been furnished
previously to Unimag, are referred to collectively herein as the
"Benefit Arrangements". Each Benefit Arrangement has been maintained
in substantial compliance with its terms and with requirements
prescribed by any and all statutes, orders, rules, and regulations
that are applicable to such Benefit Arrangement.
(f) Except as set forth in Schedule 5.17(f),
there is no liability in respect of post-retirement health and medical
benefits for current or retired employees of OPD (with respect to its
Wholesale Periodical Business) or any of its affiliates. Except as
set forth in Schedule 5.17(f), OPD has reserved its right to amend or
terminate any Employee Plan or Benefit Arrangement providing health or
medical benefits in respect of any active employee under the terms of
any such plan and descriptions thereof given to employees. With
respect to any of OPD's Employee Plans which are "group health plans"
under Section 4980B of the Code and Section 607(1) of ERISA, there has
been substantial compliance with all requirements imposed thereunder.
(g) Except as set forth in Schedule 5.17(g),
there has been no amendment to, written interpretation, or
announcement (whether or not written) by OPD or any of its affiliates
relating to any Employee Plan or Benefit Arrangement which would
increase the expense of maintaining such Employee Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended immediately prior to the Closing Date.
(h) Except as set forth in Schedule 5.17(h), OPD
(with respect to its Wholesale Periodical Business) is not a party or
subject to any union contract or any material employment contract or
arrangement providing for annual future compensation of more than
$25,000 to any officer, consultant, director or employee.
(i) Except as set forth in Schedule 5.17(i), the
execution, delivery, and consummation of the transactions contemplated
by this Agreement do not constitute a triggering event under any
Employee Plan, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or
may result in any payment (of severance pay or any other type),
acceleration, increase in
- 24 -
<PAGE> 31
vesting, or increase in benefits to any current or former participant,
employee, or director of OPD.
(j) Any reference to ERISA or the Code or any
section thereof shall be construed to include all amendments thereto
and applicable regulations and administrative rulings issued
thereunder.
Section 5.18 CONTRACTS. Schedule 5.18 lists and briefly describes
all contracts, agreements, leases, arrangements, and understandings (written or
oral) ("Contracts") to which OPD (with respect to its Wholesale Periodical
Business) is a party and which fall within any of the following categories:
(a) Contracts with any of its top 20 customers based on revenues for the
12-month period ended June 30, 1996; (b) Contracts not entered into in the
ordinary course of business (including without limitation Contracts with any
present or former shareholder, director, or officer, or any person related by
blood or marriage to any such person, or any person controlling, controlled by,
or under common control with any such person, or with any employee, agent, or
consultant not terminable at will); (c) Contracts which are service contracts
(excluding contracts for delivery services entered into in the ordinary course
of business) or equipment leases involving payments of more than $10,000 per
year; (d) Contracts containing covenants or restrictions purporting to limit
the freedom of OPD to compete in any line of business in any geographic area or
to employ or otherwise engage any person; (e) Contracts which extend beyond one
year, unless cancelable on 60 or fewer days' notice without any liability,
penalty, or premium; (f) Contracts which relate to any borrowings or guarantees
in excess of $25,000; (g) Contracts containing any obligation or commitment
which limits the freedom of OPD to sell, lease, or otherwise distribute any
product or customer information; or (h) Contracts which are not listed above
but which are material to the condition (financial or otherwise), operations,
assets, prospects, or business of OPD. All such Contracts are valid and
binding and in full force and effect, and, to the best knowledge of OPD,
enforceable in accordance with their respective terms in all material respects.
Except as set forth in Schedule 5.18, neither OPD nor, to the best knowledge of
OPD, any other party thereto, is in violation of, in default in respect of,
nor, to the best knowledge of OPD, has there occurred an event or condition
which, with the passage of time or giving of notice (or both) would constitute
a default under any such Contract.
Section 5.19 ACCOUNTS RECEIVABLE. Except as set forth in Schedule
5.19, all accounts and notes receivable (customer, vendor, and other) of OPD
(with respect to its Wholesale Periodical Business) as of June 30, 1996, are
and will be collectible in full, after application of a reserve for
uncollectible accounts determined in accordance with generally accepted
accounting principles, and are and will be valid and subsisting (unless
previously paid) and represent and will represent sales actually made (net of
all applicable credits and rebates) in the ordinary and usual course of
business consistent with past practices.
From the date of this Agreement through the Closing
Date, no customer or vendor accounts receivable of OPD (with respect to its
Wholesale Periodical Business) will be converted to notes receivable or written
off without the prior written consent of Unimag.
- 25 -
<PAGE> 32
Section 5.20 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 5.20, neither the execution and delivery of this Agreement by OPD, nor
compliance by OPD with the terms and provisions of this Agreement, including
without limitation the consummation of the transactions contemplated by this
Agreement, will: (a) violate any Applicable Laws or Permits; (b) conflict with
or result in the breach of any term, condition, or provision of (i) the
articles of incorporation, code of regulations, or other organizational
document of OPD or (ii) any material agreement, deed, contract, undertaking,
mortgage, indenture, writ, order, decree, restriction, legal obligation, or
instrument to which OPD is a party or by which OPD or any of its assets or
properties are or may be bound or affected; or (iii) any Contract; (c)
constitute a default (or an event which, with the giving of notice, the passage
of time, or both, would constitute a default) thereunder; (d) result in the
creation or imposition of any lien, security interest, charge or encumbrance,
or restriction of any nature whatsoever with respect to any material properties
or assets of OPD; or (e) give to others any interest or rights, including
rights of termination, acceleration, or cancellation in or with respect to any
of the material properties, assets, contracts, or business of OPD.
Section 5.21 BOOKS OF ACCOUNT; RECORDS. The general ledgers,
stock record books, minute books and other material records relating to the
assets, properties, contracts, and outstanding legal obligations of OPD (with
respect to its Wholesale Periodical Business) are, in all material respects,
complete and correct, and have been maintained in accordance with good business
practices and the matters contained therein are, to the extent required by
generally accepted accounting principles, accurately reflected in the Unaudited
Statements, except as may be set forth in Section 5.5.
Section 5.22 OFFICERS, EMPLOYEES, AND COMPENSATION. Schedule 5.22
lists and describes the current compensation of the five most highly
compensated managers of OPD (with respect to its Wholesale Periodical Business)
and any other employee of OPD (with respect to its Wholesale Periodical
Business) whose total current salary and bonus exceeds $50,000. Except as
disclosed in Schedule 5.22: (a) there are no other forms of compensation paid
to any such director, officer, or employee of OPD; (b) the amounts accrued or
to be accrued on the books and records of OPD for vacation pay, sick pay, and
all commissions and other fees payable to agents, salespersons and
representatives of OPD will be adequate to cover its liabilities for all such
items; (c) OPD (with respect to its Wholesale Periodical Business) has not
become obligated, directly or indirectly, to any shareholder, director, or
officer or any person related to any such person by blood or marriage, except
for current liability for such compensation; and (d) to the best knowledge of
OPD, no shareholder, director, officer, agent, employee, or representative of
OPD (with respect to its Wholesale Periodical Business) or any person related
to such person by blood or marriage holds any position or office with or has
any material financial interest, direct or indirect, in any supplier, customer,
or account of, or other outside business which has material transactions with,
OPD. OPD does not have any agreement or understanding with any shareholder,
director, officer, agent, employee, or representative of OPD which would
influence any such person not to become associated with Unimag from and after
the Closing or not to serve OPD after the Closing in a capacity similar to the
capacity presently held.
- 26 -
<PAGE> 33
Section 5.23 LABOR RELATIONS. Except as set forth in Schedule
5.23, there is no unfair labor practice complaint against OPD (with respect to
its Wholesale Periodical Business) pending before the National Labor Relations
Board. Except as set forth in Schedule 5.23, OPD (with respect to its
Wholesale Periodical Business) is not a party to or bound by any collective
bargaining agreement and there is no labor strike, dispute, slowdown or
stoppage, or any union organizing campaign, actually pending or, to the best
knowledge of OPD, threatened against or involving OPD. Except as set forth in
Schedule 5.23, no labor grievance has been filed against OPD (with respect to
its Wholesale Periodical Business) in the last three years, and no arbitration
proceeding has arisen out of or under a collective bargaining or other labor
agreement and is pending and no claim therefor has been asserted. Except as
set forth in Schedule 5.23, no collective bargaining or other labor agreement
is currently being negotiated by OPD and no union or collective bargaining unit
represents any of its employees. OPD (with respect to its Wholesale Periodical
Business) has not experienced any work stoppage or other material labor
difficulty during the past five years.
Section 5.24 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 5.24, no supplier of OPD (with respect to its Wholesale Periodical
Business) has indicated that it shall stop, or decrease the rate of, or
substantially increase its fees for, supplying products or services to OPD
either prior to, or following the consummation of, the Closing. Schedule 5.24
sets forth a list of all customers which have terminated their relationships
with OPD since December 31, 1995, or have notified OPD since December 31, 1995,
that they intend to terminate their relationships with OPD. Except as set
forth in Schedule 5.24, OPD does not know of any customers of OPD (with respect
to its Wholesale Periodical Business) which alone or in the aggregate comprise
more than 1% of actual annualized sales as shown in the Unaudited Statements,
which have indicated that they are considering or planning to (a) discontinue
being customers of OPD, (b) discontinue being customers of Unimag or OPD after
the Escrow Closing or the Closing, or (c) substantially decrease the amount of
their purchasing from OPD or Unimag or otherwise materially alter the terms of
such purchasing either before or after the Closing.
Section 5.25 SPECIAL TERMS; PRODUCT WARRANTIES. Schedule 5.25
sets forth the terms and conditions of any credit, discount, or other terms
given by OPD (with respect to its Wholesale Periodical Business) to any
customer outside the usual and ordinary course of business.
Section 5.26 BUSINESSES OF OPD. OPD is and has been, engaged in
the magazine, book, newspaper, and sundries wholesale distribution and related
businesses for more than 30 years, and is presently engaged in no other
business whatsoever except as may be incidental to the foregoing, except in the
case of businesses being retained by OPD and not being contributed by OPD to
Unimag.
Section 5.27 INVESTMENT REPRESENTATION. OPD acknowledges,
represents, and warrants to Unimag that (a) it is an "accredited investor," as
that term is defined in Regulation D, (b) OPD has been provided the opportunity
to ask questions and receive answers from Unimag concerning the business
operations and financial condition of Unimag and the terms and conditions of
the transactions described in this Agreement, and to obtain any additional
information necessary to verify the accuracy of information provided to OPD by
Unimag, and (c) OPD is acquiring the Unimag Shares and the Unimag Debentures to
be issued pursuant to this Agreement for OPD's
- 27 -
<PAGE> 34
own account for investment only and not with a view to the distribution
thereof. OPD has not (and, prior to the Closing, will not have) entered into
any agreement to dispose of any Unimag Shares now owned or hereafter received
at the Closing of the Exchange (except for the contingent obligation to return
Unimag Shares to Unimag pursuant to the valuation adjustment provisions of
Section 3.2(b)).
Section 5.28 SECTION 351 EXCHANGE. It is the intention of OPD to
treat the acquisition of the Acquired Assets pursuant to this Agreement, along
with other exchanges and acquisitions occurring before and after the closing of
the transactions contemplated by this Agreement, as an exchange under Section
351 of the Code, subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). OPD shall be solely responsible for
evaluating (and determining the appropriate methods required for reporting) all
federal, state, and local income and other tax consequences to it which will
and may result from the transactions contemplated by this Agreement.
ARTICLE 6
COVENANTS OF THE PARTIES
Section 6.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable
efforts to take all actions and do all things necessary, proper, or
advisable to consummate the Exchange and the other transactions
contemplated by this Agreement, including without limitation using all
reasonable efforts to cause the conditions set forth in Article 7 of
this Agreement for which such Party is wholly or partially responsible
to be satisfied, as soon as reasonably practicable and to prepare,
execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as
any other Party may reasonably request.
(b) HSR Filings. The Parties shall cooperate
with each other with respect to the preparation and filing of any
Notification and Report Forms and related materials that they may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act
with respect to the Exchange and shall promptly make any further
filings pursuant the HSR Act that may be necessary, proper, or
advisable.
(c) Other Governmental Matters. Each Party shall
use all reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
- 28 -
<PAGE> 35
(d) Tax-Free Treatment. Each of the Parties
shall use all reasonable efforts to cause the Exchange to constitute
(along with other exchanges and acquisitions occurring before and
after the Exchange) a tax-free exchange under Section 351 of the Code,
subject to the rules of Section 351 of the Code and the regulations
promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Each of the Parties shall
be solely responsible for evaluating (and determining the appropriate
methods required for reporting) all federal, state, and local income
and other tax consequences to each such Party which will and may
result from the transactions contemplated by this Agreement.
(e) Bulk Transfer Laws. The Parties covenant and
acknowledge that neither Party will comply in any respect with the
provisions of any applicable bulk transfer laws in connection with the
Exchange and other transactions contemplated by this Agreement.
Notwithstanding anything in this Agreement to the contrary, (i) any
Damages (defined in Section 9.2(a)) suffered by Unimag in any way
related to such failure to comply shall be treated as an Indemnifiable
OPD Claim (defined in Section 9.2(a)), and (ii) any Damages suffered
by OPD in any way related to such failure to comply shall not be
treated as an Indemnifiable Unimag Claim (defined in Section 9.3(a)).
Section 6.2 COVENANTS OF OPD. OPD covenants and agrees that:
(a) Conduct of Business. Except as otherwise
expressly contemplated by this Agreement, from the date of this
Agreement until the Closing Date (the "Exchange Period"): (i) OPD
shall not take or permit to be taken any action or do or permit to be
done anything in the conduct of the business of OPD (with respect to
its Wholesale Periodical Business) or otherwise, that would be
contrary to or in breach of any of the terms or provisions of this
Agreement or which would cause any of its representations and
warranties contained in this Agreement to be or become untrue in any
material respect; (ii) OPD (with respect to its Wholesale Periodical
Business) shall conduct its business in the ordinary course consistent
with past practices; (iii) OPD shall permit Unimag to manage and
oversee the Wholesale Periodical Business operations of OPD as
provided in Section 6.3(b) and consistent with the terms and
conditions of the Joint Operating Agreement between Unimag and OPD
dated March 1, 1996 (the "Joint Operating Agreement"); and (iv) OPD
shall use all reasonable efforts to preserve the business organization
intact, keeping available to OPD and Unimag the present service of
OPD's employees, and preserving for OPD and Unimag the goodwill of
OPD's suppliers, customers, and others with whom business
relationships exist. Without limiting the generality of the
foregoing, during the Exchange Period, except as otherwise expressly
contemplated by this Agreement or with the prior written consent of
Unimag, OPD shall not:
(A) Adopt or propose any change in its
articles of incorporation or code of regulations;
adjust, split, combine, or reclassify any of its
capital stock; or make any other changes in its
authorized or issued capital stock;
- 29 -
<PAGE> 36
(B) Redeem, purchase, or otherwise
acquire any shares of its capital stock; grant any
person or entity any right to acquire any shares of
its capital stock; issue, deliver, sell, or agree to
issue, deliver, or sell, any additional shares of its
capital stock or any other securities; or enter into
any agreement or arrangement with respect to the sale
or voting of its shares of capital stock;
(C) Merge or consolidate with any other
person or entity or acquire a material amount of
assets of any other person or entity except for the
acquisition of inventory in the ordinary course of
business consistent with past practices;
(D) Sell, lease, license, pledge,
encumber, or otherwise dispose of any of its Wholesale
Periodical Business operating assets other than sales
of inventory in the ordinary course of business
consistent with past practices;
(E) With respect to its Wholesale
Periodical Business, incur, create, assume, or
otherwise become liable for any indebtedness other
than indebtedness incurred in the ordinary course of
business consistent with past practices;
(F) Except for those arrangements
disclosed in Schedule 6.2(a), enter into or modify
any employment, severance, termination, or similar
agreement or arrangement with, or grant any bonuses,
salary increases, severance, or termination pay to,
any officer, director, consultant, or employee of
OPD;
(G) With respect to its Wholesale
Periodical Business, adopt, amend, or terminate any
employee benefit plan or increase, amend, or
terminate any benefits to officers, directors,
consultants, or employees;
(H) With respect to its Wholesale
Periodical Business, modify in any material way or
terminate any of the contracts listed or required to
be listed in Schedule 5.18, except in the ordinary
course of business consistent with past practices;
(I) With respect to its Wholesale
Periodical Business, except as disclosed in Schedule
5.16, settle any claims, litigation, or actions,
whether now pending or hereafter made or brought,
unless such settlement does not involve a payment by
OPD of more than $25,000;
(J) With respect to its Wholesale
Periodical Business, engage in any transaction, or
enter into any agreement, contract, lease, or other
arrangement or understanding, with any affiliate of
OPD, except for transactions expressly permitted by
this Agreement; or
(K) Agree or commit to do any of the
foregoing.
provided, however, that nothing in this Section 6.2(a) shall prohibit
OPD from transferring to its shareholders or their affiliates,
affiliate accounts receivable, affiliate notes receivable,
- 30 -
<PAGE> 37
and airplanes which are not necessary for the conduct of ordinary
business operations. Any such transfers shall be utilized in
determining the actual tangible net worth of OPD in connection with
the valuation adjustment provided for in Section 3.2(b).
(b) Exclusive Rights. OPD shall not, directly or
indirectly, solicit (including without limitation by way of furnishing
or making available any non-public information concerning the
business, properties, or assets of OPD) or engage in negotiations or
discussions with, disclose any of the terms of this Agreement to,
accept any offer from, furnish any information to, or otherwise
cooperate, assist, or participate with any person or organization
(other than Unimag and its representatives) regarding any Acquisition
Proposal (defined below), except that any person or entity making an
Acquisition Proposal may be informed of the restrictions contained in
this sentence. OPD shall notify Unimag promptly by telephone, and
thereafter promptly confirm in writing, if any such information is
requested from, or any Acquisition Proposal is received by, OPD. For
purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal received by OPD prior to the Closing Date regarding
the acquisition by purchase, merger, lease, or otherwise of any
capital stock of OPD, the Wholesale Periodical Business of OPD, or any
material assets, customer relationships, or other operations of the
Wholesale Periodical Business of OPD.
(c) Access to Records and Other Due Diligence.
During the Exchange Period, OPD shall: (i) make or cause to be made
available to Unimag and its representatives, attorneys, accountants,
and agents, for examination, inspection, and review, the assets and
property of OPD and all books, contracts, agreements, commitments,
records, and documents of every kind relating to OPD's Wholesale
Periodical Business, and shall permit Unimag and its representatives,
attorneys, accountants and agents to have access to the same at all
reasonable times, including without limitation access to all tax
returns filed and in preparation and all review and other accounting
work papers of OPD's independent accountants and all reports to
management and related responses; and (ii) permit representatives of
Unimag to interview suppliers, customers, and personnel of OPD,
provided, however, that an OPD representative shall be entitled to be
present at and participate in each such interview.
(d) Disclosures. After the date of this
Agreement, OPD shall not: (i) disclose to any person, association,
firm, corporation or other entity (other than Unimag or those
designated in writing by Unimag) in any manner, directly or
indirectly, any proprietary information or data relevant to the
Wholesale Periodical Business of OPD, whether of a technical or
commercial nature; or (ii) use, or permit or assist, by acquiescence
or otherwise, any person, association, firm, corporation, or other
entity (other than Unimag or those designated in writing by Unimag) to
use, in any manner, directly or indirectly, any such information or
data, excepting only use of such data or information as is at the time
generally known to the public and which did not become generally known
through any breach of any provision of this section by OPD. Upon the
termination of this Agreement for any reason, OPD shall promptly cause
all copies of such information and data in its possession to be
returned to Unimag.
- 31 -
<PAGE> 38
(e) Employee Retention. OPD understands that in
Unimag's view it is essential to the successful operation of the
business of OPD that OPD assist Unimag in retaining substantially
unimpaired the operating organization of OPD (with respect to its
Wholesale Periodical Business). During the Exchange Period, OPD shall
not take any action which would induce any employee or representative
of OPD or Unimag not to become or continue as an employee or
representative of OPD or Unimag.
(f) Notices of Certain Events. OPD shall
promptly notify Unimag of:
(i) Any notice or other communication
from any person or entity alleging that the consent
of such person or entity is or may be required in
connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication
from any governmental or regulatory agency or
authority in connection with the transactions
contemplated by this Agreement; and
(iii) Any actions, suits, claims,
investigations, or proceedings commenced or, to the
knowledge of OPD, threatened against, relating to, or
involving or otherwise affecting OPD (with respect to
its Wholesale Periodical Business) or any of its
property which, if in existence on the date of this
Agreement would have been required to have been
disclosed by OPD pursuant to Section 5.16 or which
relate to the consummation of the transactions
contemplated by this Agreement.
(g) Title Evidence. OPD shall deliver to Unimag
as soon as practicable after the date of this Agreement title
opinions, title reports, or other evidence of title, in form and
substance reasonably satisfactory to Unimag, showing in OPD
indefeasible fee simple title in all of the facilities and real
property owned by OPD (with respect to its Wholesale Periodical
Business), subject only to such exceptions, encumbrances, or other
matters as are reasonably satisfactory to Unimag.
(h) Audited Financial Statements. OPD shall
deliver to Unimag, within 30 days after the Escrow Closing Date,
audited financial statements for OPD's Wholesale Periodical Business
for the fiscal year ended December 31, 1995 (the "1995 Wholesale
Periodical Business Financial Statements"). In addition, OPD shall
deliver to Unimag, within 75 days after the Escrow Closing Date,
audited financial statements for OPD's Wholesale Periodical Business
for the fiscal year ended December 31, 1994 (the "1994 Wholesale
Periodical Business Financial Statements", and, together with the 1995
Wholesale Periodical Business Financial Statements, the "Financial
Statements"). The Financial Statements shall be prepared from and
shall be in accordance with the books and records of OPD, prepared in
conformity with generally accepted accounting principles applied on a
consistent basis, including without limitation the generally accepted
accounting principles set forth on Schedule 3.2, but subject to the
exceptions to generally accepted accounting principles also set forth
on Schedule 3.2, and fairly present in all material respects the
financial condition of OPD (with respect to its Wholesale Periodical
Business) as of the dates stated and the results of operations of
- 32 -
<PAGE> 39
OPD (with respect to its Wholesale Periodical Business) for the
periods then ended in accordance with such practices. OPD shall cause
Arthur Andersen LLP to perform the December 31, 1994 audit, and OPD
shall pay all costs and expenses incurred in connection with such
audits. Unimag shall cause Arthur Andersen LLP to perform the
December 31, 1995, audit (and also the audit of the June 30th Balance
Sheet), and Unimag shall pay all costs and expenses incurred in
connection with such audits.
(i) Noncompetition. During the five year period
beginning on the Escrow Closing Date, OPD shall not, directly or
indirectly whether in its own capacity or as a shareholder or other
owner, partner, member, manager, consultant, creditor, or agent of any
person, firm, association, organization, or other entity:
(i) Enter into or engage in any business
anywhere in the United States which competes with
Unimag's, or any of its subsidiaries', wholesale and
retail magazine, book, newspaper, and sundries
distribution and related business (the "Unimag
Business") during such period;
(ii) Solicit customers or business
patronage anywhere in the United States which results
in competition with the Unimag Business; or
(iii) Promote or assist, financially or
otherwise, any person, firm, association, corporation
or other entity engaged in any business which
competes with the Unimag Business anywhere in the
United States.
The foregoing covenant shall not be deemed to have
been violated solely by the ownership of shares of any class of
capital stock of any publicly traded corporation involved in the
wholesale and retail magazine, book, newspaper, and sundries
distribution and related businesses, so long as the aggregate holdings
of OPD in such publicly traded corporation other than Unimag
represents less than 1% of such corporation's outstanding capital
stock.
OPD acknowledges that (a) the provisions of this
section are fundamental and essential for the protection of Unimag's
legitimate business and proprietary interests, and (b) such provisions
are reasonable and appropriate in all respects.
Section 6.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as
otherwise expressly contemplated by this Agreement, during the
Exchange Period: (i) Unimag shall not take or permit to be taken any
action or do or permit to be done anything in the conduct of the
business of Unimag, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of its representations and warranties contained in
this Agreement to be or become untrue in any material respect; and
(ii) Unimag shall conduct its business in the ordinary course
consistent with past practices.
- 33 -
<PAGE> 40
(b) Joint Operations. Notwithstanding anything
in this Agreement to the contrary, from and after the Escrow Closing
Date, Unimag shall manage and oversee the operation of the business of
OPD (with respect to its Wholesale Periodical Business) as if the
Exchange had already occurred. Without limiting the generality of the
foregoing, such management and oversight shall include all of Unimag's
rights as to such matters set forth in the Joint Operating Agreement.
(c) Consummation of Acquisitions. Unimag shall
use all reasonable efforts to take all actions and do all things
necessary, proper, or advisable to consummate the: (i) acquisition of
Michiana News Service, Inc., a Michigan corporation ("Michiana"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Michiana, and all of the
shareholders of Michiana (the "Michiana Acquisition"); (ii)
acquisition of The Stoll Companies, an Ohio corporation ("Stoll"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Stoll, and all of the
shareholders of Stoll (the "Stoll Acquisition"); and (iii) acquisition
of certain assets and liabilities of Northern News Company, a Michigan
corporation ("Northern"), and Wholesalers Leasing Corp., a Delaware
corporation, pursuant to and upon the terms and conditions of the
respective Asset Transfer and Exchange Agreements between Unimag and
those companies and the acquisition of Read-mor Book Stores, Inc., an
Ohio corporation, and The Scherer Companies, a Delaware corporation,
pursuant to and upon the terms and conditions of the respective Stock
Transfer and Exchange Agreements among Unimag, each of those
companies, and all of their shareholders (collectively, the "Scherer
Companies Acquisitions"). Neither the acquisition agreement for the
Michiana Acquisition (the "Michiana Acquisition Agreement"), the
acquisition agreement for the Stoll Acquisition (the "Stoll
Acquisition Agreement"), nor the acquisition agreements for the
Scherer Companies Acquisitions (the "Scherer Companies Acquisition
Agreements") shall be modified or amended, in any material respect,
without the prior written consent of OPD, the Unimag Board of
Directors, Stoll, Michiana, and each of the companies which is a part
of the Scherer Companies Acquisitions (the "Scherer Companies"). In
addition to the transferors described in this Section 6.3(c), the
remainder of the control group (as defined in Section 368(c) of the
Code) of Unimag is specified in Schedule 1.2.
(d) Confidential Information. Upon the
termination of this Agreement for any reason, Unimag shall promptly
cause all proprietary information or data relevant to the business of
OPD, whether of a technical, financial or commercial nature and
whether furnished by OPD hereunder or otherwise received by Unimag,
and all copies, extracts and summaries thereof in its possession or in
the possession of any of its officers, shareholders or agents, to be
promptly returned to OPD, except for any such information relating to
customers of OPD obtained from OPD in connection with the joint
business operations of Unimag and OPD pursuant to the Joint Operating
Agreement.
- 34 -
<PAGE> 41
ARTICLE 7
CONDITIONS
Section 7.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
(a) Completion of Schedules and Exhibits. Except
for the Debenture Agreement attached as Exhibit A, Schedules 1.1(a)
through (n), Schedule 1.3, and Schedule 2.1, the Parties acknowledge
that at the time of the execution of this Agreement the schedules and
exhibits will not be attached. The Parties shall proceed in good faith
to finalize the form and content of such schedules and exhibits in a
manner consistent with the terms and conditions of this Agreement and
otherwise mutually acceptable to both Parties. Upon finalizing the
form and content of such schedules and exhibits they shall be attached
to and become a part of this Agreement as if they had been attached to
this Agreement at the time of execution.
(b) No Adverse Proceeding. No temporary
restraining order, preliminary or permanent injunction, or other order
or decree which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
(c) Certain Approvals. Unimag and OPD each shall
have filed any Notification and Report Forms and related materials
that either such Party may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department
of Justice under the HSR Act with respect to the Exchange, and all
waiting periods applicable to the consummation of the Exchange under
the HSR Act shall have expired or been terminated.
(d) Other Governmental Approvals. Any
governmental or other approvals or reviews of this Agreement and the
transactions contemplated by this Agreement required under any
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated thereunder, or any corporate governance
document shall have been received, except for any filings which Unimag
must make with the Securities and Exchange Commission in connection
with obtaining approval from Unimag's shareholders of the Exchange and
other transactions contemplated by this Agreement.
(e) Escrow Closing of Certain Acquisitions. OPD
shall have received copies of the final form of the Michiana
Acquisition Agreement, the Stoll Acquisition Agreement and the Scherer
Companies Acquisition Agreements, all of which shall be of a form and
content substantially similar to this Agreement, with the exception
that the Michiana Acquisition Agreement, the Stoll Acquisition
Agreement, and certain of the
- 35 -
<PAGE> 42
Scherer Companies Acquisition Agreements shall be for the exchange of
stock and debentures. In addition, Unimag shall have consummated the
escrow closings of the Scherer Companies Acquisition for Northern, the
Michiana Acquisition, and the Stoll Acquisition.
(f) Tax Commentary. Unimag shall have received a
tax commentary, dated the Escrow Closing Date, of Arthur Andersen LLP,
in form and substance satisfactory to Unimag, as to the qualification
of the Exchange for Unimag as a tax-free exchange under Section 351 of
the Code, and Unimag shall have delivered a copy of such opinion to
OPD.
Section 7.2 CONDITIONS TO OBLIGATIONS OF OPD TO COMPLETE THE
ESCROW CLOSING. The obligations of OPD to complete the Escrow Closing and to
consummate other transactions contemplated by this Agreement to be completed at
the Escrow Closing shall be subject to the fulfillment of all of the following
conditions unless waived by OPD in writing:
(a) Representations and Warranties. The
representations and warranties of Unimag set forth in Article 4 of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Escrow Closing Date as
though made at and as of the Escrow Closing Date.
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing Date.
(c) Certificate. Unimag shall have furnished OPD
with a certificate dated the Escrow Closing Date signed by its
chairman, president, or any vice president to the effect that the
conditions set forth in Section 7.2(a) and Section 7.2(b) have been
satisfied.
(d) Opinion of Counsel. OPD shall have received
the legal opinion, dated the Escrow Closing Date, of Baker &
Hostetler, counsel to Unimag, in substantially the form attached to
this Agreement as Exhibit B.
(e) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise), or prospects of Unimag since the date of the 10-Q or of
the Scherer Companies, Stoll or Michiana since December 31, 1995.
(f) Due Diligence. OPD's completion of its due
diligence review of Unimag, Stoll, Michiana, and the Scherer Companies
with results satisfactory to OPD on or before September 6, 1996.
(g) Unimag Shareholder Letters. As of the date
of this Agreement, shareholders of Unimag who have the right to vote
more than 50% of the outstanding Unimag Shares intend to submit
letters to Unimag indicating they intend to vote in favor
- 36 -
<PAGE> 43
of the Exchange, the Stoll Acquisition, the Michiana Acquisition, and
the Scherer Companies Acquisitions at the Unimag shareholders meeting
to be held for that purpose. Copies of these letters will be provided
to OPD by Unimag prior to the Escrow Closing.
(h) Other Documents. Unimag shall have delivered
the following items to OPD:
(i) Unimag's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of
Unimag, issued by the Ohio Secretary of State as of a
date not more than ten days prior to the Escrow
Closing Date;
(iii) The code of regulations of Unimag,
certified by the secretary of Unimag on the Escrow
Closing Date;
(iv) An assumption of the Assumed
Liabilities upon such reasonable and customary terms
and conditions as Unimag and OPD may agree; and
(v) Resolutions of the directors of
Unimag approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Unimag on
the Escrow Closing Date.
Section 7.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to consummate the Exchange and
complete the Escrow Closing and to consummate the other transactions
contemplated by this Agreement to be completed at the Escrow Closing shall be
subject to the fulfillment of all of the following conditions unless waived by
Unimag in writing:
(a) Representations and Warranties. The
representations and warranties of OPD set forth in Article 5 of this
Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Escrow Closing Date as though
made at and as of the Escrow Closing Date.
(b) Performance of Agreement. OPD shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
it under this Agreement at or prior to the Escrow Closing Date.
(c) Certificate. OPD shall have furnished Unimag
with a certificate dated the Escrow Closing Date signed on its behalf
by its chairman, president or any vice president to the effect that
the conditions set forth in Section 7.3(a) and Section 7.3(b) have
been satisfied.
- 37 -
<PAGE> 44
(d) Opinion of Counsel. Unimag shall have
received the legal opinion, dated the Escrow Closing Date, of legal
counsel to OPD, substantially in the form attached to this Agreement
as Exhibit C.
(e) Books and Records. OPD shall have delivered
to Unimag all corporate books and records and other materials of OPD
(with respect to its Wholesale Periodical Business), including without
limitation stock books and ledgers, minute books, bank account lists,
tax returns, and financial and operational records and materials.
Notwithstanding the foregoing, OPD shall retain possession and
ownership of the originals of its corporate governance documents and
records, but shall deliver to Unimag such copies thereof as Unimag may
request.
(f) Third Party Consents. Unimag shall have
received all necessary customer, vendor, and other third party
consents and approvals of this Agreement and the transactions
contemplated by this Agreement.
(g) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise) or prospects of OPD (with respect to its Wholesale
Periodical Business) from that reflected in the Unaudited Statements.
(h) Opinion of Independent Counsel. Unimag shall
have received the legal opinion, dated the Escrow Closing Date, of
legal counsel reasonably acceptable to Unimag and its counsel in the
form attached to this Agreement as Exhibit E.
(i) Other Documents. OPD shall have delivered
the following items to Unimag:
(i) OPD's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of OPD,
issued by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(iii) The code of regulations of OPD,
certified by the secretary of OPD on the Escrow
Closing Date;
(iv) The Transfer Documents for the
contribution, transfer, assignment, and conveyance of
the Acquired Assets upon such reasonable and
customary terms and conditions as Unimag and OPD may
agree; and
(v) The resolutions of the directors of
OPD approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of OPD on the
Escrow Closing Date.
- 38 -
<PAGE> 45
(j) Due Diligence. Unimag's completion of its
due diligence review with results satisfactory to Unimag on or before
September 6, 1996.
Section 7.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth
in Section 7.1, Section 7.2, and Section 7.3, the Parties shall hold the Escrow
Closing at which the Parties and Baker & Hostetler, as escrow agent ("Escrow
Agent"), shall execute and deliver the document escrow agreement in the form
attached to this Agreement as Exhibit D (the "Document Escrow Agreement"). The
Document Escrow Agreement shall provide, among other things, that at the Escrow
Closing this Agreement and all of the Additional Documents shall be deposited
with Escrow Agent to be held pursuant to the terms of the Document Escrow
Agreement and that upon the escrow closing of certain acquisitions and the
approval of the Exchange by Unimag's board of directors and shareholders this
Agreement and the Additional Documents shall be released and delivered to the
appropriate Party at the Escrow Closing and the Exchange and other transactions
contemplated by this Agreement shall be consummated.
Section 7.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of Other Acquisitions. Unimag
shall have consummated the escrow closings of the Michiana
Acquisition, the Stoll Acquisition and the remainder of the Scherer
Companies Acquisitions (except for the escrow closing for the
acquisition of Northern which was closed into escrow prior to the
Escrow Closing under this Agreement. Such escrow closings shall be
completed no later than September 28, 1996, and shall be substantially
similar to the Escrow Closing under this Agreement.
(b) Unimag Board of Directors Approval. The
Exchange and the Scherer Companies Acquisitions shall have been
approved by Unimag's board of directors.
(c) Unimag Shareholder Approval. The Exchange,
the Stoll Acquisition, the Michiana Acquisition, and the Scherer
Companies Acquisitions shall have been approved by the affirmative
vote of the shareholders of Unimag to the extent such approval is
required by the provisions of Ohio Revised Code Chapter 1701 and
Unimag's articles of incorporation.
ARTICLE 8
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION.
(a) Termination by OPD. This Agreement may be
terminated and cancelled prior to the Escrow Closing Date by OPD if:
(i) (A) any of the representations or
- 39 -
<PAGE> 46
warranties of Unimag contained in this Agreement shall prove to be
inaccurate in any material respect, or any covenant, agreement,
obligation, or condition to be performed or observed by Unimag under
this Agreement has not been performed or observed in any material
respect at or prior to the time specified in this Agreement, and (B)
such inaccuracy or failure shall not have been cured within 15
business days after receipt by Unimag of written notice of such
occurrence from OPD; (ii) any permanent injunction or other order of a
court or other competent authority preventing consummation of the
Exchange or any other transaction contemplated by this Agreement shall
have become final and nonappealable; (iii) so long as OPD is not in
material breach of any representation, warranty, covenant, or
agreement, if the Escrow Closing has not occurred on or before
September 28, 1996; or (iv) so long as OPD is not in material breach
of any representation, warranty, covenant, or agreement, if the Escrow
Closing has not occurred on or before December 31, 1996.
(b) Termination by Unimag. This Agreement may be
terminated and cancelled at any time prior to the Escrow Closing Date
by Unimag if: (i) (A) any of the representations or warranties of OPD
contained in this Agreement shall prove to be inaccurate in any
material respect, or any covenant, agreement, obligation, or condition
to be performed or observed by OPD under this Agreement has not been
performed or observed in any material respect at or prior to the time
specified in this Agreement, and (B) such inaccuracy or failure shall
not have been cured within 15 business days after receipt by OPD of
written notice of such occurrence from Unimag; (ii) any permanent
injunction or other order of a court or other competent authority
preventing consummation of the Exchange or any other transaction
contemplated by this Agreement shall have become final and
nonappealable; (iii) so long as Unimag is not in material breach of
any representation, warranty, covenant, or agreement, if the Escrow
Closing has not occurred on or before September 28, 1996; or (iv) so
long as Unimag is not in material breach of any representation,
warranty, covenant, or agreement, if the Escrow Closing has not
occurred on or before December 31, 1996.
Section 8.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the shareholders of OPD and the
Unimag shareholders, but, after such adoption, no amendment shall be made which
by law requires further adoption by the shareholders of OPD or the Unimag
shareholders without such further adoption. Notwithstanding the foregoing,
this Agreement may not be amended except by an instrument in writing signed by
each of the Parties.
Section 8.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing Date, or Closing as the case may be, Unimag (with respect to OPD) and
OPD (with respect to Unimag) may, to the extent legally allowed: (a) extend the
time for the performance of any of the obligations or other acts of such Party;
(b) waive any inaccuracies in the representations and warranties contained in
this Agreement or in any document delivered pursuant hereto; or (c) waive
compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in a written instrument signed by such
Party.
- 40 -
<PAGE> 47
ARTICLE 9
INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS.
(a) Notwithstanding any investigation conducted
at any time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of OPD and
Unimag in this Agreement and in the Document Escrow Agreement shall
survive the execution, delivery, and performance of this Agreement and
the Document Escrow Agreement. All representations and warranties of
the Parties set forth in this Agreement and in the Document Escrow
Agreement shall be deemed to have been made again by them at and as of
the Escrow Closing Date.
(b) As used in this Article 9, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 9.2 INDEMNIFICATION BY OPD.
(a) Subject to the provisions of this Section 9.2
and of Section 9.4 below, OPD shall indemnify and hold harmless Unimag
from and against any and all losses, liabilities, damages, demands,
claims, suits, actions, judgments or causes of action, assessments,
costs and expenses, including without limitation interest, penalties,
reasonable attorneys' fees, any and all reasonable expenses incurred
in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively,
"Damages"), asserted against, resulting to, imposed upon, or incurred
or suffered by Unimag, directly or indirectly, as a result of or
arising from any material inaccuracy in or breach of any of the
representations, warranties, covenants, or agreements made by OPD in
this Agreement or the Document Escrow Agreement (collectively,
"Indemnifiable OPD Claims").
(b) Unimag shall be deemed to have suffered
Damages arising out of or resulting from the matters referred to in
Section 9.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
(c) OPD may satisfy any obligation of
indemnification under this Article 9 by delivery of Unimag Shares to
Unimag with a value equal to the amount of the payment being
satisfied. For purposes of this Section 9.2(c), Unimag Shares shall
be valued at the greater of (i) $1.50 per share, or (ii) their market
value at the time the indemnification obligation has been finally
established.
- 41 -
<PAGE> 48
(d) Notwithstanding anything contained in this
Agreement to the contrary, the collective indemnification obligations
of OPD under this Agreement shall never exceed, in the aggregate, the
sum of $2,700,000.
Section 9.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless OPD
from and against any Damages asserted against, resulting to, imposed
upon, or incurred or suffered by OPD, directly or indirectly, as a
result of or arising from any (i) material inaccuracy in or breach or
nonfulfillment of any of the representations, warranties, covenants,
or agreements made by Unimag in this Agreement or the Document Escrow
Agreement, (ii) subject to the limitations set forth in Section
9.3(c), any and all claims, liabilities or obligations arising out of
the operation of the business of OPD after the Escrow Closing Date, or
(iii) any and all claims, liabilities and obligations arising out of
any failure by Unimag to pay, following the Escrow Closing Date, any
Assumed Liability or to pay any amount or perform any obligation under
any of the Contracts, (collectively, "Indemnifiable Unimag Claims"
and, together with Indemnifiable OPD Claims, the "Indemnifiable
Claims").
(b) Unimag shall satisfy any obligation of
indemnification under this Article 9 in cash.
(c) Notwithstanding anything contained in this
Agreement to the contrary, OPD hereby acknowledges that Unimag shall
not be liable to OPD, under this Article 9 or any other provision of
this Agreement, for any claims, liabilities, or obligations arising
out of the operation of the business of OPD prior to the Escrow
Closing Date, if such claim, liability, or obligation is caused by or
results from any Indemnifiable OPD Claims.
Section 9.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 9 are subject to the following limitations:
(a) For purposes of this Article 9, all Damages
shall be computed net of any insurance coverage which reduces the
Damages that would otherwise be sustained; provided that in all cases
the timing of the receipt or realization of insurance proceeds shall
be taken into account in determining the amount of reduction of
Damages.
(b) Subject to the provisions of Section 9.4(c),
below, Unimag shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim or Claims unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $270,000. Once Unimag's Damages exceeds $270,000 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $270,000 of Damages.
(c) Notwithstanding and in lieu of the provisions
of Section 9.4(b), above, Unimag shall not be entitled to
indemnification with respect to an Indemnifiable Claim or Claims
- 42 -
<PAGE> 49
resulting from a breach of the representations and warranties
contained in Section 5.14 unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $45,000. Once
Unimag's Damages for any such breach exceeds $45,000 in the aggregate,
Unimag shall only be entitled to be indemnified to the extent of such
Damages in excess of such initial $45,000 of Damages.
(d) The obligations of indemnity under this
Article 9 with respect to any Indemnifiable Claim shall terminate two
years after the Escrow Closing Date.
(e) If, prior to the termination of the
obligation to indemnify, written notice of an Indemnifiable Claim is
given by Unimag or OPD as the case may be (an "Indemnified Party") to
the other Party or Parties, as the case may be (the "Indemnifying
Party"), or a suit or action based upon an alleged Indemnifiable Claim
is commenced against the Indemnifying Party, the Indemnified Party
shall not be precluded from pursuing such Indemnifiable Claim (whether
through the courts or otherwise) by reason of the termination of the
obligation of indemnity as described in Section 9.4(d) above.
Section 9.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 9 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted liability with counsel reasonably satisfactory to the
Indemnified Party. Notwithstanding the foregoing: (i) the
Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be
payable by the Indemnified Party; (ii) the Indemnified Party shall not
have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing; and (iii) the
rights of the Indemnified Party to be indemnified in respect of
Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only
to the extent that the Indemnifying Party is prejudiced by such
failure. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party
fails to assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall
- 43 -
<PAGE> 50
have the right to defend, compromise, or settle such Indemnifiable
Claim on behalf, for the account, and at the risk of the Indemnifying
Party.
(c) Notwithstanding anything in this Section 9.5
to the contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party, to defend,
compromise, or settle such Indemnifiable Claim; and (ii) the
Indemnifying Party shall not, without the Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable Claim
unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party (and its subsidiaries and affiliates) a release from
all liability in respect of such Indemnifiable Claim.
Section 9.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three disinterested arbitrators. The panel shall be composed of one
arbitrator appointed by the Indemnified Party, one appointed by the
Indemnifying Party, and the third, who shall be an attorney admitted to
practice in the State of Ohio who has experience in periodical distribution,
shall be appointed by the mutual agreement of the two arbitrators chosen by the
Indemnified Party and the Indemnifying Party. The panel shall sit in Columbus,
Ohio, and its procedures shall be governed by the Ohio Arbitration Act
contained in Chapter 2711 of the Ohio Revised Code. The rules of civil
procedure with respect to depositions and requests for production of documents
applicable in Ohio common pleas courts shall apply. A decision in any such
arbitration shall apply both to the particular question submitted and to all
similar questions arising thereafter. The determination made shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting, and other fees in connection with
such a contest; provided that if the contested claim is referred to and
ultimately determined by arbitration, the legal, auditing, and other fees of
the prevailing Party and the fees and expenses of any arbitrator shall be borne
by the nonprevailing Party.
- 44 -
<PAGE> 51
Section 9.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 9.5 or Section 9.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 3.2(b)), the
Unimag Debentures, or the Additional Documents.
ARTICLE 10
MISCELLANEOUS
Section 10.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Jr., Esq.
Facsimile No.: (614) 462-2616
- 45 -
<PAGE> 52
(b) If to OPD:
Ohio Periodical Distributors, Inc.
5131 Post Road
Dublin, Ohio 43017
Attention: Treasurer
Facsimile No.: (614) 792-2029
with a copy to:
Ohio Periodical Distributors, Inc.
5131 Post Road
Dublin, Ohio 43017
Attention: Ruth Hunter Smith, General Counsel
Facsimile No.: (614) 792-2029
Section 10.2 NON-WAIVER. No failure by any Party to insist upon
strict compliance with any term or provision of this Agreement, to exercise any
option, to enforce any right, or to seek any remedy upon any default of any
other Party shall affect, or constitute a waiver of, any other Party's right to
insist upon such strict compliance, exercise that option, enforce that right,
or seek that remedy with respect to that default or any prior, contemporaneous,
or subsequent default. No custom or practice of the Parties at variance with
any provisions of this Agreement shall affect or constitute a waiver of, any
Party's right to demand strict compliance with all provisions of this
Agreement.
Section 10.3 GENDERS AND NUMBERS. Where permitted by the context,
each pronoun used in this Agreement includes the same pronoun in other genders
and numbers, and each noun used in this Agreement includes the same noun in
other numbers.
Section 10.4 HEADINGS. The headings of the various articles and
sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such articles and sections, and shall be
ignored in construing this Agreement.
Section 10.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same Agreement.
Section 10.6 ENTIRE AGREEMENT. This Agreement (including all
exhibits, schedules, and other documents referred to in this Agreement, all of
which are hereby incorporated herein by reference) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the Parties with respect to the subject matter of this
Agreement.
Section 10.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon or give to any person, firm, corporation, or other entity, other
than the Parties, any rights, remedies, or other benefits under or by reason of
this Agreement.
- 46 -
<PAGE> 53
Section 10.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio without regard
to principles of conflicts of law.
Section 10.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors, and
assigns. Neither this Agreement nor any of the rights, interests, or
obligations under this Agreement shall be transferred or assigned by any of the
Parties without the prior written consent of the other Parties.
Section 10.10 EXPENSES. Except as otherwise specifically provided
in this Agreement: (a) Unimag shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its legal counsel, independent public accountants, and
other financial advisors; (b) OPD shall pay its own costs and expenses
associated with this Agreement, including without limitation the fees and
expenses of their legal counsel, accountants, and financial advisors; and (c)
all such costs and expenses incurred by OPD in connection with this Agreement
and the transactions contemplated hereby shall be accrued and expensed, or
otherwise accounted for, so that such costs and expenses will be taken into
consideration when determining the Tangible Net Worth of OPD pursuant to Section
3.2(b).
Section 10.11 PUBLIC ANNOUNCEMENTS. OPD shall not, without the
prior written consent of Unimag, make any public announcement or statement with
respect to the transactions contemplated in the Agreement. The provisions of
this section are subject to each Party's obligation to comply with applicable
requirements of the federal or state securities laws or any governmental order
or regulation.
Section 10.12 SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by applicable law, and
the Parties shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
UNITED MAGAZINE COMPANY
By /s/ RONALD E. SCHERER
--------------------------------
Ronald E. Scherer, Chairman
OHIO PERIODICAL DISTRIBUTORS, INC.
By /s/ DAVID B. THOMPSON
--------------------------------
David B. Thompson, Treasurer
- 47 -
<PAGE> 54
INDEX OF SCHEDULES
Schedule 1.1 (a) Real Property
Schedule 1.1 (b) Real Property Leases
Schedule 1.1 (c) Personal Property
Schedule 1.1 (d) Inventory
Schedule 1.1 (e) Vehicles
Schedule 1.1 (f) Permits
Schedule 1.1 (g) Proprietary Rights
Schedule 1.1 (h) Personal Property Leases
Schedule 1.1 (i) Contracts
Schedule 1.1 (j) Receivables
Schedule 1.1 (m) Telephone Numbers
Schedule 1.1 (n) Employee Plan and Benefit Arrangements
Schedule 1.2 Control Group
Schedule 1.3 Non-Assigned Acquired Assets
Schedule 2.1 Excluded Liabilities
Schedule 3.2 Selected Generally Accepted Accounting Principles
Schedule 4.3 Agreements to Issue Unimag Shares
Schedule 4.5 Litigation
Schedule 5.1 Qualification as Foreign Corporation
Schedule 5.2 OPD Shareholders
- 48 -
<PAGE> 55
Schedule 5.4 Consents and Approvals
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Absence of Certain Changes
Schedule 5.8 Taxes
Schedule 5.9 Compliance with Law
Schedule 5.10 Proprietary Rights
Schedule 5.11 Restrictive Documents and Laws
Schedule 5.12 Insurance
Schedule 5.13 Bank Accounts
Schedule 5.14 Properties
Schedule 5.16 Legal Proceedings
Schedule 5.17 Employee Benefit Plans (Schedules (a) through (h))
Schedule 5.18 Contracts
Schedule 5.19 Accounts Receivable
Schedule 5.20 Conflicts or Defaults
Schedule 5.22 Officers, Employees, and Compensation
Schedule 5.23 Labor Relations
Schedule 5.24 Customers and Suppliers
Schedule 5.25 Special Terms to Customers
Schedule 6.2 (a) Budgeted Salary Increases
- 49 -
<PAGE> 56
INDEX OF EXHIBITS
Exhibit A Debenture Agreement
Exhibit B Legal Opinion of Counsel to Unimag
Exhibit C Legal Opinion of Counsel to OPD and the Shareholders
Exhibit D Document Escrow Agreement
Exhibit E Opinion of Independent Legal Counsel
- 50 -
<PAGE> 1
ASSET TRANSFER AND EXCHANGE AGREEMENT
BETWEEN
UNITED MAGAZINE COMPANY
AND
WHOLESALERS LEASING CORP.
EFFECTIVE DATE: AUGUST 2, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Description of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Control Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Non-Assignment of Certain Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 OBLIGATIONS TO BE ASSUMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Obligations to be Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 Non-Assignment of Certain Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 CLOSING; EXCHANGE CONSIDERATION; AND
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.1 Escrow Closing; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.2 Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Valuation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.3 Transfer Documents and Issuance of Unimag Shares and Debentures . . . . . . . . . . . . . . . . . 4
(a) Contributions by Wholesalers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Issuance of Unimag Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Issuance of Unimag Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Unimag Shares to be Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3 Capitalization of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.4 Conflicts; Consents; and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.5 Brokerage and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.6 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.7 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
OF WHOLESALERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.2 Capitalization and Security Holders; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5.3 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.5 Unaudited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.6 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.7 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.8 Restrictive Documents or Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.9 Title to and Condition of Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.10 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.11 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.12 No Conflict or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.13 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.14 Section 351 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 6 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.1 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Other Governmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Tax-Free Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2 Covenants of Wholesalers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Access to Records and Other Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.3 Covenants of Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Conduct of Unimag's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Joint Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Consummation of Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 7 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.1 Mutual Conditions to Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Completion of Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) No Adverse Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Certain Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Other Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Escrow Closing of Certain Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 16
(f) Tax Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.2 Conditions to Obligations of Wholesalers to Complete
the Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Unimag Shareholder Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(g) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.3 Conditions to Obligations of Unimag to Complete the Escrow Closing . . . . . . . . . . . . . . . 17
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Adverse Change and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Opinion of Independent Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.4 Document Escrow Agreement; Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . 19
Section 7.5 Mutual Conditions to Consummate the Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Escrow Closing of Other Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Unimag Board of Directors Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Unimag Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 8 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Termination by Wholesalers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Termination by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.1 Survival of Representations, Warranties, Covenants, and Agreements . . . . . . . . . . . . . . . 21
Section 9.2 Indemnification by Wholesalers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.3 Indemnification by Unimag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.4 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.5 Procedure for Indemnification with Respect to Third Party Claims . . . . . . . . . . . . . . . . 23
Section 9.6 Procedure For Indemnification with Respect to Non-Third Party Claims . . . . . . . . . . . . . . 24
Section 9.7 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.2 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.3 Genders and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.9 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
- iv -
<PAGE> 6
ASSET TRANSFER AND EXCHANGE AGREEMENT
This Asset Transfer and Exchange Agreement (this "Agreement") is made
and entered into August 30, 1996, to be effective as of August 2, 1996, between
United Magazine Company, an Ohio corporation ("Unimag"), and Wholesalers
Leasing Corp., a Delaware corporation ("Wholesalers").
BACKGROUND INFORMATION
A. Pursuant to the transactions described in this
Agreement (the "Exchange"), Unimag desires to acquire certain assets of
Wholesalers in exchange for (1) Unimag's common shares, without par value
("Unimag Shares"), and (2) senior and subordinated debentures of Unimag,
subject to and upon the terms and conditions set forth in this Agreement.
B. The respective boards of directors of Unimag and
Wholesalers have (1) determined that the Exchange and the other transactions
contemplated in this Agreement are desirable and in the best interests of their
respective shareholders, and (2) duly approved and adopted this Agreement.
C. Unimag and Wholesalers intend that the Exchange
qualify, along with other exchanges with Unimag occurring both before and after
the closing of the transactions contemplated by this Agreement, as a tax-free
exchange under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Code"), subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules).
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
ARTICLE 1
EXCHANGE
Section 1.1 DESCRIPTION OF ASSETS. Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with the
provisions of Section 351 of the Code, Wholesalers shall transfer, convey, and
contribute to the capital of Unimag, in exchange for Unimag Shares and senior
and subordinated debentures of Unimag (both in the amounts and as otherwise
- 1 -
<PAGE> 7
described in Article 3), all of Wholesalers' right, title, and interest, at the
Escrow Closing Date, in and to all of the following described assets (the
"Acquired Assets"):
(a) All automobiles and other vehicles (the
"Vehicles") described on Schedule 1.1(a); and
(b) All computer and related equipment (the
"Computer Equipment") described on Schedule 1.1(b).
Section 1.2 CONTROL GROUP. In addition to the Exchange and other
transactions contemplated by this Agreement, Unimag shall complete similar
exchange and related transactions with the other transferors identified in
Schedule 1.2. Immediately after completion of the Exchange and such portion of
the other exchanges with such other parties as Unimag is able to complete,
Wholesalers and such other transferors shall constitute a group which is in
control of Unimag, as defined in Section 368(c) of the Code.
Section 1.3 NON-ASSIGNMENT OF CERTAIN ACQUIRED ASSETS.
Wholesalers represents and warrants to Unimag that Schedule 1.3 lists and
describes all Acquired Assets which are non-assignable or the assignment of
which pursuant to this Agreement requires the consent of a third party.
Notwithstanding anything in this Agreement to the contrary, to the extent that
the assignment of any of the Acquired Assets shall require the consent of a
third party (or in the event that any of the same shall be non-assignable),
neither this Agreement nor any action taken pursuant to the provisions of this
Agreement shall constitute an assignment or an agreement to assign if such
assignment or attempted assignment would constitute a breach thereof or affect
adversely the rights of Wholesalers thereunder. Wholesalers shall use its best
efforts to obtain the consent of such third parties to an assignment to Unimag.
If such consent is not obtained, Wholesalers shall cooperate with Unimag in any
reasonable arrangement designed to provide for Unimag the benefits of such
Acquired Asset, including without limitation enforcement, for the account and
benefit of Unimag, of any and all rights of Wholesalers against any other
person with respect to such Acquired Asset.
ARTICLE 2
OBLIGATIONS TO BE ASSUMED
Section 2.1 OBLIGATIONS TO BE ASSUMED. Upon the terms and subject
to the conditions set forth in this Agreement, from and after the Escrow
Closing Date Unimag shall assume all obligations and liabilities of Wholesalers
of any kind whatsoever incurred by Wholesalers in connection with or otherwise
related to the Computer Equipment, including the obligations and liabilities
under the agreements listed on Schedule 2.1 (the "Assumed Liabilities"):
Section 2.2 NON-ASSIGNMENT OF CERTAIN ASSUMED LIABILITIES. With
respect to any Assumed Liability which exists pursuant to an Acquired Asset
which is non-assignable (as described in Section 1.1) and is to be transferred
or assigned subject to obtaining the consent or approval of the appropriate
third party (because such consent or approval is not obtained prior to the
Escrow
- 2 -
<PAGE> 8
Closing, Unimag shall indemnify, hold harmless, and defend Wholesalers against
such Assumed Liability and any obligations, liabilities, costs, and expenses
relating to such Assumed Liability.
ARTICLE 3
CLOSING; EXCHANGE CONSIDERATION; AND OTHER MATTERS
Section 3.1 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange, including the contribution of the Acquired Assets, assumption of the
Assumed Liabilities, and the other transactions contemplated by this Agreement
(the "Escrow Closing") shall be held at the offices of Baker & Hostetler, 65
East State Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus,
Ohio time on such date (the "Escrow Closing Date") as may be reasonably
designated by Unimag; provided that the Escrow Closing shall be held not later
than September 28, 1996. As provided in Section 7.5, after the Escrow Closing
the only conditions to the release of this Agreement and the other documents
executed in connection with the transactions contemplated by this Agreement
(the "Additional Documents") from the Document Escrow Agreement (defined in
Section 7.4) shall be the approval of the Exchange by the board of directors
and the shareholders of Unimag and the escrow closing of certain other
acquisitions. Within ten days after such shareholder approval (the "Closing
Date"), the Parties shall cause the Agreement and the Additional Documents to
be delivered to the appropriate Party in accordance with the terms and
conditions of the Document Escrow Agreement and the Parties shall close the
Exchange (the "Closing"). In no event shall the Closing be held later than
December 31, 1996.
Section 3.2 EXCHANGE CONSIDERATION.
(a) Valuation. Upon the terms and subject to the
conditions set forth in this Agreement, in exchange for the
contribution of the Acquired Assets and in full consideration therefor,
at the Closing Unimag shall assume the Assumed Liabilities as provided
in Article 2 and shall, subject to the provisions of Sections 3.3 and
subject to the adjustments provided for in Section 3.2(b) and 4.3,
issue to Wholesalers (i) 374,000 Unimag Shares, and (ii) $539,000
principal amount of Unimag debentures (the "Unimag Debentures"). The
Unimag Debentures shall be issued pursuant to the terms of the
Debenture Agreement attached hereto as Exhibit A (the "Debenture
Agreement"). An aggregate of $306,799 principal amount of the Unimag
Debentures shall be Senior Debentures (as defined in the Debenture
Agreement), and the balance of the Unimag Debentures shall be
Subordinated Debentures (as defined in the Debenture Agreement).
(b) Valuation Adjustment. The amount of Unimag
Shares and the principal amount of Unimag Debentures to be received by
Wholesalers in exchange for Wholesalers' contribution of the Acquired
Assets is based upon a total valuation of such contributions of
$1,100,000 with 51% of this value being exchanged for Unimag Shares at
an agreed upon price of $1.50 per Unimag Share, and 49% of this value
being exchanged for Unimag Debentures. Such value was based upon the
estimated fair market value of the Acquired Assets.
- 3 -
<PAGE> 9
Within 30 days after the Escrow Closing Date, Unimag
shall cause a qualified appraiser to perform an appraisal of the Acquired
Assets in order to determine their fair market value (the "Actual Value"). If
the Actual Value, as so determined, is more than $1,100,000, then Unimag shall
issue additional Unimag Shares, valued at $1.50 per share, equal to 51% of, and
additional Unimag Subordinated Debentures in a principal amount equal to 49%
of, the amount by which the Actual Value, as so determined, exceeds $1,100,000.
If the Actual Value, as so determined, is less than $1,100,000, then the
parties shall reduce the number of Unimag Shares, valued at $1.50 per share,
issued to Wholesalers by an amount equal to 51% of, and the Unimag Subordinated
Debentures issued to Wholesalers by an amount equal to 49% of, the amount by
which the Actual Value, as so determined, is less than $1,100,000.
Notwithstanding the foregoing, if any reduction in the amount of Unimag Shares
to be issued would in any way prevent the Exchange, along with other exchanges
between other companies and Unimag occurring both before and after the closing
of the transactions contemplated by this Agreement, from being treated as a
tax-free exchange under Section 351 of the Code, then the relative percentage
of Unimag Shares and Unimag Subordinated Debentures to be so returned shall be
adjusted in order to maintain the tax-free exchange nature of these
transactions. In the event that Wholesalers fails to return such Unimag Shares
and Unimag Subordinated Debentures within 30 days after a determination that
the Actual Value is less than $1,100,000, then, in addition to any other rights
or remedies Unimag may have under this Agreement or otherwise, Unimag shall
have the right to setoff the value of such Unimag Shares and Unimag
Subordinated Debentures against any amount owed to Wholesalers by Unimag,
whether pursuant to this Agreement or the Unimag Debentures.
Section 3.3 TRANSFER DOCUMENTS AND ISSUANCE OF UNIMAG SHARES AND
DEBENTURES.
(a) Contributions by Wholesalers. At the
Closing, Wholesalers shall transfer, convey, and contribute (and shall
cause to be transferred, conveyed, and contributed) to the capital of
Unimag the Acquired Assets, free and clear of all claims and
encumbrances except for the Assumed Liabilities, by delivering to
Unimag the following duly executed transfer instruments and documents
(collectively, the "Transfer Documents"):
(i) All certificates of title to the
Vehicles, endorsed for transfer to Unimag; and
(ii) A bill of sale in order to convey to
Unimag ownership of the Computer Equipment.
(b) Issuance of Unimag Shares. At the Closing,
upon delivery of all of the Transfer Documents by Wholesalers, Unimag
shall issue to Wholesalers that number of Unimag Shares which
Wholesalers is entitled to receive as described in Section 3.2(a).
Unimag shall not be obligated to issue any fractional Unimag Shares as
a result of the Exchange. To the extent that Wholesalers otherwise
would become entitled to a fractional Unimag share as a result of the
Exchange, Wholesalers shall be entitled to receive a cash payment for
such fractional interest in an amount equal to such fractional
interest multiplied by $1.50. Such payment is merely intended to
provide a mechanical rounding off of, and is not a separately
bargained for, consideration.
- 4 -
<PAGE> 10
(c) Issuance of Unimag Debentures. At the
Closing, upon delivery of all of the Transfer Documents by
Wholesalers, Unimag shall issue to Wholesalers the Unimag Debentures
which Wholesalers is entitled to receive as described in Section
3.2(a).
(d) Unimag Shares to be Restricted Securities.
The Unimag Shares to be received by Wholesalers in the Exchange shall
be restricted securities within the meaning of Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Act"). Wholesalers
understands and agrees that such shares may not be sold, pledged,
hypothecated or otherwise transferred unless such shares are
registered under the Act or pursuant to an opinion of counsel, which
opinion and counsel are reasonably acceptable to Unimag and its
counsel, that an exemption from such registration is available.
Wholesalers agrees that the following legend may be placed on the
certificates for the Unimag Shares to be received by it and that
appropriate stop-transfer instructions may be given to Unimag's
transfer agent and registrar:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED, UNLESS THEY ARE AT THE TIME SO
REGISTERED, OR THE SALE OR TRANSFER THEREOF IS NOT
REQUIRED TO BE SO REGISTERED, OR IS MADE PURSUANT TO
THE APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED TO
THE APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED IN
THE SECURITIES ACT OF 1933, AS AMENDED, OR IN THE
RULES OR REGULATIONS THEREUNDER.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF UNIMAG
In order to induce Wholesalers to enter into this Agreement, Unimag
hereby represents and warrants to Wholesalers that the statements set forth in
this Article 4 are true, correct, and complete:
Section 4.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the
- 5 -
<PAGE> 11
performance, observation or fulfillment of any material provision of its
articles of incorporation or code of regulations.
Section 4.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the board of directors and the shareholders of Unimag to be
obtained after the date of this Agreement). This Agreement has been duly
executed and delivered by Unimag and constitutes a legal, valid, and binding
obligation of Unimag, enforceable against Unimag in accordance with its terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, or other similar laws from time to time in effect which may affect
the enforcement of creditors' rights in general, and (b) general principles of
equity.
Section 4.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 26,760,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. Wholesalers acknowledges that prior to the Closing, Unimag may
(i) authorize additional capital stock, including additional Unimag Shares, or
(ii) reduce the number of outstanding Unimag Shares by means of a reverse stock
split, or any other method which would result in a reduction in the number of
outstanding Unimag Shares. Unimag will deliver written notice to Wholesalers
if it authorizes any such action. Except as otherwise described in this
Agreement, and except as disclosed on Schedule 4.3, Unimag has not entered into
any agreement which would require it to reduce or increase the number of Unimag
Shares outstanding. In the event that Unimag authorizes a reverse stock split
or other reduction in the number of outstanding Unimag Shares, then the $1.50
agreed upon price of a Unimag Share for purposes of determining the number of
Unimag Shares to be issued to Wholesalers pursuant to Section 3.2 shall be
proportionately adjusted with the objective that Wholesalers shall have the
right to receive the same proportionate ownership interest in Unimag as before
the reduction in the number of outstanding Unimag Shares.
Section 4.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement shall:
(a) Violate, conflict with, result in a violation
or breach of any provision of, constitute a default (or an event
which, with the giving of notice, the passage of time, or otherwise,
would constitute a default) under, entitle any third party (with the
giving of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement,
- 6 -
<PAGE> 12
lease, or other instrument or obligation to which Unimag is a party
and which is material to Unimag and its subsidiaries, taken as a
whole;
(b) Violate any order, writ, injunction, decree,
statute, rule, or regulation, applicable to Unimag or its respective
properties or assets; or
(c) Require any action, consent, or approval of,
review by, or registration with any third party, court, governmental
body, or other agency, instrumentality, or authority, other than (i)
actions required, if any, by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), (ii) actions to be taken in
respect of federal and state securities laws as contemplated by this
Agreement, and (iii) approval by the shareholders of Unimag.
Section 4.5 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 4.6 COMPLIANCE WITH LAW. To the best knowledge of Unimag,
Unimag has complied and is in compliance in all material respects with all
laws, statutes, ordinances, orders, rules and regulations promulgated, and all
judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 4.7 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of the Acquired Assets pursuant to this Agreement
along with other exchanges and acquisitions occurring before and after the
closing of the transactions contemplated by this Agreement, as an exchange
under Section 351 of the Code, subject to the rules of Section 351 of the Code
and the regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules). Unimag shall be solely
responsible for evaluating (and determining the appropriate methods required
for reporting) all federal, state, and local income and other tax consequences
to Unimag which will and may result from the transactions contemplated by this
Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF WHOLESALERS
In order to induce Unimag to enter into this Agreement, Wholesalers
hereby represents and warrants to Unimag that the statements contained in this
Article 5 are true, correct, and complete:
Section 5.1 ORGANIZATION AND STANDING. Wholesalers is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio with full power and authority (corporate and
otherwise) to own, lease, use, and operate its properties and to conduct its
business as and where now owned, leased, used, operated and conducted.
Wholesalers is duly
- 7 -
<PAGE> 13
qualified to do business and is in good standing in each state listed in
Schedule 5.1, is not qualified to do business in any other state and, except as
set forth in Schedule 5.1, neither the nature of the business or other
activities conducted by it nor the properties it owns, leases, or operates
requires it to qualify to do business as a foreign corporation in any other
state, except where the failure to be so qualified would not have a material
adverse effect on the business, operations, assets, properties, condition
(financial or otherwise) or prospects of such corporation. Wholesalers has not
received any written notice or assertion within the last three years from any
governmental official in any state to the effect that it is required to be
qualified or authorized to do business in a state in which it is not so
qualified or has not obtained such authorization. Wholesalers is not in
default or in violation of the performance, observation or fulfillment of any
material provision of its articles of incorporation or code of regulations.
Section 5.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of Wholesalers consists solely of 1,000 shares of
common stock, no par value, (a) 500 of which are issued and outstanding, and
(b) none of which are held as treasury shares (the "Wholesalers Shares").
Schedule 5.2 contains a correct and complete list of the names and addresses of
all of the shareholders of Wholesalers and indicates all Wholesalers Shares
owned beneficially and of record by each such shareholder.
Section 5.3 CORPORATE POWER AND AUTHORITY. Wholesalers has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Wholesalers. This
Agreement has been duly executed and delivered by Wholesalers and constitutes
the legal, valid, and binding obligation of Wholesalers , enforceable against
Wholesalers in accordance with its terms, except as such enforceability may be
limited by (a) applicable bankruptcy, insolvency, or other similar laws from
time to time in effect which may affect the enforcement of creditors' rights in
general, and (b) general principles of equity.
Section 5.4 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 5.4, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by Wholesalers nor the consummation of the
Exchange and other transactions contemplated by this Agreement requires or will
require any action, consent, or approval of, review by, or registration with
any third party, court, governmental body, or other agency, instrumentality, or
authority, other than actions, required by the HSR Act, and (ii) actions to be
taken in respect of federal and state securities laws as contemplated by this
Agreement.
Section 5.5 UNAUDITED FINANCIAL STATEMENTS. Wholesalers has
furnished to Unimag the "Unaudited Statements" consisting of the unaudited
balance sheet of Wholesalers as of December 31, 1995, and the related statement
of income for the fiscal year then ended, including, in each case, the related
notes, if any. The Unaudited Statements have been prepared by management from
and in accordance with the books and records of Wholesalers, have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as disclosed therein), and fairly present in all
material respects the financial
- 8 -
<PAGE> 14
condition of Wholesalers as of the date stated and the results of its
operations for the period then ended in accordance with such practices.
Section 5.6 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 5.6, Wholesalers does not have any liability or obligation of any
nature (whether liquidated, unliquidated, accrued, absolute, contingent, or
otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the Unaudited
Statements which have not been paid or discharged since the date
thereof;
(b) Current liabilities (determined in accordance
with generally accepted accounting principles) incurred since December
31, 1995, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on their
books and which are not inconsistent with the other representations,
warranties, and agreements of Wholesalers set forth in this Agreement;
and
(c) Liabilities which, consistent with generally
accepted accounting principles, are not required to be reflected in
the Unaudited Statements.
Section 5.7 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 5.7, to the best knowledge of Wholesalers, Wholesalers
has complied and is in compliance in all material respects with all
nonenvironmental (environmental matters being addressed in Section 5.9) laws,
statutes, ordinances, orders, rules and regulations promulgated, and all
judgments, decisions, and orders entered, by any federal, state, local, or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its business or properties including without limitation:
(a) all zoning, fire, safety, and building laws, ordinances, regulations, and
requirements; (b) Title VII of the Civil Rights Act of 1964, as amended; (c)
the Fair Labor Standards Act, as amended; (d) the Occupational Safety and
Health Act of 1970, as amended; (e) the Americans with Disabilities Act of
1990; (f) all applicable federal, state and local laws, rules and regulations
relating to employment; (g) all applicable laws, rules and regulations
governing payment of minimum wages and overtime rates, and the withholding and
payment of taxes from compensation of employees; (h) federal and state
antitrust and trade regulation laws applicable to competition generally or to
agreements restricting, allocating, or otherwise affecting geographic or
product markets; and (i) the Controlled Substances Act (collectively, the
"Applicable Laws").
Section 5.8 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 5.8, Wholesalers (with respect to the Acquired
Assets) is not a party to or bound under any mortgage, lien, lease, agreement,
contract, instrument, law, order, judgment or decree, or any similar
restriction not of general application which materially and adversely affects,
or reasonably could be expected to so affect (a) the Acquired Assets; or (b)
the consummation of the transactions contemplated by this Agreement.
Section 5.9 TITLE TO AND CONDITION OF ACQUIRED ASSETS. Except as
set forth in Schedule 5.9, Wholesalers (with respect to the Acquired Assets)
has good, valid, and indefeasible title to the Acquired Assets. Except as set
forth in Schedule 5.9, to the best knowledge of Wholesalers,
- 9 -
<PAGE> 15
all of the Acquired Assets are owned free and clear of all mortgages, pledges,
liens, security interests, encumbrances, and restrictions of any nature
whatsoever.
Except as set forth in Schedule 5.9, to the best
knowledge of Wholesalers, all of the Acquired Assets are reasonably suitable
for the purpose or purposes for which they are being used (including full
compliance with all Applicable Laws) and are in good condition and repair,
ordinary wear and tear excepted.
Except as set forth in Schedule 5.9, none of the
Acquired Assets have been used to produce, process, store, handle, or transport
any hazardous or toxic substance or waste (as those terms are defined or
described in any of the applicable laws relating to the protection,
preservation, conservation, restoration, or quality of the environment), except
to the extent immaterial quantities of hazardous substances are used as an
incidental aspect of the operation of Wholesalers' business. Except as set
forth in Schedule 5.9, no hazardous or toxic substance or waste has been
disposed of, released or discharged on, leaked from, or has otherwise
contaminated any of the Acquired Assets. Except as set forth in Schedule 5.9,
no asbestos or substances containing material quantities of asbestos have been
installed in any of the Acquired Assets.
Section 5.10 BROKERS AND FINDERS. No investment banker, broker,
finder, or other intermediary: (a) has been retained by or is authorized to act
on behalf of Wholesalers or any of its shareholders; (b) has submitted the
transactions contemplated by this Agreement to Wholesalers or any of its
shareholders; or (c) is or might be entitled to any fee, commission, or other
payment from Wholesalers as a direct or indirect result of the transactions
contemplated by this Agreement.
Section 5.11 LEGAL PROCEEDINGS. Except as described in Schedule
5.11: (a) there are no (and over the last three years there have been no)
suits, claims, actions, proceedings, or investigations (collectively,
"Actions") pending or, to the best knowledge of Wholesalers, threatened against
or relating to Wholesalers, or any of its officers, directors, shareholders,
agents, or representatives in connection with its business or affairs, before
any federal, state, local, or foreign court or governmental body in which the
amount in dispute exceeds (or exceeded) $25,000 or which has or could result in
liability or loss for Wholesalers of more than $25,000; and (b) to the best
knowledge of Wholesalers, there exist no disputes, conflicts, or circumstances
providing the basis for a dispute or conflict which could reasonably be
expected to result in any such Action. There are no Actions pending or, to the
best knowledge of Wholesalers, threatened for the purpose of enjoining or
preventing this Agreement or any other transaction contemplated by this
Agreement or otherwise challenging the validity or propriety of the
transactions contemplated by this Agreement. Except as disclosed in Schedule
5.11, Wholesalers is not subject to any judgment, order or decree, or any
governmental restriction, which has a reasonable probability of having a
material adverse effect on its business operations, assets, properties,
condition (financial or otherwise), or prospects.
Section 5.12 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 5.12, neither the execution and delivery of this Agreement by
Wholesalers, nor compliance by Wholesalers with the terms and provisions of
this Agreement, including without limitation the consummation of the
transactions contemplated by this Agreement, will: (a) violate any Applicable
Laws; (b)
- 10 -
<PAGE> 16
conflict with or result in the breach of any term, condition, or provision of
(i) the articles of incorporation, code of regulations, or other organizational
document of Wholesalers, or (ii) any material agreement, deed, contract,
undertaking, mortgage, indenture, writ, order, decree, restriction, legal
obligation, or instrument to which Wholesalers is a party or by which
Wholesalers or any of its assets or properties are or may be bound or affected;
(c) constitute a default (or an event which, with the giving of notice, the
passage of time, or both, would constitute a default) thereunder; (d) result in
the creation or imposition of any lien, security interest, charge or
encumbrance, or restriction of any nature whatsoever with respect to any
material properties or assets of Wholesalers; or (e) give to others any
interest or rights, including rights of termination, acceleration, or
cancellation in or with respect to any of the Acquired Assets.
Section 5.13 INVESTMENT REPRESENTATION. Wholesalers acknowledges,
represents, and warrants to Unimag that (a) it is an "accredited investor," as
that term is defined in Regulation D, (b) Wholesalers has been provided the
opportunity to ask questions and receive answers from Unimag concerning the
business operations and financial condition of Unimag and the terms and
conditions of the transactions described in this Agreement, and to obtain any
additional information necessary to verify the accuracy of information provided
to Wholesalers by Unimag, and (c) Wholesalers is acquiring the Unimag Shares
and the Unimag Debentures to be issued pursuant to this Agreement for
Wholesalers' own account for investment only and not with a view to the
distribution thereof. Wholesalers has not (and, prior to the Closing, will not
have) entered into any agreement to dispose of any Unimag Shares now owned or
hereafter received at the Closing of the Exchange (except for the contingent
obligation to return Unimag Shares to Unimag pursuant to the valuation
adjustment provisions of Section 3.2(b)).
Section 5.14 SECTION 351 EXCHANGE. It is the intention of
Wholesalers to treat the acquisition of the Acquired Assets pursuant to this
Agreement, along with other exchanges and acquisitions occurring before and
after the closing of the transactions contemplated by this Agreement, as an
exchange under Section 351 of the Code, subject to the rules of Section 351 of
the Code and the regulations promulgated thereunder applicable to the receipt
and taxability of "boot" (within the meaning of such rules). Wholesalers shall
be solely responsible for evaluating (and determining the appropriate methods
required for reporting) all federal, state, and local income and other tax
consequences to it which will and may result from the transactions contemplated
by this Agreement.
ARTICLE 6
COVENANTS OF THE PARTIES
Section 6.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable
efforts to take all actions and do all things necessary, proper, or
advisable to consummate the Exchange and the other transactions
contemplated by this Agreement, including without limitation using all
reasonable efforts to cause the conditions set forth in Article 7 of
this Agreement for which such Party is wholly or partially responsible
to be satisfied, as soon as reasonably
- 11 -
<PAGE> 17
practicable and to prepare, execute, acknowledge or verify, deliver,
and file such additional documents, and take or cause to be taken such
additional actions, as any other Party may reasonably request.
(b) HSR Filings. The Parties shall cooperate
with each other with respect to the preparation and filing of any
Notification and Report Forms and related materials that they may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act
with respect to the Exchange and shall promptly make any further
filings pursuant the HSR Act that may be necessary, proper, or
advisable.
(c) Other Governmental Matters. Each Party shall
use all reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
(d) Tax-Free Treatment. Each of the Parties
shall use all reasonable efforts to cause the Exchange to constitute
(along with other exchanges and acquisitions occurring before and
after the Exchange) a tax-free exchange under Section 351 of the Code,
subject to the rules of Section 351 of the Code and the regulations
promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Each of the Parties shall
be solely responsible for evaluating (and determining the appropriate
methods required for reporting) all federal, state, and local income
and other tax consequences to each such Party which will and may
result from the transactions contemplated by this Agreement.
(e) Bulk Transfer Laws. The Parties covenant and
acknowledge that neither Party will comply in any respect with the
provisions of any applicable bulk transfer laws in connection with the
Exchange and other transactions contemplated by this Agreement.
Notwithstanding anything in this Agreement to the Contrary, (i) any
Damages (defined in Section 9.2(a)) suffered by Unimag in any way
related to such failure to comply shall be treated as an Indemnifiable
Wholesalers Claim (defined in Section 9.2(a)), and (ii) any Damages
suffered by Wholesalers in any way related to such failure to comply
shall not be treated as an Indemnifiable Unimag Claim (defined in
Section 9.3(a)).
Section 6.2 COVENANTS OF WHOLESALERS. Wholesalers covenants and
agrees that:
(a) Conduct of Business. Except as otherwise
expressly contemplated by this Agreement, from the date of this
Agreement until the Closing Date (the "Exchange Period"): (i)
Wholesalers shall not take or permit to be taken any action or do or
permit to be done anything in the conduct of the business of
Wholesalers or otherwise, that would be contrary to or in breach of
any of the terms or provisions of this Agreement or which would cause
any of its representations and warranties contained in this Agreement
to be or become untrue in any material respect; (ii) Wholesalers shall
permit Unimag to manage and oversee the Acquired Assets as provided in
Section 6.3(b); and (iii) Wholesalers shall use all reasonable efforts
to preserve the Acquired Assets intact.
- 12 -
<PAGE> 18
(b) Exclusive Rights. Wholesalers shall not,
directly or indirectly, solicit (including without limitation by way
of furnishing or making available any non-public information
concerning the business, properties, or assets of Wholesalers) or
engage in negotiations or discussions with, disclose any of the terms
of this Agreement to, accept any offer from, furnish any information
to, or otherwise cooperate, assist, or participate with any person or
organization (other than Unimag and its representatives) regarding any
Acquisition Proposal (defined below), except that any person or entity
making an Acquisition Proposal may be informed of the restrictions
contained in this sentence. Wholesalers shall notify Unimag promptly
by telephone, and thereafter promptly confirm in writing, if any such
information is requested from, or any Acquisition Proposal is received
by, Wholesalers. For purposes of this Agreement, "Acquisition
Proposal" shall mean any offer or proposal received by Wholesalers
prior to the Closing Date regarding the acquisition by purchase,
merger, lease, or otherwise of any capital stock of Wholesalers, the
Acquired Assets, or any material assets, or other operations of
Wholesalers.
(c) Access to Records and Other Due Diligence.
During the Exchange Period, Wholesalers shall make or cause to be made
available to Unimag and its representatives, attorneys, accountants,
and agents, for examination, inspection, and review, the Acquired
Assets and all books, contracts, agreements, commitments, records, and
documents of every kind relating to the Acquired Assets, and shall
permit Unimag and its representatives, attorneys, accountants and
agents to have access to the same at all reasonable times.
(d) Disclosures. After the date of this
Agreement, Wholesalers shall not: (i) disclose to any person,
association, firm, corporation or other entity (other than Unimag or
those designated in writing by Unimag) in any manner, directly or
indirectly, any proprietary information or data relevant to the
Acquired Assets, whether of a technical or commercial nature; or (ii)
use, or permit or assist, by acquiescence or otherwise, any person,
association, firm, corporation, or other entity (other than Unimag or
those designated in writing by Unimag) to use, in any manner, directly
or indirectly, any such information or data, excepting only use of
such data or information as is at the time generally known to the
public and which did not become generally known through any breach of
any provision of this section by Wholesalers.
(e) Notices of Certain Events. Wholesalers shall
promptly notify Unimag of:
(i) Any notice or other communication
from any person or entity alleging that the consent of
such person or entity is or may be required in
connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication
from any governmental or regulatory agency or
authority in connection with the transactions
contemplated by this Agreement; and
(iii) Any actions, suits, claims,
investigations, or proceedings commenced or, to the
knowledge of Wholesalers, threatened against, relating
to, or
- 13 -
<PAGE> 19
involving or otherwise affecting Wholesalers or any of
its property which, if in existence on the date of
this Agreement would have been required to have been
disclosed by Wholesalers pursuant to Section 5.11 or
which relate to the consummation of the transactions
contemplated by this Agreement.
(f) Title Evidence. Wholesalers shall deliver to
Unimag, as soon as practicable after the date of this Agreement,
evidence of title, in form and substance reasonably satisfactory to
Unimag, showing in Wholesalers indefeasible fee simple title in all of
the Acquired Assets, subject only to such exceptions, encumbrances, or
other matters as are reasonably satisfactory to Unimag.
Section 6.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as
otherwise expressly contemplated by this Agreement, during the
Exchange Period: (i) Unimag shall not take or permit to be taken any
action or do or permit to be done anything in the conduct of the
business of Unimag, or otherwise, that would be contrary to or in
breach of any of the terms or provisions of this Agreement or which
would cause any of its representations and warranties contained in
this Agreement to be or become untrue in any material respect; and
(ii) Unimag shall conduct its business in the ordinary course
consistent with past practices.
(b) Joint Operations. Notwithstanding anything
in this Agreement to the contrary, from and after the Escrow Closing
Date, Unimag shall manage and oversee the use and operation of the
Acquired Assets as if the Exchange had already occurred.
(c) Consummation of Acquisitions. Unimag shall
use all reasonable efforts to take all actions and do all things
necessary, proper, or advisable to consummate the: (i) acquisition of
Michiana News Service, Inc., a Michigan corporation ("Michiana"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Michiana, and all of the
shareholders of Michiana (the "Michiana Acquisition"); (ii)
acquisition of The Stoll Companies, an Ohio corporation ("Stoll"),
pursuant to and upon the terms and conditions of the Stock Transfer
and Exchange Agreement among Unimag, Stoll, and all of the
shareholders of Stoll (the "Stoll Acquisition"); and (iii) acquisition
of certain assets and liabilities of Northern News Company, a Michigan
corporation ("Northern"), and Ohio Periodical Distributors, Inc., an
Ohio corporation ("OPD"), pursuant to and upon the terms and
conditions of the respective Asset Transfer and Exchange Agreements
between Unimag and those companies and the acquisition of Read-mor
Book Stores, Inc., an Ohio corporation, and The Scherer Companies, a
Delaware corporation, pursuant to and upon the terms and conditions of
the respective Stock Transfer and Exchange Agreements among Unimag,
each of those companies, and all of their shareholders (collectively,
the "Scherer Companies Acquisitions"). Neither the acquisition
agreement for the Michiana Acquisition (the "Michiana Acquisition
Agreement"), the acquisition agreement for the Stoll Acquisition (the
"Stoll Acquisition Agreement"), nor the acquisition agreements for the
Scherer Companies Acquisitions (the "Scherer Companies Acquisition
Agreements") shall be modified or amended, in any material respect,
without the prior written consent
- 14 -
<PAGE> 20
of Wholesalers, the Unimag Board of Directors, Stoll, Michiana, and
each of the other companies which are a part of the Scherer Companies
Acquisitions (the "Scherer Companies"). In addition to the
transferors described in this Section 6.3(c), the remainder of the
control group (as defined in Section 368(c) of the Code) of Unimag is
specified in Schedule 1.2.
(d) Confidential Information. Upon the
termination of this Agreement for any reason, Unimag shall promptly
cause all proprietary information or data relevant to the business of
Wholesalers, whether of a technical, financial or commercial nature
and whether furnished by Wholesalers hereunder or otherwise received
by Unimag, and all copies, extracts and summaries thereof in its
possession or in the possession of any of its officers, shareholders
or agents, to be promptly returned to Wholesalers.
ARTICLE 7
CONDITIONS
Section 7.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
(a) Completion of Schedules and Exhibits. Except
for the Debenture Agreement attached as Exhibit A, Schedules 1.1(a)
and (b), Schedule 1.3, and Schedule 2.1, the Parties acknowledge that
at the time of the execution of this Agreement the schedules and
exhibits will not be attached. The Parties shall proceed in good faith
to finalize the form and content of such schedules and exhibits in a
manner consistent with the terms and conditions of this Agreement and
otherwise mutually acceptable to both Parties. Upon finalizing the
form and content of such schedules and exhibits they shall be attached
to and become a part of this Agreement as if they had been attached to
this Agreement at the time of execution.
(b) No Adverse Proceeding. No temporary
restraining order, preliminary or permanent injunction, or other order
or decree which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
(c) Certain Approvals. Unimag and Wholesalers
each shall have filed any Notification and Report Forms and related
materials that either such Party may be required to file with the
Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the
Exchange, and all waiting periods applicable to the consummation of
the Exchange under the HSR Act shall have expired or been terminated.
- 15 -
<PAGE> 21
(d) Other Governmental Approvals. Any
governmental or other approvals or reviews of this Agreement and the
transactions contemplated by this Agreement required under any
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated thereunder, or any corporate governance
document shall have been received, except for any filings which Unimag
must make with the Securities and Exchange Commission in connection
with obtaining approval from Unimag's shareholders of the Exchange and
other transactions contemplated by this Agreement.
(e) Escrow Closing of Certain Acquisitions.
Wholesalers shall have received copies of the final form of the
Michiana Acquisition Agreement, the Stoll Acquisition Agreement, and
the Scherer Companies Acquisition Agreements, all of which shall be of
a form and content similar to this Agreement, with the exception that
the Michiana Acquisition Agreement, the Stoll Acquisition Agreement,
and certain of the Scherer Companies Acquisition Agreements shall be
for the exchange of stock and debentures. In addition, Unimag shall
have consummated the escrow closings of the Scherer Companies
Acquisition for Northern and OPD, the Michiana Acquisition, and the
Stoll Acquisition.
(f) Tax Commentary. Unimag shall have received a
tax commentary, dated the Escrow Closing Date, of Arthur Andersen LLP,
in form and substance satisfactory to Unimag, as to the qualification
of the Exchange for Unimag as a tax-free exchange under Section 351 of
the Code, and Unimag shall have delivered a copy of such opinion to
Wholesalers.
Section 7.2 CONDITIONS TO OBLIGATIONS OF WHOLESALERS TO COMPLETE
THE ESCROW CLOSING. The obligations of Wholesalers to complete the Escrow
Closing and to consummate other transactions contemplated by this Agreement to
be completed at the Escrow Closing shall be subject to the fulfillment of all
of the following conditions unless waived by Wholesalers in writing:
(a) Representations and Warranties. The
representations and warranties of Unimag set forth in Article 4 of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Escrow Closing Date as
though made at and as of the Escrow Closing Date.
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing Date.
(c) Certificate. Unimag shall have furnished
Wholesalers with a certificate dated the Escrow Closing Date signed by
its chairman, president, or any vice president to the effect that the
conditions set forth in Section 7.2(a) and Section 7.2(b) have been
satisfied.
(d) Opinion of Counsel. Wholesalers shall have
received the legal opinion, dated the Escrow Closing Date, of Baker &
Hostetler, counsel to Unimag, in substantially the form attached to
this Agreement as Exhibit B.
- 16 -
<PAGE> 22
(e) Due Diligence. Wholesalers' completion of
its due diligence review of Unimag, Stoll, Michiana, and the other
Scherer Companies with results satisfactory to Wholesalers on or
before September 6, 1996.
(f) Unimag Shareholder Letters. As of the date
of this Agreement, shareholders of Unimag who have the right to vote
more than 50% of the outstanding Unimag Shares intend to submit
letters to Unimag indicating they intend to vote in favor of the
Exchange, the Stoll Acquisition, the Michiana Acquisition, and the
Scherer Companies Acquisitions at the Unimag shareholders meeting to
be held for that purpose. Copies of these letters will be provided to
Wholesalers by Unimag prior to the Escrow Closing.
(g) Other Documents. Unimag shall have delivered
the following items to Wholesalers:
(i) Unimag's articles of incorporation,
certified by the Ohio Secretary of State as of a date
not more than ten days prior to the Escrow Closing
Date;
(ii) A good standing certificate of
Unimag, issued by the Ohio Secretary of State as of a
date not more than ten days prior to the Escrow
Closing Date;
(iii) The code of regulations of Unimag,
certified by the secretary of Unimag on the Escrow
Closing Date;
(iv) An assumption of the Assumed
Liabilities upon such reasonable and customary terms
and conditions as Unimag and Wholesalers may agree;
and
(v) Resolutions of the directors of
Unimag approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Unimag on the
Escrow Closing Date.
Section 7.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to consummate the Exchange and
complete the Escrow Closing and to consummate the other transactions
contemplated by this Agreement to be completed at the Escrow Closing shall be
subject to the fulfillment of all of the following conditions unless waived by
Unimag in writing:
(a) Representations and Warranties. The
representations and warranties of Wholesalers set forth in Article 5
of this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Escrow Closing Date as
though made at and as of the Escrow Closing Date.
(b) Performance of Agreement. Wholesalers shall
have performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
it under this Agreement at or prior to the Escrow Closing Date.
- 17 -
<PAGE> 23
(c) Certificate. Wholesalers shall have
furnished Unimag with a certificate dated the Escrow Closing Date
signed on its behalf by its chairman, president or any vice president
to the effect that the conditions set forth in Section 7.3(a) and
Section 7.3(b) have been satisfied.
(d) Opinion of Counsel. Unimag shall have
received the legal opinion, dated the Escrow Closing Date, of legal
counsel to Wholesalers, substantially in the form attached to this
Agreement as Exhibit C.
(e) Third Party Consents. Unimag shall have
received all necessary customer, vendor, and other third party
consents and approvals of this Agreement and the transactions
contemplated by this Agreement.
(f) Adverse Change and Condition. There shall
have been no material adverse change in the properties, assets,
liabilities, business, results of operations, condition (financial or
otherwise) or prospects of Wholesalers (with respect to its Acquired
Assets).
(g) Opinion of Independent Counsel. Unimag shall
have received the legal opinion, dated the Escrow Closing Date, of
legal counsel reasonably acceptable to Unimag and its counsel in the
form attached to this Agreement as Exhibit E.
(h) Other Documents. Wholesalers shall have
delivered the following items to Unimag:
(i) Wholesalers' articles of
incorporation, certified by the Delaware Secretary of
State as of a date not more than ten days prior to the
Escrow Closing Date;
(ii) A good standing certificate of
Wholesalers, issued by the Delaware Secretary of State
as of a date not more than ten days prior to the
Escrow Closing Date;
(iii) The code of regulations of
Wholesalers, certified by the secretary of Wholesalers
on the Escrow Closing Date;
(iv) The Transfer Documents for the
contribution, transfer, assignment, and conveyance of
the Acquired Assets upon such reasonable and customary
terms and conditions as Unimag and Wholesalers may
agree; and
(v) The resolutions of the directors of
Wholesalers approving, adopting, and authorizing this
Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Wholesalers
on the Escrow Closing Date.
(i) Due Diligence. Unimag's completion of its
due diligence review with results satisfactory to Unimag on or before
September 6, 1996.
- 18 -
<PAGE> 24
Section 7.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth
in Section 7.1, Section 7.2, and Section 7.3, the Parties shall hold the Escrow
Closing at which the Parties and Baker & Hostetler, as escrow agent ("Escrow
Agent"), shall execute and deliver the document escrow agreement in the form
attached to this Agreement as Exhibit D (the "Document Escrow Agreement"). The
Document Escrow Agreement shall provide, among other things, that at the Escrow
Closing this Agreement and all of the Additional Documents shall be deposited
with Escrow Agent to be held pursuant to the terms of the Document Escrow
Agreement and that upon the escrow closing of certain acquisitions and the
approval of the Exchange by Unimag's board of directors and shareholders this
Agreement and the Additional Documents shall be released and delivered to the
appropriate Party at the Escrow Closing and the Exchange and other transactions
contemplated by this Agreement shall be consummated.
Section 7.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of Other Acquisitions. Unimag
shall have consummated the escrow closings of the Michiana
Acquisition, the Stoll Acquisition and the remainder of the Scherer
Companies Acquisitions (except for the escrow closing for the
acquisitions of Northern and OPD which were closed into escrow prior
to the Escrow Closing under this Agreement. Such escrow closings
shall be completed no later than September 28, 1996, and shall be
substantially similar to the Escrow Closing under this Agreement.
(b) Unimag Board of Directors Approval. The
Exchange and the Scherer Companies Acquisitions shall have been
approved by Unimag's board of directors.
(c) Unimag Shareholder Approval. The Exchange,
the Stoll Acquisition, the Michiana Acquisition, and the Scherer
Companies Acquisitions shall have been approved by the affirmative
vote of the shareholders of Unimag to the extent such approval is
required by the provisions of Ohio Revised Code Chapter 1701 and
Unimag's articles of incorporation.
ARTICLE 8
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION.
(a) Termination by Wholesalers. This Agreement
may be terminated and cancelled prior to the Escrow Closing Date by
Wholesalers if: (i) (A) any of the representations or warranties of
Unimag contained in this Agreement shall prove to be inaccurate in any
material respect, or any covenant, agreement, obligation, or condition
to be performed or observed by Unimag under this Agreement has not
been performed or observed in any material respect at or prior to the
time specified in this Agreement,
- 19 -
<PAGE> 25
and (B) such inaccuracy or failure shall not have been cured within 15
business days after receipt by Unimag of written notice of such
occurrence from Wholesalers; (ii) any permanent injunction or other
order of a court or other competent authority preventing consummation
of the Exchange or any other transaction contemplated by this
Agreement shall have become final and nonappealable; (iii) so long as
Wholesalers is not in material breach of any representation, warranty,
covenant, or agreement, if the Escrow Closing has not occurred on or
before September 28, 1996; or (iv) so long as Wholesalers is not in
material breach of any representation, warranty, covenant, or
agreement, if the Escrow Closing has not occurred on or before
December 31, 1996.
(b) Termination by Unimag. This Agreement may be
terminated and cancelled at any time prior to the Escrow Closing Date
by Unimag if: (i) (A) any of the representations or warranties of
Wholesalers contained in this Agreement shall prove to be inaccurate
in any material respect, or any covenant, agreement, obligation, or
condition to be performed or observed by Wholesalers under this
Agreement has not been performed or observed in any material respect
at or prior to the time specified in this Agreement, and (B) such
inaccuracy or failure shall not have been cured within 15 business
days after receipt by Wholesalers of written notice of such occurrence
from Unimag; (ii) any permanent injunction or other order of a court
or other competent authority preventing consummation of the Exchange
or any other transaction contemplated by this Agreement shall have
become final and nonappealable; (iii) so long as Unimag is not in
material breach of any representation, warranty, covenant, or
agreement, if the Escrow Closing has not occurred on or before
September 28, 1996; or (iv) so long as Unimag is not in material
breach of any representation, warranty, covenant, or agreement, if the
Escrow Closing has not occurred on or before December 31, 1996.
Section 8.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the shareholders of Wholesalers
and the Unimag shareholders, but, after such adoption, no amendment shall be
made which by law requires further adoption by the shareholders of Wholesalers
or the Unimag shareholders without such further adoption. Notwithstanding the
foregoing, this Agreement may not be amended except by an instrument in writing
signed by each of the Parties.
Section 8.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing Date, or Closing as the case may be, Unimag (with respect to
Wholesalers) and Wholesalers (with respect to Unimag) may, to the extent
legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of such Party; (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto; or (c) waive compliance with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a
Party to any such extension or waiver shall be valid only if set forth in a
written instrument signed by such Party.
- 20 -
<PAGE> 26
ARTICLE 9
INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS.
(a) Notwithstanding any investigation conducted
at any time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of Wholesalers
and Unimag in this Agreement and in the Document Escrow Agreement
shall survive the execution, delivery, and performance of this
Agreement and the Document Escrow Agreement. All representations and
warranties of the Parties set forth in this Agreement and in the
Document Escrow Agreement shall be deemed to have been made again by
them at and as of the Escrow Closing Date.
(b) As used in this Article 9, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 9.2 INDEMNIFICATION BY WHOLESALERS.
(a) Subject to the provisions of this Section 9.2
and of Section 9.4 below, Wholesalers shall indemnify and hold
harmless Unimag from and against any and all losses, liabilities,
damages, demands, claims, suits, actions, judgments or causes of
action, assessments, costs and expenses, including without limitation
interest, penalties, reasonable attorneys' fees, any and all
reasonable expenses incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting to,
imposed upon, or incurred or suffered by Unimag, directly or
indirectly, as a result of or arising from any material inaccuracy in
or breach of any of the representations, warranties, covenants, or
agreements made by Wholesalers in this Agreement or the Document
Escrow Agreement (collectively, "Indemnifiable Wholesalers Claims").
(b) Unimag shall be deemed to have suffered
Damages arising out of or resulting from the matters referred to in
Section 9.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
(c) Wholesalers may satisfy any obligation of
indemnification under this Article 9 by delivery of Unimag Shares to
Unimag with a value equal to the amount of the payment being
satisfied. For purposes of this Section 9.2(c), Unimag Shares shall
be valued at the greater of (i) $1.50 per share, or (ii) their market
value at the time the indemnification obligation has been finally
established.
(d) Notwithstanding anything contained in this
Agreement to the contrary, the collective indemnification obligations
of Wholesalers under this Agreement shall never exceed, in the
aggregate, the sum of $110,000.
- 21 -
<PAGE> 27
Section 9.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless
Wholesalers from and against any Damages asserted against, resulting
to, imposed upon, or incurred or suffered by Wholesalers, directly or
indirectly, as a result of or arising from any (i) material inaccuracy
in or breach or nonfulfillment of any of the representations,
warranties, covenants, or agreements made by Unimag in this Agreement
or the Document Escrow Agreement, (ii) subject to the limitations set
forth in Section 9.3(c), any and all claims, liabilities or
obligations arising out of the operation of the business of
Wholesalers after the Escrow Closing Date, or (iii) any and all
claims, liabilities and obligations arising out of any failure by
Unimag to pay, following the Escrow Closing Date, any Assumed
Liability or to pay any amount or perform any obligation under any of
the Contracts, (collectively, "Indemnifiable Unimag Claims" and,
together with Indemnifiable Wholesalers Claims, the "Indemnifiable
Claims").
(b) Unimag shall satisfy any obligation of
indemnification under this Article 9 in cash.
(c) Notwithstanding anything contained in this
Agreement to the contrary, Wholesalers hereby acknowledges that Unimag
shall not be liable to Wholesalers, under this Article 9 or any other
provision of this Agreement, for any claims, liabilities, or
obligations arising out of the operation of the business of
Wholesalers prior to the Escrow Closing Date, if such claim,
liability, or obligation is caused by or results from any
Indemnifiable Wholesalers Claims.
Section 9.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 9 are subject to the following limitations:
(a) For purposes of this Article 9, all Damages
shall be computed net of any insurance coverage which reduces the
Damages that would otherwise be sustained; provided that in all cases
the timing of the receipt or realization of insurance proceeds shall
be taken into account in determining the amount of reduction of
Damages.
(b) Subject to the provisions of Section 9.4(c),
below, Unimag shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim or Claims unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $11,000. Once Unimag's Damages exceeds $11,000 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $11,000 of Damages.
(c) Notwithstanding and in lieu of the provisions
of Section 9.4(b), above, Unimag shall not be entitled to
indemnification with respect to an Indemnifiable Claim or Claims
resulting from a breach of the representations and warranties
contained in the last paragraph of Section 5.9 unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims
exceeds $2,000. Once Unimag's Damages for any such breach exceeds
$2,000 in the aggregate, Unimag shall only be entitled to be
indemnified to the extent of such Damages in excess of such initial
$2,000 of Damages.
- 22 -
<PAGE> 28
(d) The obligations of indemnity under this
Article 9 with respect to any Indemnifiable Claim shall terminate two
years after the Escrow Closing Date.
(e) If, prior to the termination of the
obligation to indemnify, written notice of an Indemnifiable Claim is
given by Unimag or Wholesalers as the case may be (an "Indemnified
Party") to the other Party or Parties, as the case may be (the
"Indemnifying Party"), or a suit or action based upon an alleged
Indemnifiable Claim is commenced against the Indemnifying Party, the
Indemnified Party shall not be precluded from pursuing such
Indemnifiable Claim (whether through the courts or otherwise) by
reason of the termination of the obligation of indemnity as described
in Section 9.4(d) above.
Section 9.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 9 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted liability with counsel reasonably satisfactory to the
Indemnified Party. Notwithstanding the foregoing: (i) the
Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be
payable by the Indemnified Party; (ii) the Indemnified Party shall not
have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing; and (iii) the
rights of the Indemnified Party to be indemnified in respect of
Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only
to the extent that the Indemnifying Party is prejudiced by such
failure. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party
fails to assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall have the right to defend, compromise, or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Party.
(c) Notwithstanding anything in this Section 9.5
to the contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party,
- 23 -
<PAGE> 29
to defend, compromise, or settle such Indemnifiable Claim; and (ii)
the Indemnifying Party shall not, without the Indemnified Party's
prior written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable Claim
unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party (and its subsidiaries and affiliates) a release from
all liability in respect of such Indemnifiable Claim.
Section 9.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three disinterested arbitrators. The panel shall be composed of one
arbitrator appointed by the Indemnified Party, one appointed by the
Indemnifying Party, and the third, who shall be an attorney admitted to
practice in the State of Ohio who has experience in periodical distribution,
shall be appointed by the mutual agreement of the two arbitrators chosen by the
Indemnified Party and the Indemnifying Party. The panel shall sit in Columbus,
Ohio, and its procedures shall be governed by the Ohio Arbitration Act
contained in Chapter 2711 of the Ohio Revised Code. The rules of civil
procedure with respect to depositions and requests for production of documents
applicable in Ohio common pleas courts shall apply. A decision in any such
arbitration shall apply both to the particular question submitted and to all
similar questions arising thereafter. The determination made shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting, and other fees in connection with
such a contest; provided that if the contested claim is referred to and
ultimately determined by arbitration, the legal, auditing, and other fees of
the prevailing Party and the fees and expenses of any arbitrator shall be borne
by the nonprevailing Party.
Section 9.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 9.5 or Section 9.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 3.2(b)), the
Unimag Debentures, or the Additional Documents.
- 24 -
<PAGE> 30
ARTICLE 10
MISCELLANEOUS
Section 10.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Jr., Esq.
Facsimile No.: (614) 462-2616
(b) If to Wholesalers:
Wholesalers Leasing Corp.
5131 Post Road
Dublin, Ohio 43017
Attention: Treasurer
Facsimile No.: (614) 792-2029
with a copy to:
The Scherer Companies
5131 Post Road
Dublin, Ohio 43017
Attention: Ruth Hunter Smith, General Counsel
Facsimile No.: (614) 792-2029
Section 10.2 NON-WAIVER. No failure by any Party to insist upon
strict compliance with any term or provision of this Agreement, to exercise any
option, to enforce any right, or to seek any
- 25 -
<PAGE> 31
remedy upon any default of any other Party shall affect, or constitute a waiver
of, any other Party's right to insist upon such strict compliance, exercise
that option, enforce that right, or seek that remedy with respect to that
default or any prior, contemporaneous, or subsequent default. No custom or
practice of the Parties at variance with any provisions of this Agreement shall
affect or constitute a waiver of, any Party's right to demand strict compliance
with all provisions of this Agreement.
Section 10.3 GENDERS AND NUMBERS. Where permitted by the context,
each pronoun used in this Agreement includes the same pronoun in other genders
and numbers, and each noun used in this Agreement includes the same noun in
other numbers.
Section 10.4 HEADINGS. The headings of the various articles and
sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such articles and sections, and shall be
ignored in construing this Agreement.
Section 10.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same Agreement.
Section 10.6 ENTIRE AGREEMENT. This Agreement (including all
exhibits, schedules, and other documents referred to in this Agreement, all of
which are hereby incorporated herein by reference) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the Parties with respect to the subject matter of this
Agreement.
Section 10.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon or give to any person, firm, corporation, or other entity, other
than the Parties, any rights, remedies, or other benefits under or by reason of
this Agreement.
Section 10.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio without regard
to principles of conflicts of law.
Section 10.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors, and
assigns. Neither this Agreement nor any of the rights, interests, or
obligations under this Agreement shall be transferred or assigned by any of the
Parties without the prior written consent of the other Parties.
Section 10.10 EXPENSES. Except as otherwise specifically provided in
this Agreement: (a) Unimag shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its legal counsel, independent public accountants, and
other financial advisors; (b) Wholesalers shall pay its own costs and expenses
associated with this Agreement, including without limitation the fees and
expenses of their legal counsel, accountants, and financial advisors; and (c)
all such costs and expenses incurred by Wholesalers in connection with this
Agreement and the transactions contemplated hereby shall be accrued and
expensed, or otherwise accounted for, so that such costs and
- 26 -
<PAGE> 32
expenses will be taken into consideration when determining the Actual Value of
Wholesalers pursuant to Section 3.2(b).
Section 10.11 PUBLIC ANNOUNCEMENTS. Wholesalers shall not, without
the prior written consent of Unimag, make any public announcement or statement
with respect to the transactions contemplated in the Agreement. The provisions
of this section are subject to each Party's obligation to comply with
applicable requirements of the federal or state securities laws or any
governmental order or regulation.
Section 10.12 SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by applicable law, and
the Parties shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
UNITED MAGAZINE COMPANY
By /s/ RONALD E. SCHERER
---------------------------------
Ronald E. Scherer, Chairman
WHOLESALERS LEASING CORP.
By /s/ DAVID B. THOMPSON
---------------------------------
David B. Thompson, Treasurer
- 27 -
<PAGE> 33
INDEX OF SCHEDULES
Schedule 1.1(a) Vehicles
Schedule 1.1(b) Computer Equipment
Schedule 1.2 Control Group
Schedule 1.3 Non-Assigned Acquired Assets
Schedule 2.1 Assumed Liabilities
Schedule 4.3 Agreements to Issue Unimag Shares
Schedule 4.5 Litigation
Schedule 5.1 Qualification as Foreign Corporation
Schedule 5.2 Wholesalers Shareholders
Schedule 5.4 Consents and Approvals
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Compliance with Law
Schedule 5.8 Restrictive Documents and Laws
Schedule 5.9 Properties
Schedule 5.11 Legal Proceedings
Schedule 5.12 Conflicts or Defaults
- 28 -
<PAGE> 34
INDEX OF EXHIBITS
Exhibit A Debenture Agreement
Exhibit B Legal Opinion of Baker & Hostetler
Exhibit C Legal Opinion of Counsel to Wholesalers
Exhibit D Document Escrow Agreement
Exhibit E Opinion of Independent Legal Counsel
- 29 -
<PAGE> 1
STOCK TRANSFER AND EXCHANGE AGREEMENT
AMONG
UNITED MAGAZINE COMPANY,
THE SCHERER COMPANIES
AND
ALL OF THE SHAREHOLDERS OF THE SCHERER COMPANIES
EFFECTIVE DATE: AUGUST 2, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Exchange . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Escrow Closing; Closing . . . . . . . . . . . . 2
ARTICLE 2 EXCHANGE OF CAPITAL STOCK AND
DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Exchange of Capital Stock . . . . . . . . . . . 2
(a) Outstanding Scherer Shares . . . . . . . . . . . 2
(b) Scherer Treasury Shares . . . . . . . . . . . . 4
Section 2.2 Exchange of Certificates; Issuance of
Shares and Debentures . . . . . . . . . . . . . 4
(a) Delivery of Scherer Share Certificates . . . . . 4
(b) Issuance of Unimag Shares . . . . . . . . . . . 4
(c) Issuance of Unimag Debentures . . . . . . . . . 5
(d) Distributions with Respect to Unexchanged Shares 5
(e) Unimag Shares to be Restricted Securities . . . 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Organization and Standing . . . . . . . . . . . 6
Section 3.2 Corporate Power and Authority . . . . . . . . . 6
Section 3.3 Capitalization of Unimag . . . . . . . . . . . . 6
Section 3.4 Conflicts; Consents; and Approvals . . . . . . . 7
Section 3.5 Litigation . . . . . . . . . . . . . . . . . . . 7
Section 3.6 Brokerage and Finder's Fees . . . . . . . . . . 8
Section 3.7 Unimag 10-K and 10-Q . . . . . . . . . . . . . . 8
Section 3.8 Taxes . . . . . . . . . . . . . . . . . . . . . 8
Section 3.9 Undisclosed Liabilities . . . . . . . . . . . . 8
Section 3.10 Compliance With Law . . . . . . . . . . . . . . 9
Section 3.11 No Material Adverse Change . . . . . . . . . . . 9
Section 3.12 Section 351 Exchange . . . . . . . . . . . . . . 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
THE SCHERER COMPANIES AND THE SCHERER
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.1 Organization and Standing . . . . . . . . . . . 9
Section 4.2 Capitalization and Security Holders; Subsidiaries 10
Section 4.3 Ownership of Shares and Authority . . . . . . . 10
Section 4.4 Corporate Power and Authority . . . . . . . . . 11
Section 4.5 Consents and Approvals . . . . . . . . . . . . . 11
Section 4.6 Financial Statements . . . . . . . . . . . . . . 11
Section 4.7 Undisclosed Liabilities . . . . . . . . . . . . 11
Section 4.8 Absence of Certain Changes . . . . . . . . . . . 12
Section 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . 13
Section 4.10 Compliance with Law . . . . . . . . . . . . . . 14
Section 4.11 Proprietary Rights . . . . . . . . . . . . . . . 15
Section 4.12 Restrictive Documents or Laws . . . . . . . . . 16
Section 4.13 Insurance . . . . . . . . . . . . . . . . . . . 16
Section 4.14 Bank Accounts, Depositories; Powers of Attorney 17
Section 4.15 Title to and Condition of Properties . . . . . . 17
Section 4.16 Brokers and Finders . . . . . . . . . . . . . . 18
Section 4.17 Legal Proceedings. . . . . . . . . . . . . . . . 18
Section 4.18 ERISA . . . . . . . . . . . . . . . . . . . . . 19
Section 4.19 Contracts . . . . . . . . . . . . . . . . . . . 21
Section 4.20 Accounts Receivable . . . . . . . . . . . . . . 22
Section 4.21 No Conflict or Default . . . . . . . . . . . . . 22
Section 4.22 Books of Account; Records . . . . . . . . . . . 23
Section 4.23 Officers, Employees, and Compensation . . . . . 23
Section 4.24 Labor Relations . . . . . . . . . . . . . . . . 23
Section 4.25 Customers and Suppliers . . . . . . . . . . . . 23
Section 4.26 Special Terms; Product Warranties . . . . . . . 24
Section 4.27 Business of Scherer . . . . . . . . . . . . . . 24
Section 4.28 Investment Representation . . . . . . . . . . . 24
Section 4.29 Section 351 Exchange . . . . . . . . . . . . . . 24
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . 25
Section 5.1 Mutual Covenants . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . 25
(b) HSR Filings . . . . . . . . . . . . . . . . . . 25
(c) Other Governmental Matters . . . . . . . . . . . 25
(d) Tax-Free Treatment . . . . . . . . . . . . . . . 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 5.2 Covenants of Scherer and the Scherer Shareholders 25
(a) Conduct of Business . . . . . . . . . . . . . . 26
(b) Exclusive Rights . . . . . . . . . . . . . . . . 27
(c) Access to Records and Other Due Diligence . . . 28
(d) Disclosures . . . . . . . . . . . . . . . . . . 28
(e) Employee Retention . . . . . . . . . . . . . . . 28
(f) Dividends and Distributions . . . . . . . . . . 28
(g) Notices of Certain Events . . . . . . . . . . . 28
(h) Title Evidence . . . . . . . . . . . . . . . . . 29
(i) Compiled Financial Statements . . . . . . . . . 29
(j) Noncompetition . . . . . . . . . . . . . . . . . 29
Section 5.3 Covenants of Unimag . . . . . . . . . . . . . . 30
(a) Conduct of Unimag's Business . . . . . . . . . . 30
(b) Joint Operations of Unimag and Scherer . . . . . 30
(c) Consummation of Acquisitions . . . . . . . . . . 31
(d) Confidential Information . . . . . . . . . . . . 31
ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.1 Mutual Conditions to Escrow Closing . . . . . . 32
(a) Completion of Schedules and Exhibit . . . . . . . 32
(b) No Adverse Proceeding . . . . . . . . . . . . . 32
(c) Certain Approvals . . . . . . . . . . . . . . . 32
(d) Other Governmental Approvals . . . . . . . . . . 32
(e) Escrow Closing of Certain Acquisitions . . . . . 32
(f) Tax Commentary . . . . . . . . . . . . . . . . . 32
(g) Employment Agreements . . . . . . . . . . . . . 33
Section 6.2 Conditions to Obligations of Scherer and the
Scherer Shareholders to Complete
the Escrow Closing . . . . . . . . . . . . . . . 33
(a) Representations and Warranties . . . . . . . . . 33
(b) Performance of Agreement . . . . . . . . . . . . 33
(c) Certificate . . . . . . . . . . . . . . . . . . 33
(d) Tax Commentary . . . . . . . . . . . . . . . . . 33
(e) Opinion of Counsel . . . . . . . . . . . . . . . 33
(e) Adverse Change and Condition . . . . . . . . . . 33
(g) Unimag Shareholder Letters . . . . . . . . . . . 33
(h) Due Diligence . . . . . . . . . . . . . . . . . 34
(i) Other Documents . . . . . . . . . . . . . . . . 34
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 6.3 Conditions to Obligations of Unimag to Complete
the Escrow Closing . . . . . . . . . . . . . . . 34
(a) Representations and Warranties . . . . . . . . . 34
(b) Performance of Agreement . . . . . . . . . . . . 34
(c) Certificate . . . . . . . . . . . . . . . . . . 35
(d) Opinion of Counsel . . . . . . . . . . . . . . . 35
(e) Books and Records . . . . . . . . . . . . . . . 35
(f) Third Party Consents . . . . . . . . . . . . . . 35
(g) Adverse Change and Condition . . . . . . . . . . 35
(h) Other Documents . . . . . . . . . . . . . . . . 35
(i) Due Diligence . . . . . . . . . . . . . . . . . 36
Section 6.4 Document Escrow Agreement; Unimag
Shareholder Approval . . . . . . . . . . . . . . 36
Section 6.5 Mutual Conditions to Consummate the Exchange . . 36
(a) Escrow Closing of Acquisitions . . . . . . . . . 36
(b) Unimag Shareholder Approval . . . . . . . . . . 36
ARTICLE 7 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . 36
Section 7.1 Termination . . . . . . . . . . . . . . . . . . 36
(a) Termination by Scherer and the
Scherer Shareholders . . . . . . . . . . . . . . 36
(b) Termination by Unimag . . . . . . . . . . . . . 37
Section 7.2 Amendment . . . . . . . . . . . . . . . . . . . 37
Section 7.3 Extension; Waiver . . . . . . . . . . . . . . . 37
ARTICLE 8 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 38
Section 8.1 Survival of Representations, Warranties, Covenants,
and Agreements . . . . . . . . . . . . . . . . . 38
Section 8.2 Indemnification by Scherer Shareholders . . . . 38
Section 8.3 Indemnification by Unimag . . . . . . . . . . . 39
Section 8.4 Limitations on Indemnification . . . . . . . . . 39
Section 8.5 Procedure for Indemnification with Respect to
Third Party Claims . . . . . . . . . . . . . . . 40
Section 8.6 Procedure For Indemnification with Respect to
Non-Third Party Claims . . . . . . . . . . . . . 41
Section 8.7 Right of Setoff . . . . . . . . . . . . . . . . 42
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 42
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . 42
Section 9.2 Non-Waiver . . . . . . . . . . . . . . . . . . . 44
Section 9.3 Genders and Numbers . . . . . . . . . . . . . . 44
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . 44
Section 9.5 Counterparts . . . . . . . . . . . . . . . . . . 44
Section 9.6 Entire Agreement . . . . . . . . . . . . . . . . 44
Section 9.7 No Third Party Beneficiaries . . . . . . . . . . 44
Section 9.8 Governing Law . . . . . . . . . . . . . . . . . 44
Section 9.9 Binding Effect; Assignment . . . . . . . . . . . 44
Section 9.10 Expenses . . . . . . . . . . . . . . . . . . . . 45
Section 9.11 Public Announcements . . . . . . . . . . . . . . 45
Section 9.12 Severability . . . . . . . . . . . . . . . . . . 45
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
v
<PAGE> 7
STOCK TRANSFER AND EXCHANGE AGREEMENT
This Stock Transfer and Exchange Agreement (this "Agreement") is made
and entered into August 30, 1996, to be effective as of August 2, 1996,
among United Magazine Company, an Ohio corporation ("Unimag"), The Scherer
Companies, a Delaware corporation ("Scherer"), and all of Scherer's
shareholders which are listed on Schedule 4.2 (individually, a "SCHERER
SHAREHOLDER" and collectively, the "Scherer Shareholders").
BACKGROUND INFORMATION
A. Unimag desires to acquire the business of Scherer relating to
the management of wholesale and retail magazine, book, newspaper and sundries
distribution, and related businesses (the "Wholesale Periodical Management
Business") through an exchange (the "Exchange"), pursuant to which Scherer's
common shares, voting, without par value, (each a "Scherer Share" and
collectively, the "Scherer Shares"), outstanding at the Escrow Closing (defined
in Section 1.2, below) shall be exchanged for (1) Unimag's common shares,
without par value ("Unimag Shares"), and (2) senior and subordinated debentures
of Unimag, subject to and upon the terms and conditions set forth in this
Agreement.
B. The respective boards of directors of Unimag and Scherer have
(1) determined that the Exchange and the other transactions contemplated in
this Agreement are desirable and in the best interests of their respective
shareholders, and (2) duly approved and adopted this Agreement.
C. Unimag and Scherer intend that the Exchange qualify, along
with other exchanges between other companies and Unimag occurring both before
and after the closing of the transactions contemplated by this Agreement, as a
tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules).
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
ARTICLE 1
EXCHANGE
Section 1.1 EXCHANGE. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the provisions of Section
351 of the Code, the Scherer Shareholders shall transfer all of the Scherer
Shares to Unimag in exchange for Unimag's transfer
1
<PAGE> 8
to the Scherer Shareholders of Unimag Shares and senior and subordinated
debentures of Unimag (both in the amounts and as described in Section 2.1).
Immediately after this exchange, the former Scherer Shareholders shall
represent a part of the group of transferors, a list of whom is attached as
Schedule 1.1, who will be in control (as defined in Section 368(c) of the Code)
of Unimag.
Section 1.2 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange and the other transactions contemplated by this Agreement (the "Escrow
Closing") shall be held at the offices of Baker & Hostetler, 65 East State
Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus, Ohio time on
such date (the "Escrow Closing Date") as may be reasonably designated by
Unimag; provided that it is the intention of the Parties that the Escrow
Closing shall be held not later than September 28, 1996. As provided in
Section 6.5, after the Escrow Closing the only conditions to the release of
this Agreement and the other documents executed in connection with the
transactions contemplated by this Agreement (the "Additional Documents") from
the Document Escrow Agreement (defined in Section 6.4) shall be the approval of
the Exchange by the shareholders of Unimag and the escrow closing of certain
other acquisitions. Within ten days after such shareholder approval (the
"Closing Date"), the Parties will cause the Agreement and the Additional
Documents to be delivered to the appropriate Party in accordance with the terms
and conditions of the Document Escrow Agreement and the Parties will close the
Exchange (the "Closing"). In no event shall the Closing be held later than
December 31, 1996.
ARTICLE 2
EXCHANGE OF CAPITAL STOCK AND DEBENTURES
Section 2.1 EXCHANGE OF CAPITAL STOCK. At the Closing:
(a) Outstanding Scherer Shares. Each Scherer
Share which is issued and outstanding immediately prior to the Escrow
Closing shall, subject to the provisions of Section 2.2, and subject to
the adjustments provided for in Sections 2.1(b) and 3.3, be exchanged
for (i) 152.66 Unimag Shares (an aggregate of $76,330 Unimag
Shares for all Scherer Shares exchanged), and (ii) 220.01 principal
amount of Unimag debentures (an aggregate of $110,005 principal
amount of Unimag debentures for all Scherer Shares exchanged) (the
"Unimag Debentures"). The Unimag Debentures shall be issued pursuant
to the terms of the Debenture Agreement attached hereto as Exhibit A.
An aggregate of $62,614.85 principal amount of the Unimag Debentures
($125.23 per Scherer Share converted) will be Senior Debentures (as
defined in the Debenture Agreement), and the balance of the Unimag
Debentures will be Subordinated Debentures (as defined in the Debenture
Agreement).
(i) Valuation Adjustment. The amount of
Unimag Shares and the principal amount of Unimag Debentures to
be received upon exchange of the Scherer Shares is based upon
a total valuation of Scherer of $224,500, or $449.00 per
Scherer Share, with 51.00% of this value being exchanged for
2
<PAGE> 9
Unimag Shares at an agreed upon price of $1.50 per Unimag
Share, and 49.00% of this value being exchanged for Unimag
Debentures. The value of Scherer was determined based upon
the following: the tangible net worth of Scherer as of June
30, 1996, which is currently estimated to be $224,500
(the "Tangible Net Worth").
Within 30 days after the Escrow Closing Date, the
Scherer Shareholders shall cause to be prepared and delivered to Unimag
the balance sheet of Scherer as of June 30, 1996 (the "June 30th
Balance Sheet"). The June 30th Balance Sheet shall: (1) be prepared
from and in accordance with the books and records of Scherer; (2) be
prepared in conformity with generally accepted accounting principles
applied on a consistent basis, including without limitation the
generally accepted accounting principles set forth on Schedule 2.1(b),
but subject to the exceptions to generally accepted accounting
principles also set forth on Schedule 2.1(b); and (3) fairly present in
all material respects the financial condition of Scherer as of such
date in accordance with such practices. The Scherer Shareholders shall
also deliver to Unimag copies of the work papers used in connection
with the preparation of the June 30th Balance Sheet.
As soon as practical after Scherer delivers to Unimag
the June 30th Balance Sheet, and the related workpapers, Unimag shall
cause Arthur Andersen LLP to conduct an audit of the June 30th Balance
Sheet to determine the actual Tangible Net Worth of Scherer as of such
date. The determination of the Tangible Net Worth shall be made
consistent with the generally accepted accounting principles (and
exceptions therefrom) set forth in Schedule 2.1(b). Arthur Andersen
LLP shall promptly deliver a report as to its determination of the
Tangible Net Worth of Scherer to Unimag and the Scherer Shareholders.
Within thirty (30) days after the delivery of this report to them, the
Scherer Shareholders shall deliver to Unimag a written statement
describing their objections (if any) to Arthur Andersen LLP's
determination of Tangible Net Worth. Unimag and the Scherer
Shareholders shall use reasonable efforts to resolve any disputes
regarding these determinations, and if they are unable to resolve any
such disputes within thirty (30) days after the Scherer Shareholders
have submitted their objections to Unimag, then Price Waterhouse LLP,
an independent accounting firm, shall resolve any such disputes. The
parties shall use reasonable efforts to cause Price Waterhouse LLP to
decide all disputed items as soon as practicable (but in any event
within thirty (30) days). All fees and expenses of Arthur Andersen
LLP shall be borne by Unimag, but the fees and expenses of Price
Waterhouse LLP shall be borne equally between Unimag, on the one hand,
and the Scherer Shareholders, on the other.
If the Tangible Net Worth, as so determined, is more
than $224,500, then Unimag shall issue additional Unimag
Shares, valued at $1.50 per share, equal to 51.00% of, and additional
Unimag Subordinated Debentures in a principal amount equal to 49.00%
of, the amount by which the Tangible Net Worth, as so determined,
exceeds $224,500. If the actual value of Scherer, as so determined,
is less than $224,500, then the Parties shall reduce the number of
3
<PAGE> 10
Unimag Shares, valued at $1.50 per share, issued to the Scherer
Shareholders by an amount equal to 51.00% of, and the Unimag
Subordinated Debentures issued to the Scherer Shareholders by an
amount equal to 49.00% of, the amount by which the Tangible Net Worth,
as so determined, is less than $224,500. Notwithstanding the
foregoing, if any reduction in the amount of Unimag Shares to be
issued would in any way prevent the Exchange, along with other
exchanges between other companies and Unimag occurring both before and
after the closing of the transactions contemplated by this Agreement,
from being treated as a tax-free exchange under Section 351 of the
Code, then the relative percentage of Unimag Shares and Unimag
Subordinated Debentures to be so returned shall be adjusted in order
to maintain the tax-free exchange nature of these transactions. In
the event that the Scherer Shareholders fail to return such Unimag
Shares and Unimag Subordinated Debentures within 30 days after a
determination that the Tangible Net Worth is less than
$224,500, then, in addition to any other rights or remedies
Unimag may have under this Agreement or otherwise, Unimag shall have
the right to setoff the value of such Unimag Shares and Unimag
Subordinated Debentures against any amount owed to the Scherer
Shareholders by Unimag, whether pursuant to this Agreement or the
Unimag Debentures.
(b) Scherer Treasury Shares. Each Scherer Share, if any,
which is held by Scherer as a treasury share immediately prior to the
Escrow Closing shall, by virtue of the Exchange and without any
required action on the part of Scherer, cease to exist and be canceled
and retired, and no cash or other property shall be issued in respect
thereof.
Section 2.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF SHARES AND
DEBENTURES.
(a) Delivery of Scherer Share Certificates. At the
Closing, each Scherer Shareholder shall surrender to Unimag the
certificates evidencing all the Scherer Shares (the "Scherer Share
Certificates") owned by such Scherer Shareholder immediately prior to
the Escrow Closing.
(b) Issuance of Unimag Shares. At the Closing, upon
delivery of the Scherer Share Certificates evidencing all of the
Scherer Shares owned by each Scherer Shareholder pursuant to Section
2.2(a), Unimag shall issue to each Scherer Shareholder that number of
Unimag Shares which such Scherer Shareholder is entitled to receive as
described in Section 2.1.
Unimag shall not be obligated to issue any fractional
Unimag Shares as a result of the Exchange described in Section 2.1 and
this subsection. To the extent that an outstanding Scherer Share
would otherwise become a fractional Unimag Share as a result of such
exchange, the holder of such Scherer Share shall be entitled to
receive a cash payment for such fractional interest in an amount equal
to such fractional interest multiplied by $1.50 upon presentation of
an appropriate Scherer Share Certificate representing such fractional
interest to Unimag pursuant to this Section 2.2. Such payment is
merely intended to provide a
4
<PAGE> 11
mechanical rounding off of, and is not a separately bargained for,
consideration. If more than one Scherer Share Certificate is
exchanged by the same Scherer Shareholder, the number of Unimag Shares
issuable to such Scherer Shareholder pursuant to Section 2.1 and this
subsection shall be computed on the basis of the aggregate number of
Scherer Shares represented by such Scherer Share Certificates.
(c) Issuance of Unimag Debentures. At the Closing, upon
the delivery of the Scherer Share Certificates evidencing all of the
Scherer Shares owned by each Scherer Shareholder pursuant to Section
2.2(a), Unimag shall issue to each Scherer Shareholder the Unimag
Debentures which such Scherer Shareholder is entitled to receive as
described in Section 2.1.
(d) Distributions with Respect to Unexchanged Shares.
The Scherer Shareholders shall have no rights as shareholders of
Unimag and no rights as debentureholders of Unimag (except that the
Debenture Agreement shall provide that interest will begin accruing
under both the Unimag Senior and Subordinated Debentures effective as
of July 1, 1996) until they have exchanged their Scherer Shares,
and no dividends or other distributions or payments with respect to
Unimag Shares or Unimag Debentures having a record date either before
or after the Closing shall be paid to the holder of any delivered
Scherer Share Certificate until such holder delivers such certificate.
(e) Unimag Shares to be Restricted Securities. The
Unimag Shares to be received by the Scherer Shareholders in the
Exchange shall be restricted securities within the meaning of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The Scherer Shareholders understand and agree that such shares may not
be sold, pledged, hypothecated or otherwise transferred unless such
shares are registered under the Act or pursuant to an opinion of
counsel, which opinion and counsel are reasonably acceptable to Unimag
and its counsel, that an exemption from such registration is
available. The Scherer Shareholders agree that the following legend
may be placed on the certificates for the Unimag Shares to be received
by them and that appropriate stop-transfer instructions may be given
to Unimag's transfer agent and registrar:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, UNLESS THEY ARE
AT THE TIME SO REGISTERED, OR THE SALE OR TRANSFER THEREOF IS
NOT REQUIRED TO BE SO REGISTERED, OR IS MADE PURSUANT TO THE
APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED IN THE
SECURITIES ACT OF 1933, AS AMENDED, OR IN THE RULES OR
REGULATIONS THEREUNDER.
5
<PAGE> 12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF UNIMAG
In order to induce Scherer and the Scherer Shareholders to
enter into this Agreement, Unimag hereby represents and warrants to Scherer and
the Scherer Shareholders that the statements set forth in this Article 3 are
true, correct and complete.
Section 3.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 3.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the shareholders of Unimag to be obtained after the date of
this Agreement). This Agreement has been duly executed and delivered by Unimag
and constitutes a legal, valid, and binding obligation of Unimag, enforceable
against Unimag in accordance with its terms, except as such enforceability may
be limited by (a) applicable bankruptcy, insolvency, or other similar laws from
time to time in effect which may affect the enforcement of creditors' rights in
general, and (b) general principles of equity.
Section 3.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 26,760,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. Scherer and the Scherer Shareholders acknowledge that prior to
the Closing, Unimag may (i) authorize additional capital stock, including
additional Unimag Shares, or (ii) reduce the number of outstanding Unimag
Shares by means of a reverse stock split, or any other method which would
result in a reduction in the number of outstanding Unimag Shares. Unimag will
deliver written notice to Scherer and the Scherer Shareholders if it authorizes
any such action. Except as otherwise described in this Agreement, and except
as disclosed in Schedule 3.3, Unimag has not entered into any agreement which
would require it to reduce or increase the number of Unimag Shares
6
<PAGE> 13
outstanding. In the event that Unimag authorizes a reverse stock split or other
reduction in the number of outstanding Unimag Shares, then the $1.50 agreed
upon price of a Unimag Share for purposes of the exchange of Scherer Shares for
Unimag Shares pursuant to Section 2.1 shall be proportionately adjusted with
the objective that the Scherer Shareholders, in the aggregate, shall have the
right to receive the same proportionate ownership interest in Unimag as before
the reduction in the number of outstanding Unimag Shares.
Section 3.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement, shall:
(a) Violate, conflict with, result in a violation or
breach of any provision of, constitute a default (or an event which,
with the giving of notice, the passage of time, or otherwise, would
constitute a default) under, entitle any third party (with the giving
of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease, or other instrument
or obligation to which Unimag is a party and which is material to
Unimag and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree, statute,
rule, or regulation, applicable to Unimag or its respective properties
or assets; or
(c) Require any action, consent, or approval of, review
by, or registration with any third party, court, governmental body, or
other agency, instrumentality, or authority, other than (i) actions
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the
"HSR Act"), (ii) actions to be taken in respect of federal and state
securities laws as contemplated by this Agreement, and (iii) approval
by the shareholders of Unimag.
Section 3.5 LITIGATION. Except as disclosed in Schedule 3.5:
(a) there is no (and over the last three years there have been no) suits,
claims, actions, proceedings, or investigations (collectively, "Actions")
pending or, to the best knowledge of Unimag, threatened against Unimag or any
of its subsidiaries in which the amount in dispute exceeds (or exceeded)
$25,000, or which has or could result in liability or loss for Unimag or any of
its subsidiaries of more than $25,000, or which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on Unimag and
its subsidiaries, taken as a whole, or a material adverse effect on the ability
of Unimag to consummate the Exchange and other transactions contemplated by
this Agreement; and (b) to the best knowledge of Unimag, there exist no
disputes, conflicts or circumstances providing the basis for a dispute or
conflict which could reasonably be expected to result in any
7
<PAGE> 14
such Action. Neither Unimag nor any subsidiary is subject to any outstanding
judgment, order, writ, injunction, or decree which, individually or in the
aggregate, has a reasonable probability of having a material adverse effect on
the business operations, assets, properties, condition (financial or
otherwise), or prospects of Unimag, or a material adverse effect on the ability
of Unimag to consummate the Exchange or other transactions contemplated by this
Agreement.
Section 3.6 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 3.7 UNIMAG 10-K AND 10-Q. Unimag has previously made
available to Scherer and the Scherer Shareholders true, correct, and complete
copies of Unimag's most recent 10-KSB for the fiscal year ending September 30,
1995 (the "10-K"), and Unimag's most recent 10-QSB for the fiscal quarter
ending June 30, 1996 ("10-Q"), both of which have been filed with the
Securities and Exchange Commission ("SEC"). The financial statements of Unimag
included in the 10-K and 10-Q have been prepared from and in accordance with
the books and records of Unimag and in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the 10-Q,
as permitted by the SEC under the Securities and Exchange Act of 1934, as
amended) and fairly present (subject, in the case of the 10-Q, to normal and
recurring audit adjustments) the consolidated financial position of Unimag and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
Section 3.8 TAXES. Unimag has duly paid, or caused to be paid,
all taxes, assessments, fees, and other governmental charges (hereinafter,
"taxes") payable by Unimag or its subsidiaries. Unimag has duly filed, or
caused to be filed, all federal, state, local and foreign tax returns and tax
reports required to be filed by it or its subsidiaries and all such returns and
reports are true, correct, and complete. There is no pending or, to the best
knowledge of Unimag, threatened federal, state, local or foreign tax audit or
assessment relating to it or its subsidiaries and there is no agreement with
any federal, state, local, or foreign tax authority that may affect the
subsequent tax liabilities of Unimag and its subsidiaries.
Section 3.9 UNDISCLOSED LIABILITIES. Unimag has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent, or otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the 10-Q or the
financial statements therein set forth, which have not been paid or
discharged since the date thereof;
(b) Current liabilities (determined in accordance with
generally accepted accounting principles) incurred since June 30,
1996, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
8
<PAGE> 15
which are not inconsistent with the other representations, warranties
and agreements of Unimag set forth in this Agreement; and
(c) Liabilities which, consistent with generally accepted
accounting principles, are not required to be reflected in its
financial statements.
Section 3.10 COMPLIANCE WITH LAW. To the best knowledge of
Unimag, Unimag has complied and is in compliance in all material respects with
all laws, statutes, ordinances, orders, rules and regulations promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 3.11 NO MATERIAL ADVERSE CHANGE. Since the filing of the
10-Q with the SEC, there has been no material adverse change in the properties,
assets, liabilities, business, results of operations, or condition (financial
or otherwise) of Unimag. Unimag is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any entity.
Section 3.12 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of Scherer pursuant to this Agreement along with other
exchanges and acquisitions occurring before and after the closing of the
transactions contemplated by this Agreement, as an exchange under Section 351
of the Code, subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Unimag shall be solely responsible
for evaluating (and determining the appropriate methods required for reporting)
all federal, state, and local income and other tax consequences to Unimag which
will and may result from the transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
SCHERER AND THE SCHERER SHAREHOLDERS
In order to induce Unimag to enter into this Agreement,
Scherer and each of the Scherer Shareholders hereby jointly and severally
represent and warrant to Unimag that the statements contained in this Article 4
are true, correct, and complete.
Section 4.1 ORGANIZATION AND STANDING. Scherer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full power and authority (corporate and otherwise) to
own, lease, use, and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. Scherer is duly
qualified to do business and is in good standing in each state listed in
Schedule 4.1, is not qualified to do business in any other state and, except as
set forth in Schedule 4.1, neither the nature of the business or other
activities conducted by Scherer nor the properties it owns, leases, or operates
requires it to qualify to do business as a foreign corporation in any other
state, except
9
<PAGE> 16
where the failure to be so qualified would not have a material adverse effect on
the business, operations, assets, properties, condition (financial or otherwise)
or prospects of Scherer. Scherer has not received any written notice or
assertion within the last three years from any governmental official in any
state to the effect that Scherer is required to be qualified or authorized to do
business in a state in which Scherer is not so qualified or has not obtained
such authorization. Scherer is not in default or in violation of the
performance, observation or fulfillment of any material provision of its
articles of incorporation or code of regulations.
Section 4.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of Scherer consists solely of 1,000 common
shares, voting, without par value, (i) all of which are issued and outstanding
and (ii) none of which are held as treasury shares. Schedule 4.2 contains a
correct and complete list of the names and addresses of all of the shareholders
of Scherer and indicates all Scherer Shares owned beneficially and of record by
each such shareholder. Each outstanding Scherer Share has been duly authorized
and validly issued and is fully paid and nonassessable, and no Scherer Share
has been issued in violation of preemptive or similar rights. Except as set
forth and briefly described in Schedule 4.2, there are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims, or other commitments or rights of any type relating to the issuance,
sale, or transfer by Scherer or any Scherer Shareholder of any securities of
Scherer, nor are there outstanding any securities which are convertible into or
exchangeable for shares of capital stock of Scherer; and Scherer has no
obligations of any kind to issue any additional securities. The issuance and
sale of all securities of Scherer has been in full compliance with all
applicable federal and state securities laws. Scherer does not own, directly
or indirectly, any equity or other ownership interest in any corporation,
partnership, joint venture, or any other entity or enterprise. Scherer is not
subject to any obligation or requirement to provide funds to or make any
investment (in the form of a loan, capital contribution, or otherwise) in any
entity.
Section 4.3 OWNERSHIP OF SHARES AND AUTHORITY. Except as set
forth and briefly described in Schedule 4.3, all of the Scherer Shares are
owned free and clear of all liens, security interests, encumbrances, pledges,
charges, claims, voting trusts, and restrictions of any nature whatsoever,
except restrictions on transfer imposed by or pursuant to federal or state
securities laws. Each Scherer Shareholder owns beneficially and of record all
of the Scherer Shares disclosed as being owned by him or her on Schedule 4.2,
and each Scherer Shareholder has the full and unrestricted right, power and
capacity to transfer and deliver the same and to execute this Agreement and
consummate the transactions contemplated by this Agreement without the consent
or approval of any other person. This Agreement has been duly executed and
delivered by each Scherer Shareholder and constitutes the legal, valid and
binding obligation of each Scherer Shareholder, enforceable against such
Scherer Shareholder in accordance with its terms except as such enforceability
may be limited by (a) applicable bankruptcy, insolvency, or other similar laws
from time to time in effect which may affect the enforcement of creditors'
rights in general, and (b) general principles of equity.
10
<PAGE> 17
Section 4.4 CORPORATE POWER AND AUTHORITY. Scherer has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Scherer. This
Agreement has been duly executed and delivered by Scherer and constitutes the
legal, valid, and binding obligation of Scherer, enforceable against Scherer in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, or other similar laws from time to time in
effect which may affect the enforcement of creditors' rights in general, and
(b) general principles of equity.
Section 4.5 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 4.5, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by Scherer or the Scherer Shareholders nor the
consummation of the transactions contemplated by this Agreement requires or
will require any action, consent, or approval of, review by, or registration
with any third party, court, governmental body, or other agency,
instrumentality, or authority, other than (i) actions required by the HSR Act,
and (ii) actions to be taken in respect of federal and state securities laws as
contemplated by this Agreement.
Section 4.6 FINANCIAL STATEMENTS. Scherer has furnished to
Unimag the balance sheet of Scherer as of June 30, 1996, and the related
statements of income, changes in shareholders' equity, and cash flows for the
fiscal year then ended, including, in each case, the related notes
(collectively, the "Compiled Statements"). The Compiled Statements have been
prepared from and are in accordance with the books and records of Scherer, have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis (except as disclosed in the Compiled Statements),
and fairly present in all material respects the financial condition of Scherer
as of the date stated and the results of operations of Scherer for the period
then ended in accordance with such practices.
Section 4.7 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 4.7, Scherer has no liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent, or otherwise and
whether due or to become due) except:
(a) Those set forth or reflected in the Compiled Statements
which have not been paid or discharged since the date thereof;
(b) Current liabilities (determined in accordance with
generally accepted accounting principles) incurred since June 30,
1996, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
which are not inconsistent with the other representations, warranties,
and agreements of Scherer and the Scherer Shareholders set forth in
this Agreement; and
11
<PAGE> 18
(c) Liabilities which, consistent with generally accepted
accounting principles, are not required to be reflected in the
Compiled Statements.
Section 4.8 ABSENCE OF CERTAIN CHANGES. Except as expressly
provided for or permitted under Section 5.2(a) or Section 5.2(f) of this
Agreement, or as set forth in Schedule 4.8, since June 30, 1996, there has not
been:
(a) Any material adverse change in the business,
operations, assets, properties, customer base, prospects, rights, or
condition (financial or otherwise) of Scherer or any occurrence,
circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change;
(b) Any declaration, setting aside, or payment of any
dividend or any distribution (in cash or in kind) to any Scherer
Shareholder, or any direct or indirect redemption, purchase, or other
acquisition by Scherer of any of its capital stock, or any options,
warrants, rights, or agreements to purchase or acquire such stock;
(c) Any increase in amounts payable by Scherer to or for
the benefit of, or committed to be paid by Scherer to or for the
benefit of, any shareholder, director, officer, or other consultant,
agent, or employee of Scherer whose total annual compensation exceeds
$50,000 or any relatives of such person, or any increase in any
benefits granted under any bonus, stock option, profit-sharing,
pension, retirement, severance, deferred compensation, group health,
insurance, or other direct or indirect benefit plan, payment or
arrangement made to, with, or for the benefit of any such person;
(d) Any transaction entered into or carried out by
Scherer other than in the ordinary and usual course of business
consistent with past practices;
(e) Any borrowing or agreement to borrow funds by
Scherer, any incurring by Scherer of any other obligation or liability
(contingent or otherwise), except liabilities incurred in the usual
and ordinary course of Scherer's business (consistent with past
practices), or any endorsement, assumption or guarantee of payment or
performance of any loan or obligation of any other person or entity by
Scherer;
(f) Any material change in Scherer's method of doing
business or any change in its accounting principles or practices or
its method of application of such principles or practices;
(g) Any mortgage, pledge, lien, security interest,
hypothecation, charge, or other encumbrance imposed or agreed to be
imposed on or with respect to the property or assets of Scherer;
(h) Any sale, lease, or other disposition of, or any
agreement to sell, lease, or otherwise dispose of any of the operating
properties or assets of Scherer, other than sales of
12
<PAGE> 19
inventory in the usual and ordinary course of business for fair
equivalent value to persons other than directors, officers,
shareholders, or other affiliates of Scherer;
(i) Any purchase of or any agreement to purchase assets
(other than inventory purchased in the ordinary course of business
consistent with past practices) for an amount in excess of $50,000 for
any one purchase or $100,000 for all such purchases made by Scherer or
any lease or any agreement to lease, as lessee, any capital assets
with payments over the term thereof to be made by Scherer exceeding an
aggregate of $100,000;
(j) Any loan or advance made by Scherer to any person
other than loans made to Scherer's customers in the ordinary course of
business consistent with past practices not exceeding $50,000, in the
aggregate, to any customer;
(k) Any modification, waiver, change, amendment, release,
rescission, or termination of, or accord and satisfaction with respect
to, any material term, condition, or provision of any contract,
agreement, license, or other instrument to which Scherer is a party,
other than any satisfaction by performance in accordance with the
terms thereof in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance adversely affecting
the business operations or condition (financial or otherwise) of
Scherer, including without limitation the filing of any petition or
charge of unfair labor practice with any governmental or regulatory
authority, efforts to effect a union representation election, or
actual or threatened employee strike, work stoppage, or slow down.
Section 4.9 TAXES.
(a) Except as set forth and briefly described in Schedule
4.9, Scherer has duly paid all taxes payable by Scherer. Scherer has
duly filed all federal, state, local, and foreign tax returns and tax
reports required to be filed by it and all such returns and reports
are true, correct, and complete. Except as disclosed and briefly
described in Schedule 4.9, since December 31, 1991, none of such
returns and reports have been amended, and except as set forth and
briefly described in Schedule 4.9, all taxes, arising under or
reflected on such returns and reports have been fully paid or were
fully accrued as liabilities in the Compiled Statements and shall be
paid before the Closing. During the last five (5) years, no claim has
been made by authorities in any jurisdiction where Scherer did not
file tax returns that it is or may be subject to taxation therein.
(b) Scherer has delivered to Unimag copies of all
federal, state, local, and foreign income tax returns filed with
respect to it for taxable periods ended on or after December 31, 1991.
Schedule 4.9 sets forth the dates and results of any and all audits
conducted by taxing authorities within the last five years or
otherwise with respect to any tax year for which assessment is not
barred by any applicable statute of limitations. No waivers of any
applicable statute of limitations for the filing of any tax returns or
13
<PAGE> 20
payment of any taxes or assessments of any deficient or unpaid taxes
are outstanding. Except as set forth and briefly described in
Schedule 4.9, all deficiencies proposed as a result of any audits have
been paid or settled or have been fully accrued as liabilities in the
Compiled Statements and shall be paid before the Closing. Except as
set forth and briefly described in Schedule 4.9, there is no pending
or, to the best knowledge of Scherer and the Scherer Shareholders,
threatened federal, state, local, or foreign tax audit or assessment
relating to Scherer, and there is no agreement with any federal,
state, local, or foreign taxing authority that may affect the
subsequent tax liabilities of Scherer.
(c) Except as set forth and briefly described in Schedule
4.9, all taxes attributable to the existence or operation of Scherer
as at or through December 31, 1995 are, to the extent not already
paid, accurately reflected in the Compiled Statements.
(d) Except as set forth and briefly described in Schedule
4.9, there exists no tax-sharing agreement or arrangement pursuant to
which Scherer is obligated to pay the tax liability of any other
person or entity or to indemnify any other person or entity with
respect to any tax.
(e) Schedule 4.9 includes a list of all states,
territories and jurisdictions to which any tax is properly payable by
Scherer.
Section 4.10 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 4.10, to the best knowledge of Scherer and the Scherer
Shareholders, Scherer has complied and is in compliance in all material
respects with all nonenvironmental (environmental matters being addressed in
Section 4.15) laws, statutes, ordinances, orders, rules and regulations
promulgated, and all judgments, decisions, and orders entered, by any federal,
state, local, or foreign court or governmental authority or instrumentality
which are applicable or relate to it or to its business or properties including
without limitation: (a) all zoning, fire, safety, and building laws,
ordinances, regulations, and requirements; (b) Title VII of the Civil Rights
Act of 1964, as amended; (c) the Fair Labor Standards Act, as amended; (d) the
Occupational Safety and Health Act of 1970, as amended; (e) the Americans with
Disabilities Act of 1990; (f) all applicable federal, state and local laws,
rules and regulations relating to employment; (g) all applicable laws, rules
and regulations governing payment of minimum wages and overtime rates, and the
withholding and payment of taxes from compensation of employees; (h) federal
and state antitrust and trade regulation laws applicable to competition
generally or to agreements restricting, allocating, or otherwise affecting
geographic or product markets; and (i) the Controlled Substances Act
(collectively, the "Applicable Laws"). To the best knowledge of Scherer and
the Scherer Shareholders, Scherer has all franchises, licenses, permits,
covenants, authorizations, approvals, and certifications necessary or
appropriate for the operation of its business or the ownership of its
properties. Schedule 4.10 includes a list of all material franchises,
licenses, permits, consents, authorizations, approvals, and certificates owned
or held by Scherer (collectively, the "Permits"), each of which is currently
valid and in full force and effect. To the best knowledge of Scherer and the
Scherer Shareholders, Scherer is not in violation of any of the Permits, and
there is no pending nor, to the best knowledge of Scherer and the Scherer
Shareholders, any threatened pro-
14
<PAGE> 21
ceeding which could result in the revocation, cancellation or inability of
Scherer to renew any Permit. Except as disclosed and briefly described in
Schedule 4.10, Scherer has not been charged with or given actual notice of any
violation of any of the Applicable Laws which violation has not been remedied
in full (without any remaining liability of Scherer).
Section 4.11 PROPRIETARY RIGHTS. Schedule 4.11 sets forth:
(a) All material names, patents, inventions, trade
secrets, proprietary rights, computer software, trademarks, trade
names, service marks, logos, copyrights, and franchises and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements in respect thereof which Scherer owns, has
the right to use, or to which Scherer is a party, and the parties
understand and agree that the Scherer Shareholders shall retain the
exclusive right to the name "Scherer Companies" and therefore, prior
to closing, Scherer shall change its corporate name; and
(b) All filings, registrations, or issuances of any of
the foregoing with or by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices (all
items in (a) and (b) of this Section 4.11, together with the customer
lists described below, being sometimes hereinafter referred to
collectively as the "Proprietary Rights").
Except as set forth in Schedule 4.11, Scherer is, to
the best knowledge of Scherer and the Scherer Shareholders, the sole
and exclusive owner of all right, title, and interest in and to all
Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances, and restrictions whatsoever,
and there is not pending or, to the best knowledge of Scherer and the
Scherer Shareholders, threatened any investigation, proceeding,
inquiry, or other review by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices with
respect to Scherer's right, title, or interest in any Proprietary
Right.
Other than those Proprietary Rights listed in
Schedule 4.11, no name, patent, invention, trade secret, customer
list, proprietary right, computer software, trademark, trade name,
service mark, logo, copyright, franchise, license, sublicense, or
other such right is necessary for the operation of the business of
Scherer in substantially the same manner as such business is presently
conducted. To the best knowledge of Scherer and the Scherer
Shareholders, the business of Scherer has not been and is not being
conducted in contravention of any trademark, copyright, or other
proprietary right of any person or entity in any manner that has not
been resolved to the satisfaction of Scherer.
Except as set forth in Schedule 4.11, none of the
Proprietary Rights: (i) has been hypothecated, sold, assigned, or
licensed by Scherer, or to the best knowledge of Scherer and the
Scherer Shareholders, any other person or entity; (ii) to the best
15
<PAGE> 22
knowledge of Scherer and the Scherer Shareholders, infringes upon or
violate the rights of any person or entity; (iii) to the best
knowledge of Scherer and the Scherer Shareholders, is subject to
challenge, claims of infringement, unfair competition, or other
claims; or (iv) to the best knowledge of Scherer and the Scherer
Shareholders, is being infringed upon or violated by any person or
entity. Except as set forth in Schedule 4.11, Scherer has not given
any indemnification against patent, trademark, or copyright
infringement as to any equipment, materials, products, services, or
supplies which Scherer uses, licenses, or sells. To the best
knowledge of Scherer and the Scherer Shareholders, no product,
process, method, or operation presently sold, engaged in, or employed
by Scherer infringes upon any rights owned by any other person or
entity. There is not pending or, to the best knowledge of Scherer and
the Scherer Shareholders, threatened any claim or litigation against
Scherer contesting the right of Scherer to sell, engage in, or employ
any such product, process, method, or operation.
Except as set forth in Schedule 4.11, Scherer has
exclusive rights to own and use the computer software used by it (the
"Software"). Schedule 4.11 lists and briefly describes, all material
licenses, agreements, documents, and other materials relating to the
Software and to Scherer's rights therein. Except as set forth in
Schedule 4.11, Scherer has not licensed or otherwise authorized any
other person to use or make use of all or any part of the Software,
nor granted, assigned, or otherwise conveyed any right in or to the
Software.
Section 4.12 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 4.12, Scherer is not a party to or bound under
any mortgage, lien, lease, agreement, contract, instrument, law, order,
judgment or decree, or any similar restriction not of general application which
materially and adversely affects, or reasonably could be expected to so affect
(a) the business, operations, assets, properties, prospects, rights, or
condition (financial or otherwise) of Scherer; (b) the continued operation by
Unimag of Scherer's business after the Closing Date on substantially the same
basis as such business is currently operated; or (c) the consummation of the
transactions contemplated by this Agreement.
Section 4.13 INSURANCE. Scherer has been and is insured with
respect to its properties and the conduct of its business in such amounts and
against such risks as are sufficient for compliance with applicable law and as
are adequate to protect its property and business in accordance with normal
industry practice. Such insurance is and has been provided by insurers
unaffiliated with Scherer, which insurers are, to the best knowledge of Scherer
and the Scherer Shareholders, financially sound and reputable. Set forth in
Schedule 4.13 is a true, correct, and complete list of all insurance policies
and bonds in force in which Scherer is named as an insured party, or for which
Scherer has paid any premiums, and such list correctly states the name of the
insurer, the name of each insured party, the type and amount of coverage,
deductible amounts, if any, the expiration date, and the premium amount of each
such policy or bond. Except as disclosed in Schedule 4.13, all such policies
or bonds are currently in full force and effect and no notice of cancellation
or termination has been received by Scherer with respect to any such policy.
16
<PAGE> 23
Scherer will continue all of such insurance in full force and effect through
the Closing Date. All premiums due and payable on such policies have been
paid. Except as disclosed in Schedule 4.13, Scherer is not a co-insurer under
any term of any insurance policy.
Section 4.14 BANK ACCOUNTS, DEPOSITORIES; POWERS OF ATTORNEY. Set
forth in Schedule 4.14 is a true, correct, and complete list of the names and
locations of all banks or other depositories in which Scherer has accounts or
safe deposit boxes, and the names of the persons authorized to draw thereon,
borrow therefrom, or have access thereto. Except as set forth in Schedule
4.14, no person has a power of attorney from Scherer.
Section 4.15 TITLE TO AND CONDITION OF PROPERTIES. Except as set
forth in Schedule 4.15, Scherer has good, valid, and indefeasible title to all
of its assets and properties of every kind, nature, and description, tangible
or intangible, wherever located, which constitute all of the property now used
in and necessary for the conduct of its business as presently conducted
(including without limitation all operating property and assets shown or
reflected on the Compiled Statements, except inventory sold in the ordinary
course of business). Except as set forth in Schedule 4.15, to the best
knowledge of Scherer and the Scherer Shareholders, all such properties are
owned free and clear of all mortgages, pledges, liens, security interests,
encumbrances, and restrictions of any nature whatsoever, including without
limitation: (a) rights or claims of parties in possession; (b) easements or
claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes, or any other matters; (d) any lien or right to a lien for
services, labor, or material furnished; (e) special tax or other assessments;
(f) options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties; and (h)
violations of any Applicable Laws applicable to such properties. To the best
knowledge of Scherer and the Scherer Shareholders, all such properties are
usable for their current uses without violating any Applicable Laws, or any
applicable private restriction, and such uses are legal conforming uses.
Except as set forth in Schedule 4.15, no financing statement under the Uniform
Commercial Code or similar law naming Scherer or any of its predecessors is on
file in any jurisdiction in which Scherer owns property or does business, and
Scherer is not a party to or bound under any agreement or legal obligation
authorizing any party to file any such financing statement. Schedule 4.15
contains a complete and accurate list of the location of all real property
which is owned, leased, or operated by Scherer and describes the nature of
Scherer's interest in that real property. With respect to any real property
leased by Scherer, Scherer, except as set forth in Schedule 4.15, has an
insurable leasehold interest in that real property.
Except as set forth in Schedule 4.15, to the best knowledge of
Scherer and the Scherer Shareholders, all real property and structures, all
machinery and equipment, and all tangible personal property owned, leased or
used by Scherer and material to the operation of its business are reasonably
suitable for the purpose or purposes for which they are being used (including
full compliance with all Applicable Laws) and are in good condition and repair,
ordinary wear and tear excepted. Except as set forth in Schedule 4.15, to the
best knowledge of Scherer and the Scherer Shareholders, there are no material
structural defects in the exterior walls
17
<PAGE> 24
or the interior bearing walls, the foundation, or the roof of any building,
garage or other such structure owned, leased, or used by Scherer, and, to the
best knowledge of Scherer and the Scherer Shareholders, the electrical,
plumbing, heating systems, and air conditioning systems, of any such structure
are in good operating condition, ordinary wear and tear excepted. The
utilities servicing the real properties owned, leased, or used by Scherer are
adequate to permit the continued operation of its business, and there are no
pending or, to the best knowledge of Scherer and the Scherer Shareholders,
threatened zoning, condemnation or eminent domain proceedings, building,
utility, or other moratoria, or injunctions or court orders which would
materially and adversely affect such continued operation. Schedule 4.15 lists,
and Scherer and the Scherer Shareholders have furnished or made available to
Unimag, copies of all engineering, geologic, and environmental reports prepared
by or for Scherer or with respect to the real property owned, leased or used by
Scherer in their possession which Scherer and the Scherer Shareholders have
been able to reasonably locate after conducting a good-faith review.
Except as set forth in Schedule 4.15, no real or personal
property owned, leased, or used by Scherer has been used to produce, process,
store, handle, or transport any hazardous or toxic substance or waste (as those
terms are defined or described in any of the applicable laws relating to the
protection, preservation, conservation, restoration, or quality of the
environment), except to the extent immaterial quantities of hazardous
substances are used as an incidental aspect of the operation of its business.
Except as set forth in Schedule 4.15, no hazardous or toxic substance or waste
has been disposed of, released or discharged on, leaked from, or has otherwise
contaminated any real property owned, leased, or used by Scherer. Except as
set forth in Schedule 4.15, no asbestos or substances containing material
quantities of asbestos have been installed in any such property. Except as set
forth in Schedule 4.15, there are no oil or gas wells capped or uncapped or
piping, structures, fixtures or other appliances relating thereto on or about
any such property and no such property has been used as a landfill.
Section 4.16 BROKERS AND FINDERS. No investment banker, broker,
finder, or other intermediary: (a) has been retained by or is authorized to act
on behalf of Scherer or the Scherer Shareholders; (b) has submitted the
transactions contemplated by this Agreement to Scherer or the Scherer
Shareholders; or (c) is or might be entitled to any fee, commission, or other
payment from Scherer or any Scherer Shareholder as a direct or indirect result
of the transactions contemplated by this Agreement
Section 4.17 LEGAL PROCEEDINGS. Except as described in Schedule
4.17: (a) there are no (and over the last three years there have been no)
Actions pending or, to the best knowledge of Scherer and the Scherer
Shareholders, threatened against or relating to Scherer (or any of its
officers, directors, shareholders, agents, or representatives in connection
with the business or affairs of Scherer), before any federal, state, local, or
foreign court or governmental body in which the amount in dispute exceeds (or
exceeded) $25,000 or which has or could result in liability or loss for Scherer
or any Scherer Shareholder of more than $25,000; and (b) to the best knowledge
of Scherer and the Scherer Shareholders, there exist no disputes, conflicts, or
circumstances providing the basis for a dispute or conflict which could
reasonably be expected to
18
<PAGE> 25
result in any such Action. There are no Actions pending or, to the best
knowledge of Scherer and the Scherer Shareholders, threatened for the purpose
of enjoining or preventing this Agreement or any other transaction contemplated
by this Agreement or otherwise challenging the validity or propriety of the
transactions contemplated by this Agreement. Except as disclosed in Schedule
4.17, Scherer is not subject to any judgment, order or decree, or any
governmental restriction, which has a reasonable probability of having a
material adverse effect on the business operations, assets, properties,
condition (financial or otherwise), or prospects of Scherer.
Section 4.18 ERISA.
(a) Schedule 4.18(a) identifies each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") which (i) is subject to any provision
of ERISA, and (ii) is or was at any time during the last 5 years
maintained, administered, or contributed to by Scherer or any
affiliate (as defined below) and covers any employee or former
employee of Scherer or any affiliate or under which Scherer or any
affiliate has any liability. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto have
been furnished to Unimag together with the three most recent annual
reports (Form 5500 and all related schedules) and actuarial valuation
reports, if any, prepared in connection with any such plan. Such
plans are referred to collectively herein as the "Employee Plans".
For purposes of this section, "affiliate" of any person or entity
means (A) any other person or entity which, together with such person
or entity, would be treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended (the "Code"), or (B) is
an "affiliate," whether or not incorporated, as defined in Section
407(d)(7) of ERISA, of such person or entity. The only Employee Plans
which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the
"Pension Plans") are identified as such on Schedule 4.18(a).
(b) Except as set forth in Schedule 4.18(b), no Employee
Plan constitutes a "multiemployer plan," as defined in Section 3(37)
of ERISA, or a "defined benefit plan," as defined in Section 3(35) and
subject to Title IV of ERISA, nor does Scherer have any obligation to
create, maintain, or contribute to any such "multiemployer plan" or
"defined benefit plan". No Employee Plan is maintained in connection
with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the
Code, has been incurred with respect to any Employee Plan, whether or
not waived. Full payment has been made of all amounts which Scherer
is required to have paid as contributions to or benefits under any
Employee Plan as of the end of the most recent fiscal year thereof,
and there are no unfunded obligations under any Employee Plan.
Scherer knows of no "reportable event," within the meaning of Section
4043 of ERISA, and no event described in Section 4041, 4042, 4062 or
4063 of ERISA has occurred in connection with any Employee Plan. No
condition exists and no event has occurred which could constitute
grounds for termination of any Employee Plan, and neither Scherer nor
any of its affiliates has incurred any material liability under Title
IV of ERISA arising in connection with the termination of, or complete
or partial withdrawal
19
<PAGE> 26
from, any plan covered or previously covered by Title IV of ERISA.
Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any Employee Plan has or will
make Scherer, or any officer or director of Scherer, subject to any
liability under Title I of ERISA or liable for any tax pursuant to
Section 4975 of the Code. There is no pending or, to the best
knowledge of Scherer and the Scherer Shareholders, threatened
litigation, arbitration, disputed claim, adjudication, audit,
examination, or other proceeding with respect to any Employee Plan or
any fiduciary or administrator thereof in their capacities as such.
(c) Except as set forth in Schedule 4.18(c), each
Employee Plan which is intended to be qualified under Section 401(a)
of the Code is, to the best knowledge of Scherer and the Scherer
Shareholders, so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. Scherer has
furnished to Unimag copies of the most recent Internal Revenue Service
determination letters with respect to each such plan for which it is
the plan sponsor. Except as set forth in Schedule 4.18(c), to the
best knowledge of Scherer and the Scherer Shareholders, each Employee
Plan has been maintained in compliance with its terms and the
requirements prescribed by any and all statutes, orders, rules, and
regulations, including but not limited to ERISA and the Code, which
are applicable to such plan.
(d) Except as set forth in Schedule 4.18(d), there is no
contract, agreement, plan, or arrangement covering any employee or
former employee of Scherer or any affiliate that, individually or
collectively, could give rise to the payment of any amount that would
not be deductible pursuant to the terms of the Code.
(e) Schedule 4.18(e) identifies each employment,
severance, or other similar contract, arrangement, or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, or for deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not
an Employee Plan, (ii) is entered into, maintained, or contributed to,
as the case may be, by Scherer or any of its affiliates, and (iii)
covers any employee or former employee of Scherer or any of its
affiliates. Such contracts, plans, and arrangements as are described
above, copies or descriptions of which have been furnished previously
to Unimag, are referred to collectively herein as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with requirements prescribed
by any and all statutes, orders, rules, and regulations that are
applicable to such Benefit Arrangement.
(f) Except as set forth in Schedule 4.18(f), there is no
liability in respect of post-retirement health and medical benefits
for current or retired employees of Scherer or any of its affiliates.
Except as set forth in Schedule 4.18(f), Scherer has reserved its
right
20
<PAGE> 27
to amend or terminate any Employee Plan or Benefit Arrangement
providing health or medical benefits in respect of any active employee
of Scherer under the terms of any such plan and descriptions thereof
given to employees. With respect to any of Scherer's Employee Plans
which are "group health plans" under Section 4980B of the Code and
Section 607(1) of ERISA, there has been substantial compliance with
all requirements imposed thereunder.
(g) Except as set forth in Schedule 4.18(g), there has
been no amendment to, written interpretation, or announcement (whether
or not written) by Scherer or any of its affiliates relating to any
Employee Plan or Benefit Arrangement which would increase the expense
of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year
ended immediately prior to the Closing Date.
(h) Except as set forth in Schedule 4.18(h), Scherer is
not a party or subject to any union contract or any material
employment contract or arrangement providing for annual future
compensation of more than $25,000 to any officer, consultant, director
or employee, except for employment agreements to be entered into as
provided in Section 6.1(g).
(i) Except as set forth in Schedule 4.18(i), the
execution, delivery, and consummation of the transactions contemplated
by this Agreement do not constitute a triggering event under any
Employee Plan, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or
may result in any payment (of severance pay or any other type),
acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee, or director of Scherer.
(j) Any reference to ERISA or the Code or any section
thereof shall be construed to include all amendments thereto and
applicable regulations and administrative rulings issued thereunder.
Section 4.19 CONTRACTS. Schedule 4.19 lists and briefly describes
all contracts, agreements, leases, arrangements, and understandings (written or
oral) ("Contracts") to which Scherer is a party and which fall within any of
the following categories: (a) Contracts with any of Scherer's top 20 customers
based on Scherer's revenues for the 12-month period ended June 30, 1996; (b)
Contracts not entered into in the ordinary course of Scherer's business
(including without limitation Contracts with any present or former shareholder,
director, or officer of Scherer, or any person related by blood or marriage to
any such person, or any person controlling, controlled by, or under common
control with any such person, or with any employee, agent, or consultant of
Scherer not terminable at will); (c) Contracts which are service contracts
(excluding contracts for delivery services entered into in the ordinary course
of business) or equipment leases involving payments by Scherer of more than
$10,000 per year; (d) Contracts containing covenants or restrictions purporting
to limit the freedom of Scherer to compete in any line of business in any
geographic area or to employ or otherwise engage any person; (e) Contracts
which extend
21
<PAGE> 28
beyond one year, unless cancelable on 60 or fewer days' notice without any
liability, penalty, or premium; (f) Contracts which relate to any borrowings or
guarantees in excess of $25,000; (g) Contracts containing any obligation or
commitment which limits the freedom of Scherer to sell, lease, or otherwise
distribute any product or customer information; or (h) Contracts which are not
listed above but which are material to the condition (financial or otherwise),
operations, assets, prospects, or business of Scherer. All such Contracts are
valid and binding and in full force and effect, and, to the best knowledge of
Scherer and the Scherer Shareholders, enforceable in accordance with their
respective terms in all material respects. Except as set forth in Schedule
4.19, neither Scherer nor, to the best knowledge of Scherer and the Scherer
Shareholders, any other party thereto, is in violation of, in default in
respect of, nor, to the best knowledge of Scherer and the Scherer Shareholders,
has there occurred an event or condition which, with the passage of time or
giving of notice (or both) would constitute a default under any such Contract.
Section 4.20 ACCOUNTS RECEIVABLE. Except as set forth in Schedule
4.20, all accounts and notes receivable (customer, vendor, and other) of
Scherer as of June 30, 1996, are and will be collectible in full, after
application of a reserve for uncollectible accounts determined in accordance
with generally accepted accounting principles, and are and will be valid and
subsisting (unless previously paid) and represent and will represent sales
actually made (net of all applicable credits and rebates) in the ordinary and
usual course of business consistent with past practices.
From the date of this Agreement through the Closing Date, no
customer or vendor accounts receivable of Scherer will be converted to notes
receivable or written off without the prior written consent of Unimag.
Section 4.21 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 4.21, neither the execution and delivery of this Agreement by Scherer
or the Scherer Shareholders, nor compliance by Scherer and the Scherer
Shareholders with the terms and provisions of this Agreement, including without
limitation the consummation of the transactions contemplated by this Agreement,
will: (a) violate any Applicable Laws or Permits; (b) conflict with or result
in the breach of any term, condition, or provision of (i) the articles of
incorporation, code of regulations, or other organizational document of Scherer
or (ii) any material agreement, deed, contract, undertaking, mortgage,
indenture, writ, order, decree, restriction, legal obligation, or instrument to
which Scherer or any Scherer Shareholder is a party or by which Scherer or any
Scherer Shareholder or any of their respective assets or properties are or may
be bound or affected; (c) constitute a default (or an event which, with the
giving of notice, the passage of time, or both, would constitute a default)
thereunder; (d) result in the creation or imposition of any lien, security
interest, charge or encumbrance, or restriction of any nature whatsoever with
respect to any material properties or assets of Scherer or any Scherer
Shareholder; or (e) give to others any interest or rights, including rights of
termination, acceleration, or cancellation in or with respect to any of the
material properties, assets, contracts, or business of Scherer.
22
<PAGE> 29
Section 4.22 BOOKS OF ACCOUNT; RECORDS. Scherer's general
ledgers, stock record books, minute books and other material records relating
to the assets, properties, contracts, and outstanding legal obligations of
Scherer are, in all material respects, complete and correct, and have been
maintained in accordance with good business practices and the matters contained
therein are, to the extent required by generally accepted accounting
principles, accurately reflected in the Compiled Statements, except as may be
set forth in Section 4.6.
Section 4.23 EMPLOYEES AND COMPENSATION. Schedule 4.23 lists and
describes the current compensation of the five most highly compensated managers
of Scherer and any other employee of Scherer whose total current salary and
bonus exceeds $100,000. Except as disclosed in Schedule 4.23: (a) there are
no other forms of compensation paid to any such employee of Scherer; (b) the
amounts accrued or to be accrued on the books and records of Scherer for
vacation pay, sick pay, and all commissions and other fees payable to agents,
salespersons and representatives of Scherer will be adequate to cover Scherer's
liabilities for all such items; (c) Scherer has not become obligated, directly
or indirectly, to any shareholder, director, or officer of Scherer or any
person related to any such person by blood or marriage, except for current
liability for such compensation; and (d) to the best knowledge of Scherer and
the Scherer Shareholders, no shareholder, director, officer, agent, employee,
or representative of Scherer or any person related to such person by blood or
marriage holds any position or office with or has any material financial
interest, direct or indirect, in any supplier, customer, or account of, or
other outside business which has material transactions with, Scherer. Neither
Scherer nor any Scherer Shareholder has any agreement or understanding with any
shareholder, director, officer, agent, employee, or representative of Scherer
which would influence any such person not to become associated with Unimag from
and after the Closing or not to serve Scherer after the Closing in a capacity
similar to the capacity presently held.
Section 4.24 LABOR RELATIONS. Except as set forth in Schedule
4.24, there is no unfair labor practice complaint against Scherer pending
before the National Labor Relations Board. Except as set forth in Schedule
4.24, Scherer is not a party to or bound by any collective bargaining agreement
and there is no labor strike, dispute, slowdown or stoppage, or any union
organizing campaign, actually pending or, to the best knowledge of Scherer and
the Scherer Shareholders, threatened against or involving Scherer. Except as
set forth in Schedule 4.24, no labor grievance has been filed against Scherer
in the last three years, and no arbitration proceeding has arisen out of or
under a collective bargaining or other labor agreement and is pending and no
claim therefor has been asserted. Except as set forth in Schedule 4.24, no
collective bargaining or other labor agreement is currently being negotiated by
Scherer and no union or collective bargaining unit represents any of Scherer's
employees. Scherer has not experienced any work stoppage or other material
labor difficulty during the past five years.
Section 4.25 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 4.25, no supplier of Scherer has indicated that it shall stop, or
decrease the rate of, or substantially increase its fees for, supplying
products or services to Scherer either prior to, or following the consummation
of, the Closing. Schedule 4.25 sets forth a list of all customers which have
terminated their
23
<PAGE> 30
relationships with Scherer since December 31, 1995, or have notified Scherer or
the Scherer Shareholders since December 31, 1995, that they intend to terminate
their relationships with Scherer.
Section 4.26 SPECIAL TERMS; PRODUCT WARRANTIES. Schedule 4.26
sets forth the terms and conditions of any credit, discount, or other terms
given by Scherer to any customer outside the usual and ordinary course of
business.
Section 4.27 BUSINESS OF SCHERER. Scherer is and since 19__ has
been engaged in the Wholesale Periodical Management Business and is presently
engaged in no other business whatsoever except as may be incidental to the
foregoing.
Section 4.28 INVESTMENT REPRESENTATION. Each of the Scherer
Shareholders: (a) represents that such Scherer Shareholder owns beneficially
and of record the number of Scherer Shares set forth opposite such Scherer
Shareholder's name on Schedule 4.2; and (b) acknowledges, represents, and
warrants to Unimag that (i) such Scherer Shareholder is an "accredited
investor," as that term is defined in Regulation D, because he or she has a net
worth at this time in excess of $1 million or had income in each of the two
most recent years in excess of $200,000 and has a reasonable expectation of
reaching the same income level in the current year, or, in the case of a
Scherer Shareholder that is a trust, because such trust has total assets in
excess of $5,000,000, was not formed for the purpose of the transactions
contemplated by this Agreement, and the investment decision respecting the
Unimag Shares and Unimag Debentures will be directed by a person who has such
knowledge and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of an investment in the Unimag
Shares and Unimag Debentures, (ii) such Scherer Shareholder has been provided
the opportunity to ask questions and receive answers from Unimag concerning the
business operations and financial condition of Unimag and the terms and
conditions of the transactions described in this Agreement, and to obtain any
additional information necessary to verify the accuracy of information provided
to such Scherer Shareholder by Unimag, and (iii) is acquiring the Unimag Shares
and Unimag Debentures to be issued pursuant to this Agreement for such Scherer
Shareholder's own accounts for investment only and not with a view to the
distribution thereof.
Section 4.29 SECTION 351 EXCHANGE. It is the intention of Scherer
and the Scherer Shareholders to treat the acquisition of Scherer pursuant to
this Agreement, along with other exchanges and acquisitions occurring before
and after the closing of the transactions contemplated by this Agreement, as an
exchange under Section 351 of the Code, subject to the rules of Section 351 of
the Code and the regulations promulgated thereunder applicable to the receipt
and taxability of "boot" (within the meaning of such rules). Scherer and the
Scherer Shareholders shall be solely responsible for evaluating (and
determining the appropriate methods
24
<PAGE> 31
required for reporting) all federal, state, and local income and other tax
consequences to each of them which will and may result from the transactions
contemplated by this Agreement.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable efforts
to take all actions and do all things necessary, proper, or advisable
to consummate the Exchange and the other transactions contemplated by
this Agreement, including without limitation using all reasonable
efforts to cause the conditions set forth in Article 6 of this
Agreement for which such Party is wholly or partially responsible to
be satisfied as soon as reasonably practicable and to prepare,
execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as
any other Party may reasonably request.
(b) HSR Filings. The Parties shall cooperate with each
other with respect to the preparation and filing of any Notification
and Report Forms and related materials that they may be required to
file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act with respect
to the Exchange and shall promptly make any further filings pursuant
the HSR Act that may be necessary, proper, or advisable.
(c) Other Governmental Matters. Each Party shall use all
reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
(d) Tax-Free Treatment. Each of the Parties shall use
all reasonable efforts to cause the Exchange to constitute (along with
other exchanges and acquisitions occurring before and after the
Exchange) a tax-free exchange under Section 351 of the Code, subject
to the rules of Section 351 of the Code and the regulations
promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Each of the Parties shall
be solely responsible for evaluating (and determining the appropriate
methods required for reporting) all federal, state, and local income
and other tax consequences to each such Party which will and may
result from the transactions contemplated by this Agreement.
Section 5.2 COVENANTS OF SCHERER AND THE SCHERER SHAREHOLDERS.
Scherer and the Scherer Shareholders, jointly and severally, covenant and agree
that:
25
<PAGE> 32
(a) Conduct of Business. Except as otherwise expressly
contemplated by this Agreement, from the date of this Agreement until
the Closing (the "Pre-Exchange Period"): (i) neither Scherer nor any
Scherer Shareholder shall take or permit to be taken any action or do
or permit to be done anything in the conduct of the business of
Scherer, or otherwise, that would be contrary to or in breach of any
of the terms or provisions of this Agreement or which would cause any
of their representations and warranties contained in this Agreement to
be or become untrue in any material respect; (ii) Scherer shall
conduct its business in the ordinary course consistent with past
practices (iii) Scherer and the Scherer Shareholders shall permit
Unimag to manage and oversee the business operations of Scherer as
provided in Section 5.3(b) and consistent with the terms and
conditions of the Joint Operating Agreement between Unimag and Scherer
dated __________, 1996 (the "Joint Operating Agreement"); and (iv)
Scherer and the Scherer Shareholders shall use all reasonable efforts
to assist Unimag in preserving the business organization intact,
keeping available to Scherer and Unimag the present service of
Scherer's employees, and preserving for Scherer and Unimag the
goodwill of Scherer's suppliers, customers, and others with whom
business relationships exist. Without limiting the generality of the
foregoing, during the Pre-Exchange Period, except as otherwise
expressly contemplated by this Agreement or with the prior written
consent of Unimag, Scherer shall not:
(A) Adopt or propose any change in its articles
of incorporation or code of regulations; adjust, split,
combine, or reclassify any of its capital stock; or make any
other changes in its authorized or issued capital stock;
(B) Redeem, purchase, or otherwise acquire any
shares of its capital stock; grant any person or entity any
right to acquire any shares of its capital stock; issue,
deliver, sell, or agree to issue, deliver, or sell, any
additional shares of its capital stock or any other
securities; or enter into any agreement or arrangement with
respect to the sale or voting of its shares of capital stock;
(C) Merge or consolidate with any other person or
entity or acquire a material amount of assets of any other
person or entity except for the acquisition of inventory in
the ordinary course of business consistent with past
practices;
(D) Sell, lease, license, pledge, encumber, or
otherwise dispose of any operating assets other than sales of
inventory in the ordinary course of business consistent with
past practices;
(E) Incur, create, assume, or otherwise become
liable for any indebtedness other than indebtedness incurred
in the ordinary course of business consistent with past
practices;
(F) Except for those arrangements disclosed in
Schedule 5.2(a), enter into or modify any employment,
severance, termination, or similar agreement or
26
<PAGE> 33
arrangement with, or grant any bonuses, salary increases,
severance, or termination pay to, any officer, director,
consultant, or employee;
(G) Adopt, amend, or terminate any employee
benefit plan or increase, amend, or terminate any benefits to
officers, directors, consultants, or employees;
(H) Modify in any material way or terminate any
of the contracts listed or required to be listed in Schedule
4.19, except in the ordinary course of business consistent
with past practices;
(I) Except as disclosed in Schedule 4.17, settle
any claims, litigation, or actions, whether now pending or
hereafter made or brought, unless such settlement does not
involve a payment by Scherer of more than $25,000;
(J) Engage in any transaction, or enter into any
agreement, contract, lease, or other arrangement or
understanding, with any affiliate of Scherer, except for
transactions expressly permitted by this Agreement; or
(K) Agree or commit to do any of the foregoing;
provided, however, that nothing in this Section 5.2(a) shall prohibit
Scherer from transferring to the Scherer Shareholders or their
affiliates any affiliate accounts receivable, affiliate notes
receivable and airplanes. Any such transfers shall be utilized in
determining the actual Tangible Net Worth of Scherer in connection
with the valuation adjustment provided for in Section 2.1(b).
(b) Exclusive Rights. Neither Scherer nor any Scherer
Shareholder shall, directly or indirectly, solicit (including without
limitation by way of furnishing or making available any non-public
information concerning the business, properties, or assets of Scherer)
or engage in negotiations or discussions with, disclose any of the
terms of this Agreement to, accept any offer from, furnish any
information to, or otherwise cooperate, assist, or participate with
any person or organization (other than Unimag and its representatives)
regarding any Acquisition Proposal (defined below), except that any
person or entity making an Acquisition Proposal may be informed of the
restrictions contained in this sentence. Scherer and the Scherer
Shareholders shall notify Unimag promptly by telephone, and thereafter
promptly confirm in writing, if any such information is requested
from, or any Acquisition Proposal is received by, Scherer or any of
the Scherer Shareholders. For purposes of this Agreement,
"Acquisition Proposal" shall mean any offer or proposal received by
Scherer or any Scherer Shareholder prior to the Closing regarding the
acquisition by purchase, merger, lease, or otherwise of any capital
stock of Scherer, the business of Scherer, or any material assets,
customer relationships, or other operations of Scherer.
27
<PAGE> 34
(c) Access to Records and Other Due Diligence. During
the Pre-Exchange Period, Scherer shall: (i) make or cause to be made
available to Unimag and its representatives, attorneys, accountants,
and agents, for examination, inspection, and review, the assets and
property of Scherer and all books, contracts, agreements, commitments,
records, and documents of every kind relating to Scherer's business,
and shall permit Unimag and its representatives, attorneys,
accountants and agents to have access to the same at all reasonable
times, including without limitation access to all tax returns filed
and in preparation and all review and other accounting work papers of
Arthur Andersen, LLP and all reports to management and related
responses; and (ii) permit representatives of Unimag to interview
suppliers, customers, and personnel of Scherer, provided, however,
that a Scherer representative shall be entitled to be present at and
participate in each such interview.
(d) Disclosures. After the date of this Agreement,
neither Scherer nor any Scherer Shareholder shall: (i) disclose to
any person, association, firm, corporation or other entity (other than
Unimag or those designated in writing by Unimag) in any manner,
directly or indirectly, any proprietary information or data relevant
to the business of Scherer, whether of a technical or commercial
nature; or (ii) use, or permit or assist, by acquiescence or
otherwise, any person, association, firm, corporation, or other entity
(other than Unimag or those designated in writing by Unimag) to use,
in any manner, directly or indirectly, any such information or data,
excepting only use of such data or information as is at the time
generally known to the public and which did not become generally known
through any breach of any provision of this section by Scherer or any
Scherer Shareholder. Upon the termination of this Agreement for any
reason, Scherer shall promptly cause all copies of such information
and data in its possession, or in the possession of the Scherer
Shareholders, to be returned to Unimag.
(e) Employee Retention. Scherer and the Scherer
Shareholders understand that in Unimag's view it is essential to the
successful operation of the business of Scherer that Scherer assist
Unimag in retaining substantially unimpaired Scherer's operating
organization. During the Pre-Exchange Period, neither Scherer nor any
Scherer Shareholder shall take any action which would induce any
employee or representative of Scherer (other than himself or herself)
or Unimag not to become or continue as an employee or representative
of Scherer or Unimag.
(f) Dividends and Distributions. During the Pre-Exchange
Period, except as permitted in Section 5.2(a), Scherer and the Scherer
Shareholders shall not permit Scherer to declare, set aside or pay any
dividend or any distribution (in cash or in kind) to its shareholders.
(g) Notices of Certain Events. Scherer and the Scherer
Shareholders shall promptly notify Unimag of:
28
<PAGE> 35
(i) Any notice or other communication from any
person or entity alleging that the consent of such person or
entity is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) Any notice or other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement; and
(iii) Any actions, suits, claims, investigations,
or proceedings commenced or, to the knowledge of Scherer or
any Scherer Shareholder, threatened against, relating to, or
involving or otherwise affecting Scherer or any Scherer
Shareholder, or any of their property which, if in existence
on the date of this Agreement would have been required to have
been disclosed by Scherer and the Scherer Shareholders
pursuant to Section 4.17 or which relate to the consummation
of the transactions contemplated by this Agreement.
(h) Title Evidence. Scherer shall deliver to Unimag as
soon as practicable after the date of this Agreement title opinions,
title reports, or other evidence of title, in form and substance
reasonably satisfactory to Unimag, showing in Scherer indefeasible fee
simple title in all of the facilities and real property owned by
Scherer, subject only to such exceptions, encumbrances, or other
matters as are reasonably satisfactory to Unimag.
(i) Compiled Financial Statements. The Scherer
Shareholders shall deliver to Unimag, within 75 days after the Escrow
Closing Date, compiled financial statements for the fiscal year ended
December 31, 1995, and for the fiscal year ending December 31, 1994.
These compiled financial statements shall be prepared from and shall
be in accordance with the books and records of Scherer, prepared in
conformity with generally accepted accounting principles applied on a
consistent basis, including without limitation the generally accepted
accounting principles set forth on Schedule 2.1(b), but subject to the
exceptions to generally accepted accounting principles also set forth
on Schedule 2.1(b), and fairly present in all material respects the
financial condition of Scherer as of the dates stated and the results
of operations of Scherer for the periods then ended in accordance with
such practices. If Arthur Andersen LLP should at any time determine
that in connection with Unimag's reporting requirements to the SEC the
financial statements described above should be audited, then, in such
event (A) Scherer shall cause Arthur Andersen, LLP. to perform the
December 31, 1994 audit, and Scherer shall pay all costs and expenses
incurred in connection with such audit, and (B) Unimag shall cause
Arthur Andersen LLP to perform the December 31, 1995 audit and Unimag
shall pay all costs and expenses incurred in connection with such
audit.
(j) Noncompetition. During the five year period
beginning on the Escrow Closing date, the Scherer Shareholders shall
not, directly or indirectly (whether in their
29
<PAGE> 36
own capacity or as a shareholder or other owner, partner, member,
manager, consultant, creditor, or agent of any person, firm,
association, organization, or other entity:
(i) Enter into or engage in any business anywhere
in the United States which competes with Unimag's, or any of
its subsidiaries', wholesale and retail magazine, book,
newspaper, and sundries distribution and related business (the
"Unimag Business") during such period;
(ii) Solicit customers or business patronage
anywhere in the United States which results in competition
with the Unimag Business; or
(iii) Promote or assist, financially or otherwise,
any person, firm, association, corporation or other entity
engaged in any business which competes with the Unimag
Business anywhere in the United States.
The foregoing covenant shall not be deemed to have been
violated solely by the ownership of shares of any class of capital
stock of any publicly traded corporation involved in the wholesale and
retail magazine, book, newspaper, and sundries distribution and
related businesses, so long as the aggregate holdings of any Scherer
Shareholder in such publicly traded corporation other than Unimag
represents less than 1% of such corporation's outstanding capital
stock.
The Scherer Shareholders acknowledge that (a) the
provisions of this section are fundamental and essential for the
protection of Unimag's legitimate business and proprietary interests,
and (b) such provisions are reasonable and appropriate in all
respects.
Section 5.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as otherwise
expressly contemplated by this Agreement, during the Pre-Exchange
Period: (i) Unimag shall not take or permit to be taken any action or
do or permit to be done anything in the conduct of the business of
Unimag, or otherwise, that would be contrary to or in breach of any of
the terms or provisions of this Agreement or which would cause any of
its representations and warranties contained in this Agreement to be
or become untrue in any material respect; and (ii) Unimag shall
conduct its business in the ordinary course consistent with past
practices.
(b) Joint Operations of Unimag and Scherer.
Notwithstanding anything in this Agreement to the contrary, from and
after the Escrow Closing Date, Unimag shall manage and oversee the
operation of the business of Scherer as if the Exchange had already
occurred. Without limiting the generality of the foregoing, such
management and oversight shall include all of Unimag's rights as to
such matters set forth in the Joint Operating Agreement.
30
<PAGE> 37
(c) Consummation of Acquisitions. Unimag shall use all
reasonable efforts to take all actions and do all things necessary,
proper, or advisable to consummate the: (i) acquisition of Michiana
News Service, Inc., a Michigan corporation ("Michiana"), pursuant to
and upon the terms and conditions of the Stock Transfer and Exchange
Agreement among Unimag, Michiana, and all of the shareholders of
Michiana (the "Michiana Acquisition"); (ii) acquisition of The Stoll
Companies, an Ohio corporation ("Stoll"), pursuant to and upon the
terms and conditions of the Stock Transfer and Exchange Agreement
among Unimag, Stoll and all of the shareholders of Stoll (the "Stoll
Acquisition") and (iii) acquisition of certain assets and liabilities
of Ohio Periodical Distributors, Inc., an Ohio corporation ("OPD"),
Northern News Company, a Michigan corporation ("Northern") and
Wholesalers Leasing Corp., a Delaware corporation, pursuant to and
upon the terms and conditions of the respective Asset Transfer and
Exchange Agreements between Unimag and those companies and the
acquisition of Read-mor Bookstores, Inc., an Ohio corporation
("Read-Mor")pursuant to and upon the terms and conditions of the Stock
Transfer and Exchange Agreement among Unimag, that company and all of
its shareholders (collectively, the "Scherer Companies Acquisitions").
None of the acquisition agreements for the Michiana Acquisition (the
"Michiana Acquisition Agreement") or the acquisition agreement for the
Stoll Acquisition (the "Stoll Acquisition Agreement") or the
acquisition agreements for the Scherer Companies Acquisitions (the
"Scherer Companies Acquisitions Agreements") shall be modified or
amended, in any material respect, without the prior written consent of
the Unimag Board of Directors, Michiana, Stoll, and each of the
Scherer Companies (the "Scherer Companies"). In addition to the
transferors described in this Section 5.3(c), the remainder of the
control group (as defined in Section 368(c) of the Code) of Unimag is
specified in Schedule 1.1.
(d) Confidential Information. Upon the termination of
this Agreement for any reason, Unimag shall promptly cause all
proprietary information or data relevant to the business of Scherer,
whether of a technical, financial or commercial nature and whether
furnished by Scherer hereunder or otherwise received by Unimag, and
all copies, extracts and summaries thereof in its possession or in the
possession of any of its officers, shareholders or agents, to be
promptly returned to Scherer, except for any such information relating
to customers of Scherer obtained from Scherer in connection with the
joint business operations of Unimag and Scherer pursuant to the Joint
Operating Agreement.
ARTICLE 6
CONDITIONS
Section 6.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
31
<PAGE> 38
(a) Completion of Schedules and Exhibits. Except for the
Debenture Agreement attached as Exhibit A and the Employment
Agreements attached as Exhibits C-1 through C-3, the Parties
acknowledge that at the time of the execution of this Agreement the
schedules and exhibits will not be attached. Unimag and Scherer will
proceed in good faith to finalize the form and content of such
schedules and exhibits in a manner consistent with the terms and
conditions of this Agreement and otherwise mutually acceptable to both
Parties. Upon finalizing the form and content of such schedules and
exhibits they will be attached to and become a part of this Agreement
as if they had been attached to this Agreement at the time of
execution.
(b) No Adverse Proceeding. No temporary restraining
order, preliminary or permanent injunction, or other order or decree
which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
(c) Certain Approvals. Unimag and Scherer each shall
have filed any Notification and Report Forms and related materials
that either such Party may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department
of Justice under the HSR Act with respect to the Exchange, and all
waiting periods applicable to the consummation of the Exchange under
the HSR Act shall have expired or been terminated.
(d) Other Governmental Approvals. Any governmental or
other approvals or reviews of this Agreement and the transactions
contemplated by this Agreement required under any applicable laws,
statutes, orders, rules, regulations, policies or guidelines
promulgated thereunder, or any governance document of Unimag or
Scherer shall have been received, except for any filings which Unimag
must make with the Securities and Exchange Commission in connection
with obtaining approval from Unimag's Shareholders of the Exchange and
other transactions contemplated by this Agreement.
(e) Escrow Closing of Certain Acquisitions. Scherer shall
have received copies of the final form of the Stoll Acquisition
Agreement, the Michiana Acquisition Agreement and the Scherer
Companies Acquisition Agreements, all of which shall be of a form and
content substantially similar to this Agreement, with the exception
that certain of the Scherer Companies Acquisition Agreements shall be
for the purchase and sale of assets. In addition, Unimag shall have
consummated the escrow closings of the Stoll Acquisition, the Michiana
Acquisition and the Scherer Companies Acquisition Agreements for
Northern, Read-mor and OPD.
(f) Tax Commentary. Unimag shall have received a tax
commentary, dated the Escrow Closing Date, of Arthur Andersen LLP, in
form and substance satisfactory to
32
<PAGE> 39
Unimag, as to the qualification of the Exchange for Unimag as a
tax-free exchange under Section 351 of the Code, and Unimag shall have
delivered a copy of such commentary to Scherer.
(g) Employment Agreements. Kenneth R. Bentley,
Ronald E. Scherer, Jr., and Arthur C. Foster, Jr. shall have entered
into employment agreements with Scherer or Unimag in substantially
the form attached to this Agreement as Exhibits C-1, C-2 and C-3, and
such employment agreements shall be in full force and effect as of the
Escrow Closing.
Section 6.2 CONDITIONS TO OBLIGATIONS OF SCHERER AND THE SCHERER
SHAREHOLDERS TO COMPLETE THE ESCROW CLOSING. The obligations of Scherer and
the Scherer Shareholders to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to the fulfillment of all of the following conditions
unless waived by Scherer and the Scherer Shareholders in writing:
(a) Representations and Warranties. The representations
and warranties of Unimag set forth in Article 3 of this Agreement
shall be true and correct in all material respects as of the date of
this Agreement and as of the Escrow Closing as though made at and as
of the Escrow Closing.
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing.
(c) Certificate. Unimag shall have furnished Scherer and
the Scherer Shareholders with a certificate dated the Escrow Closing
Date signed by its chairman, president, or any vice president to the
effect that the conditions set forth in Section 6.2(a) and Section
6.2(b) have been satisfied.
(d) Tax Commentary. Scherer and the Scherer Shareholders
shall have received the commentary dated the Escrow Closing Date, of
Arthur Andersen, LLP., in form and substance satisfactory to Scherer
and the Scherer Shareholders, as to the qualification of the Exchange
for the Scherer Shareholders as a tax-free exchange under Section 351
of the Code.
(e) Opinion of Counsel. Scherer and the Scherer
Shareholders shall have received the legal opinion, dated the Escrow
Closing Date, of Baker & Hostetler, counsel to Unimag, in
substantially the form attached to this Agreement as Exhibit B.
(f) Adverse Change and Condition. There shall have been
no material adverse change in the properties, assets, liabilities,
business, results of operations,
33
<PAGE> 40
condition (financial or otherwise), or prospects of Unimag since the
date of the 10-Q or of Michiana, the Stoll Companies or the Scherer
Companies since June 30, 1996.
(g) Unimag Shareholder Letters. As of the date of
this Agreement, shareholders of Unimag who have the right to vote more
than 50% of the outstanding Unimag Shares intend to submit letters to
Unimag indicating they intend to vote in favor of the Stoll
Acquisition, the Michiana Acquisition,, the Scherer Acquisition, and
the Scherer Companies Acquisitions at the Unimag shareholders meeting
to be held for that purpose. Copies of these letters will be provided
to Scherer by Unimag prior to the Escrow Closing.
(h) Due Diligence. Scherer's completion of its due
diligence review of Unimag and September 20, 1996.
(i) Other Documents. Unimag shall have delivered the
following items to Scherer:
(i) Unimag's articles of incorporation, certified by
the Ohio Secretary of State as of a date not more than ten days
prior to the Escrow Closing Date;
(ii) A good standing certificate of Unimag, issued
by the Ohio Secretary of State as of a date not more than ten
days prior to the Escrow Closing Date;
(iii) The code of regulations of Unimag, certified
by the secretary of Unimag on the Escrow Closing Date; and
(iv) Resolutions of the directors of Unimag
approving, adopting, and authorizing this Agreement and the
transactions contemplated by this Agreement, certified by the
secretary of Unimag on the Escrow Closing Date.
Section 6.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to complete the Escrow Closing and
to consummate the other transactions contemplated by this Agreement to be
completed at the Escrow Closing shall be subject to the fulfillment of all of
the following conditions unless waived by Unimag in writing:
(a) Representations and Warranties. The representations
and warranties of Scherer and the Scherer Shareholders set forth in
Article 4 of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Escrow Closing
as though made at and as of the Escrow Closing.
(b) Performance of Agreement. Scherer and the Scherer
Shareholders shall have performed and observed in all material
respects all covenants, agreements,
34
<PAGE> 41
obligations, and conditions to be performed or observed by them under
this Agreement at or prior to the Escrow Closing.
(c) Certificate. Scherer shall have furnished Unimag
with a certificate dated the Escrow Closing Date signed on its behalf
by its chairman, president or any vice president to the effect that
the conditions set forth in Section 6.3(a) and Section 6.3(b) have
been satisfied.
(d) Opinion of Counsel. Unimag shall have received the
legal opinion, dated the Escrow Closing Date, of Ruth Hunter Smith,
Esq., counsel to Scherer and the Scherer Shareholders, substantially
in the form attached to this Agreement as Exhibit D.
(e) Books and Records. Scherer shall have delivered to
Unimag all corporate books and records and other materials of Scherer,
including without limitation stock books and ledgers, minute books,
bank account lists, tax returns, and financial and operational records
and materials.
(f) Third Party Consents. Unimag shall have received all
necessary customer, vendor, and other third party consents and
approvals of this Agreement and the transactions contemplated by this
agreement
(g) Adverse Change and Condition. There shall have been
no material adverse change in the properties, assets, liabilities,
business, results of operations, condition (financial or otherwise) or
prospects of Scherer from that reflected in the Compiled Statements.
(h) Other Documents. Scherer shall have delivered the
following items to Unimag:
(i) Scherer's articles of incorporation,
certified by the Delaware Secretary of State as of a date not
more than ten days prior to the Escrow Closing Date;
(ii) A good standing certificate of Scherer,
issued by the Delaware Secretary of State as of a date not
more than ten days prior to the Escrow Closing Date;
(iii) The code of regulations of Scherer, certified
by the secretary of Scherer on the Escrow Closing Date; and
(iv) The resolutions of the shareholders and
directors of Scherer approving, adopting, and authorizing this
Agreement and the transactions contemplated by this Agreement,
certified by the secretary of Scherer on the Escrow Closing
Date.
35
<PAGE> 42
(i) Due Diligence. Unimag's completion of its due
diligence review with results satisfactory to Unimag on or before
September 20, 1996.
Section 6.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth in
Sections 6.1, 6.2, and 6.3, the Parties shall hold the Escrow Closing at which
the Parties and Baker & Hostetler shall execute and deliver the document escrow
agreement in the form attached to this Agreement as Exhibit E (the "Document
Escrow Agreement"). The Document Escrow Agreement shall provide, among other
things, that at the Escrow Closing this Agreement and all of the Additional
Documents shall be deposited with Baker & Hostetler to be held pursuant to the
terms of the Document Escrow Agreement and that upon the escrow closing of
certain acquisitions and the approval of the Exchange by Unimag's shareholders,
this Agreement and the Additional Documents shall be released and delivered to
the appropriate Party at the Closing and the Exchange and other transactions
contemplated by this Agreement shall be consummated.
Section 6.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of Stoll, Michiana and the Remaining
Scherer Companies Acquisitions. Unimag shall have consummated the
escrow closings of Stoll, Michiana and all of the other Scherer
Companies Acquisitions (except for the escrow closing for the
acquisition of Northern, OPD and Read-mor which were closed into
escrow prior to the Escrow Closing under this Agreement). Such escrow
closings shall be completed no later than September 28, 1996, unless
such date is extended by written agreement of the parties, and shall
be substantially similar to the Escrow Closing under this Agreement.
(b) Unimag Shareholder Approval. The Exchange, the
Michiana Acquisition, the Stoll Acquisition and the Scherer Companies
Acquisitions shall have been approved by the affirmative vote of the
shareholders of Unimag to the extent such approval is required by the
provisions of Ohio Revised Code Chapter 1701 and Unimag's articles of
incorporation.
ARTICLE 7
TERMINATION AND AMENDMENT
Section 7.1 TERMINATION.
(a) Termination by Scherer and the Scherer Shareholders.
This Agreement may be terminated and canceled prior to the Closing by
Scherer and the Scherer Shareholders if: (i) (A) any of the
representations or warranties of Unimag contained in
36
<PAGE> 43
this Agreement shall prove to be inaccurate in any material respect,
or any covenant, agreement, obligation, or condition to be performed
or observed by Unimag under this Agreement has not been performed or
observed in any material respect at or prior to the time specified in
this Agreement, and (B) such inaccuracy or failure shall not have been
cured within 15 business days after receipt by Unimag of written
notice of such occurrence from Scherer and the Scherer Shareholders;
(ii) any permanent injunction or other order of a court or other
competent authority preventing consummation of the Exchange or any
other transaction contemplated by this Agreement shall have become
final and nonappealable; (iii) so long as Scherer and the Scherer
Shareholders are not in material breach of any representation,
warranty, covenant, or agreement, if the Escrow Closing has not
occurred on or before September 28, 1996; or (iv) so long as Scherer
and the Scherer Shareholders are not in material breach of any
representation, warranty, covenant, or agreement, if the Closing has
not occurred on or before December 31, 1996.
(b) Termination by Unimag. This Agreement may be
terminated and canceled at any time prior to the Closing by Unimag if:
(i) (A) any of the representations or warranties of Scherer or any
Scherer Shareholder contained in this Agreement shall prove to be
inaccurate in any material respect, or any covenant, agreement,
obligation, or condition to be performed or observed by Scherer or any
Scherer Shareholder under this Agreement has not been performed or
observed in any material respect at or prior to the time specified in
this Agreement, and (B) such inaccuracy or failure shall not have been
cured within 15 business days after receipt by Scherer and the Scherer
Shareholders of written notice of such occurrence from Unimag; (ii)
any permanent injunction or other order of a court or other competent
authority preventing consummation of the Exchange or any other
transaction contemplated by this Agreement shall have become final and
nonappealable; (iii) so long as Unimag is not in material breach of
any representation, warranty, covenant, or agreement, if the Escrow
Closing has not occurred on or before September 28, 1996; or (iv) so
long as Unimag is not in material breach of any representation,
warranty, covenant, or agreement, if the Closing has not occurred on
or before December 31, 1996.
Section 7.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the Scherer Shareholders and
Unimag Shareholders, but, after such adoption, no amendment shall be made which
by law requires further adoption by the Scherer Shareholders or Unimag
Shareholders without such further adoption. Notwithstanding the foregoing,
this Agreement may not be amended except by an instrument in writing signed by
each of the Parties.
Section 7.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing or Closing, as the case may be, Unimag (with respect to Scherer and the
Scherer Shareholders) and Scherer (with respect to Unimag) may, to the extent
legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of such Party; (b) waive any inaccuracies in the
37
<PAGE> 44
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto; or (c) waive compliance with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a
Party to any such extension or waiver shall be valid only if set forth in a
written instrument signed by such Party.
ARTICLE 8
INDEMNIFICATION
Section 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS.
(a) Notwithstanding any investigation conducted at any
time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of Scherer, the
Scherer Shareholders and Unimag in this Agreement and in the Document
Escrow Agreement shall survive the execution, delivery, and
performance of this Agreement and the Document Escrow Agreement. All
representations and warranties of the Parties set forth in this
Agreement and in the Document Escrow Agreement shall be deemed to have
been made again by them at and as of the Escrow Closing.
(b) As used in this Article 8, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 8.2 INDEMNIFICATION BY SCHERER SHAREHOLDERS.
(a) Subject to the provisions of this Section 8.2 and of
Section 8.4, below, the Scherer Shareholders, jointly and severally,
shall indemnify and hold harmless Unimag from and against any and all
losses, liabilities, damages, demands, claims, suits, actions,
judgments or causes of action, assessments, costs and expenses,
including without limitation interest, penalties, reasonable
attorneys' fees, any and all reasonable expenses incurred in
investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively,
"Damages"), asserted against, resulting to, imposed upon, or incurred
or suffered by Unimag, directly or indirectly, as a result of or
arising from any material inaccuracy in or breach of any of the
representations, warranties, covenants, or agreements made by the
Scherer Shareholders in this Agreement or the Document Escrow
Agreement (collectively, "Indemnifiable Scherer Claims").
(b) Unimag shall be deemed to have suffered Damages
arising out of or resulting from the matters referred to in Section
8.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
38
<PAGE> 45
(c) The Scherer Shareholders may satisfy any obligation
of indemnification under this Article 8 by delivery of Unimag Shares
to Unimag with a value equal to the amount of the payment being
satisfied. For purposes of this Section 8.2(c), Unimag Shares shall
be valued at the greater of (i) $1.50 per share, or (ii) their market
value at the time the indemnification obligation has been finally
established.
(d) Notwithstanding anything contained in this Agreement
to the contrary, the collective indemnification obligations of the
Scherer Shareholders as a group under this Agreement shall never
exceed, in the aggregate, the sum of $22,450 and no single
Scherer Shareholder shall have any indemnification obligation in
excess of the total consideration received by such Scherer Shareholder
in exchange for his or her Scherer Shares.
Section 8.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless each of the
Scherer Shareholders from and against any Damages asserted against,
resulting to, imposed upon, or incurred or suffered by any of the
Scherer Shareholders, directly or indirectly, as a result of or
arising from any (i) material inaccuracy in or breach or
nonfulfillment of any of the representations, warranties, covenants,
or agreements made by Unimag in this Agreement or the Document Escrow
Agreement, (ii) subject to the limitations set forth in Section
8.3(c), below, any and all claims, liabilities or obligations arising
out of the operation of the business of Scherer after the Escrow
Closing Date, or (iii) any and all claims, liabilities and obligations
arising out of any failure by Unimag to pay, following the Escrow
Closing Date, any liability of Scherer disclosed on the June 30th
Balance Sheet or to pay any amount or perform any obligation under any
of the Contracts, (collectively, "Indemnifiable Unimag Claims" and,
together with Indemnifiable Scherer Claims, the "Indemnifiable
Claims").
(b) Unimag shall satisfy any obligation of indemnification
under this Article 8 in cash.
(c) Notwithstanding anything contained in this Agreement
to the contrary, the Scherer Shareholders hereby acknowledge that
Unimag shall not be liable to the Scherer Shareholders, under this
Article 8 or any other provision of this Agreement, for any claims,
liabilities, or obligations arising out of the operation of the
business of Scherer prior to the Escrow Closing Date, if such claim,
liability, or obligation is caused by or results from any
Indemnifiable Scherer Claim.
Section 8.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 8 are subject to the following limitations:
39
<PAGE> 46
(a) For purposes of this Article 8, all Damages shall be
computed net of any insurance coverage which reduces the Damages that
would otherwise be sustained; provided that in all cases the timing of
the receipt or realization of insurance proceeds shall be taken into
account in determining the amount of reduction of Damages.
(b) Subject to the provisions of Section 8.4(c), below,
Unimag shall not be entitled to indemnification hereunder with respect
to an Indemnifiable Claim or Claims unless the aggregate amount of
Damages with respect to such Indemnifiable Claim or Claims exceeds
$2,245. Once Unimag's Damages exceeds $2,245 in the aggregate,
Unimag shall only be entitled to be indemnified to the extent of such
Damages in excess of such initial $2,245 of Damages.
(c) Notwithstanding and in lieu of the provisions of
Section 8.4(b), above, Unimag shall not be entitled to indemnification
with respect to an Indemnifiable Claim or Claims resulting from a
breach of the representations and warranties contained in the last
paragraph of Section 4.15 unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $1,000. Once
Unimag's Damages for any such breach exceeds $1,000 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $1,000 of Damages.
(d) The obligations of indemnity under this Article 8
with respect to any indemnifiable claim shall terminate two years
after the Escrow Closing Date.
(e) If, prior to the termination of the obligation to
indemnify, written notice of an Indemnifiable Claim is given by Unimag
or any of the Scherer Shareholders, as the case may be (an
"Indemnified Party") to the other Party or Parties, as the case may be
(the "Indemnifying Party"), or a suit or action based upon an alleged
Indemnifiable Claim is commenced against the Indemnifying Party, the
Indemnified Party shall not be precluded from pursuing such
Indemnifiable Claim (whether through the courts or otherwise) by
reason of the termination of the obligation of indemnity as described
in Section 8.4(d) above.
Section 8.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 8 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted
40
<PAGE> 47
liability with counsel reasonably satisfactory to the Indemnified
Party. Notwithstanding the foregoing: (i) the Indemnified Party
shall have the right to employ its own counsel in any such case, but
the fees and expenses of such counsel shall be payable by the
Indemnified Party; (ii) the Indemnified Party shall not have any
obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing; and (iii) the rights of the
Indemnified Party to be indemnified in respect of Indemnifiable Claims
resulting from the assertion of liability by third parties shall not
be adversely affected by its failure to give notice pursuant to the
foregoing provisions unless, and, if so, only to the extent that, the
Indemnifying Party is prejudiced by such failure. With respect to any
assertion of liability by a third party that results in an
Indemnifiable Claim, the Parties shall make available to each other
all relevant information in their possession which is material to any
such assertion.
(b) In the event that the Indemnifying Party fails to
assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall have the right to defend, compromise, or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Party.
(c) Notwithstanding anything in this Section 8.5 to the
contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party, to defend,
compromise, or settle such Indemnifiable Claim; and (ii) the
Indemnifying Party shall not, without the Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable Claim
unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party (and its subsidiaries and affiliates) a release from
all liability in respect of such Indemnifiable Claim.
Section 8.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three
41
<PAGE> 48
disinterested arbitrators. The panel shall be composed of one arbitrator
appointed by the Indemnified Party, one appointed by the Indemnifying Party,
and the third, who shall be an attorney admitted to practice in the State of
Ohio who has experience in periodical distribution, shall be appointed by the
mutual agreement of the two arbitrators chosen by the Indemnified Party and the
Indemnifying Party. The panel shall sit in Columbus, Ohio, and its procedures
shall be governed by the Ohio Arbitration Act contained in Chapter 2711 of the
Ohio Revised Code. The rules of civil procedure with respect to depositions
and requests for production of documents applicable in Ohio common pleas courts
shall apply. A decision in any such arbitration shall apply both to the
particular question submitted and to all similar questions arising thereafter.
The determination made shall be final and binding and conclusive on the Parties
and the amount of the Indemnifiable Claim, if any, determined to exist shall be
a valid Indemnifiable Claim. Each Party shall pay its own legal, accounting,
and other fees in connection with such a contest; provided that if the
contested claim is referred to and ultimately determined by arbitration, the
legal, auditing, and other fees of the prevailing Party and the fees and
expenses of any arbitrator shall be borne by the nonprevailing Party.
Section 8.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 8.5 or Section 8.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 2.1(b)), the
Unimag Debentures, or the Additional Documents.
ARTICLE 9
MISCELLANEOUS
Section 9.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
42
<PAGE> 49
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Esq.
Facsimile No.: (614) 462-2616
(b) If to Scherer:
The Scherer Companies
5131 Post Road
Dublin, Ohio 43017
Attention: David B. Thompson, Chairman
Facsimile No. (614) 792-2029
with a copy to:
Ruth Hunter Smith, Esq.
5131 Post Road
Dublin, Ohio 43017
Facsimile No. (614) 792-2029
(c) If to the Scherer Shareholders:
Ronald E. Scherer
5131 Post Road
Dublin, Ohio 43017
Linda S. Talbott
5131 Post Road
Dublin, Ohio 43017
Ted Rysz
43
<PAGE> 50
160 Lincoln Hill Drive
Battle Creek, Michigan 49015
Section 9.2 NON-WAIVER. No failure by any Party to
insist upon strict compliance with any term or provision of this
Agreement, to exercise any option, to enforce any right, or to seek
any remedy upon any default of any other Party shall affect, or
constitute a waiver of, any other Party's right to insist upon such
strict compliance, exercise that option, enforce that right, or seek
that remedy with respect to that default or any prior,
contemporaneous, or subsequent default. No custom or practice of the
Parties at variance with any provisions of this Agreement shall affect
or constitute a waiver of, any Party's right to demand strict
compliance with all provisions of this Agreement.
Section 9.3 GENDERS AND NUMBERS. Where permitted by the
context, each pronoun used in this Agreement includes the same pronoun
in other genders and numbers, and each noun used in this Agreement
includes the same noun in other numbers.
Section 9.4 HEADINGS. The headings of the various
articles and sections of this Agreement are not part of the context of
this Agreement, are merely labels to assist in locating such articles
and sections, and shall be ignored in construing this Agreement.
Section 9.5 COUNTERPARTS. This Agreement may be executed
in multiple counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the
same Agreement.
Section 9.6 ENTIRE AGREEMENT. This Agreement (including
all exhibits, schedules, and other documents referred to in this
Agreement, all of which are hereby incorporated herein by reference)
constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the Parties with
respect to the subject matter of this Agreement.
Section 9.7 NO THIRD PARTY BENEFICIARIES. Nothing
contained in this Agreement, expressed or implied, is intended or
shall be construed to confer upon or give to any person, firm,
corporation, or other entity, other than the Parties, any rights,
remedies, or other benefits under or by reason of this Agreement.
Section 9.8 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Ohio without regard to principles of conflicts of law.
Section 9.9 BINDING EFFECT; ASSIGNMENT. This Agreement
shall be binding upon, inure to the benefit of and be enforceable by
and against the Parties and their respective
44
<PAGE> 51
heirs, personal representatives, successors, and assigns. Neither
this Agreement nor any of the rights, interests, or obligations under
this Agreement shall be transferred or assigned by any of the Parties
without the prior written consent of the other Parties.
Section 9.10 EXPENSES. Except as otherwise specifically
provided in this Agreement: (a) Unimag shall pay its costs and
expenses associated with the transactions contemplated by this
Agreement, including without limitation the fees and expenses of its
legal counsel, independent public accountants, and other financial
advisors; (b) the Scherer Shareholders shall pay their own costs and
expenses associated with this Agreement, including without limitation
the fees and expenses of their legal counsel, accountants, and
financial advisors; and (c) all such costs and expenses incurred by
Scherer in connection with this Agreement and the transactions
contemplated hereby shall be accrued and expensed, or otherwise
accounted for, so that such costs and expenses (if not paid prior to
June 30, 1996) will be taken into consideration when determining the
Tangible Net Worth of Scherer pursuant to Section 2.1(b).
Section 9.11 PUBLIC ANNOUNCEMENTS. Neither Scherer nor
any Scherer Shareholder shall, without the prior written consent of
Unimag, make any public announcement or statement with respect to the
transactions contemplated in this Agreement. The provisions of this
section are subject to each Party's obligation to comply with
applicable requirements of the federal or state securities laws or any
governmental order or regulation.
Section 9.12 SEVERABILITY. With respect to any provision
of this Agreement finally determined by a court of competent
jurisdiction to be unenforceable, such court shall have jurisdiction
to reform such provision so that it is enforceable to the maximum
extent permitted by applicable law, and the Parties shall abide by
such court's determination. In the event that any provision of this
Agreement cannot be reformed, such provision shall be deemed to be
severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect.
UNITED MAGAZINE COMPANY
By /s/RONALD E. SCHERER
__________________________
Ronald E. Scherer, Chairman
THE SCHERER COMPANIES
45
<PAGE> 52
By /s/DAVID B. THOMPSON
__________________________________
David B. Thompson, Chairman
THE SCHERER SHAREHOLDERS:
/s/RONALD E. SCHERER
____________________________________
RONALD E. SCHERER
/s/LINDA S. TALBOTT
____________________________________
LINDA S. TALBOTT
/s/TED RYSZ
____________________________________
TED RYSZ
46
<PAGE> 53
INDEX OF SCHEDULES
Schedule 1.1 Control Group
Schedule 2.1(b) Certain Generally Accepted Accounting Principles
Schedule 3.3 Agreements to Issue Unimag Shares
Schedule 3.5 Litigation
Schedule 4.1 Qualification as Foreign Corporation
Schedule 4.2 Scherer Shareholders
Schedule 4.3 Restrictions on Scherer Shares
Schedule 4.5 Consents and Approvals
Schedule 4.7 Undisclosed Liabilities
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Taxes
Schedule 4.10 Compliance with Law
Schedule 4.11 Proprietary Rights
Schedule 4.12 Restrictive Documents and Laws
Schedule 4.13 Insurance
Schedule 4.14 Bank Accounts
Schedule 4.15 Properties
Schedule 4.17 Legal Proceedings
Schedule 4.18 Employee Benefit Plans (Schedules (a) through (j))
Schedule 4.19 Contracts
-47-
<PAGE> 54
Schedule 4.20 Accounts Receivable
Schedule 4.21 Conflicts or Defaults
Schedule 4.23 Employees and Compensation
Schedule 4.24 Labor Relations
Schedule 4.25 Customers and Suppliers
Schedule 4.26 Special Terms to Customers
Schedule 5.2(a) Employment Arrangements
-48-
<PAGE> 55
INDEX OF EXHIBITS
Exhibit A Debenture Agreement
Exhibit B Opinion of Baker & Hostetler
Exhibit C-1 Form of Employment Agreement with
Exhibit C-2 Form of Employment Agreement with
Exhibit C-3 Form of Employment Agreement with
Exhibit D Opinion of Ruth Hunter Smith, Esq.
Exhibit E Document Escrow Agreement
-49-
<PAGE> 1
STOCK TRANSFER AND EXCHANGE AGREEMENT
AMONG
UNITED MAGAZINE COMPANY,
READ-MOR BOOK STORES, INC.
AND
ALL OF THE SHAREHOLDERS OF READ-MOR BOOK STORES, INC.
EFFECTIVE DATE: AUGUST 2, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Exchange . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Escrow Closing; Closing . . . . . . . . . . . . . 2
ARTICLE 2 EXCHANGE OF CAPITAL STOCK AND DEBENTURES . . . . . . . . . 2
Section 2.1 Exchange of Capital Stock . . . . . . . . . . . . 2
(a) Outstanding Read-mor Shares . . . . . . . . . . . 2
(b) Valuation Adjustment . . . . . . . . . . . . . . 2
(c) Read-mor Treasury Shares . . . . . . . . . . . . 4
Section 2.2 Exchange of Certificates; Issuance of Shares
and Debentures . . . . . . . . . . . . . . . . . . 4
(a) Delivery of Read-mor Share Certificates . . . . . 5
(b) Issuance of Unimag Shares . . . . . . . . . . . . 5
(c) Issuance of Unimag Debentures . . . . . . . . . . 5
(d) Distributions with Respect to Unexchanged Shares 5
(e) Unimag Shares to be Restricted Securities . . . . 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF UNIMAG . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Organization and Standing . . . . . . . . . . . . 6
Section 3.2 Corporate Power and Authority . . . . . . . . . . 6
Section 3.3 Capitalization of Unimag . . . . . . . . . . . . 7
Section 3.4 Conflicts; Consents; and Approvals . . . . . . . 7
Section 3.5 Litigation . . . . . . . . . . . . . . . . . . . 8
Section 3.6 Brokerage and Finder's Fees . . . . . . . . . . . 8
Section 3.7 Unimag 10-K and 10-Q . . . . . . . . . . . . . . 8
Section 3.8 Taxes . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9 Undisclosed Liabilities . . . . . . . . . . . . . 9
Section 3.10 Compliance With Law . . . . . . . . . . . . . . . 9
Section 3.11 No Material Adverse Change . . . . . . . . . . . 9
Section 3.12 Section 351 Exchange . . . . . . . . . . . . . . 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
READ-MOR BOOK STORES, INC. AND THE READ-MOR
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.1 Organization and Standing . . . . . . . . . . . . 10
Section 4.2 Capitalization and Security
Holders; Subsidiaries . . . . . . . . . . . . . . 10
Section 4.3 Ownership of Shares and Authority . . . . . . . . 11
Section 4.4 Corporate Power and Authority . . . . . . . . . . 11
Section 4.5 Consents and Approvals . . . . . . . . . . . . . 11
Section 4.6 Financial Statements . . . . . . . . . . . . . . 12
Section 4.7 Undisclosed Liabilities . . . . . . . . . . . . . 12
Section 4.8 Absence of Certain Changes . . . . . . . . . . . 12
Section 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10 Compliance with Law . . . . . . . . . . . . . . . 15
Section 4.11 Proprietary Rights . . . . . . . . . . . . . . . 15
Section 4.12 Restrictive Documents or Laws . . . . . . . . . . 17
Section 4.13 Insurance . . . . . . . . . . . . . . . . . . . . 17
Section 4.14 Bank Accounts, Depositories; Powers of Attorney . 17
Section 4.15 Title to and Condition of Properties . . . . . . 17
Section 4.16 Brokers and Finders . . . . . . . . . . . . . . . 19
Section 4.17 Legal Proceedings. . . . . . . . . . . . . . . . 19
Section 4.18 ERISA . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.19 Contracts . . . . . . . . . . . . . . . . . . . . 22
Section 4.20 Accounts Receivable . . . . . . . . . . . . . . . 23
Section 4.21 No Conflict or Default . . . . . . . . . . . . . 23
Section 4.22 Books of Account; Records . . . . . . . . . . . . 23
Section 4.23 Officers, Employees, and Compensation . . . . . . 23
Section 4.24 Labor Relations . . . . . . . . . . . . . . . . . 24
Section 4.25 Customers and Suppliers . . . . . . . . . . . . . 24
Section 4.26 Special Terms; Product Warranties . . . . . . . . 24
Section 4.27 Business of Read-mor . . . . . . . . . . . . . . 25
Section 4.28 Investment Representation . . . . . . . . . . . . 25
Section 4.29 Section 351 Exchange . . . . . . . . . . . . . . 25
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . 25
Section 5.1 Mutual Covenants . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . . 25
(b) HSR Filings . . . . . . . . . . . . . . . . . . . 26
(c) Other Governmental Matters . . . . . . . . . . . 26
(d) Tax-Free Treatment . . . . . . . . . . . . . . . 26
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 5.2 Covenants of Read-mor and the
Read-mor Shareholders . . . . . . . . . . . . . . 26
(a) Conduct of Business . . . . . . . . . . . . . . . 26
(b) Exclusive Rights . . . . . . . . . . . . . . . . 28
(c) Access to Records and Other Due Diligence . . . . 28
(d) Disclosures . . . . . . . . . . . . . . . . . . . 29
(e) Employee Retention . . . . . . . . . . . . . . . 29
(f) Dividends and Distributions . . . . . . . . . . . 29
(g) Notices of Certain Events . . . . . . . . . . . . 29
(h) Title Evidence . . . . . . . . . . . . . . . . . 29
(i) Compiled Financial Statements . . . . . . . . . . 30
(j) Noncompetition . . . . . . . . . . . . . . . . . 30
Section 5.3 Covenants of Unimag . . . . . . . . . . . . . . . 31
(a) Conduct of Unimag's Business . . . . . . . . . . 31
(b) Joint Operations of Unimag and Read-mor . . . . . 31
(c) Consummation of Acquisitions . . . . . . . . . . 31
(d) Confidential Information . . . . . . . . . . . . 32
ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.1 Mutual Conditions to Escrow Closing . . . . . . . 32
(a) Completion of Schedules and Exhibit . . . . . . . 32
(b) No Adverse Proceeding . . . . . . . . . . . . . . 32
(c) Certain Approvals . . . . . . . . . . . . . . . . 32
(d) Other Governmental Approvals . . . . . . . . . . 33
(e) Escrow Closing of Certain Acquisitions . . . . . 33
(f) Tax Commentary . . . . . . . . . . . . . . . . . 33
Section 6.2 Conditions to Obligations of Read-mor and the
Read-mor Shareholders to Complete
the Escrow Closing . . . . . . . . . . . . . . . 33
(a) Representations and Warranties . . . . . . . . . 33
(b) Performance of Agreement . . . . . . . . . . . . 33
(c) Certificate . . . . . . . . . . . . . . . . . . . 33
(d) Opinion of Counsel . . . . . . . . . . . . . . . 34
(e) Adverse Change and Condition . . . . . . . . . . 34
(f) Unimag Shareholder Letters . . . . . . . . . . . 34
(g) Due Diligence . . . . . . . . . . . . . . . . . . 34
(h) Other Documents . . . . . . . . . . . . . . . . . 34
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 6.3 Conditions to Obligations of Unimag to Complete
the Escrow Closing . . . . . . . . . . . . . . . 34
(a) Representations and Warranties . . . . . . . . . 35
(b) Performance of Agreement . . . . . . . . . . . . 35
(c) Certificate . . . . . . . . . . . . . . . . . . . 35
(d) Opinion of Counsel . . . . . . . . . . . . . . . 35
(e) Books and Records . . . . . . . . . . . . . . . . 35
(f) Third Party Consents . . . . . . . . . . . . . . 35
(g) Adverse Change and Condition . . . . . . . . . . 35
(h) Termination of Stock Pledge Agreement . . . . . . 35
(i) Other Documents . . . . . . . . . . . . . . . . . 35
(j) Due Diligence . . . . . . . . . . . . . . . . . . 36
Section 6.4 Document Escrow Agreement; Unimag
Shareholder Approval . . . . . . . . . . . . . . 36
Section 6.5 Mutual Conditions to Consummate the Exchange . . 36
(a) Escrow Closing of the Remaining Scherer
Companies Acquisitions . . . . . . . . . . . . . 36
(b) Unimag Board of Directors Approval . . . . . . . 36
(c) Unimag Shareholder Approval . . . . . . . . . . . 37
ARTICLE 7 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . 37
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . 37
(a) Termination by Read-mor and
the Read-mor Shareholders . . . . . . . . . . . . 37
(b) Termination by Unimag . . . . . . . . . . . . . . 37
Section 7.2 Amendment . . . . . . . . . . . . . . . . . . . . 38
Section 7.3 Extension; Waiver . . . . . . . . . . . . . . . . 38
ARTICLE 8 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 38
Section 8.1 Survival of Representations, Warranties, Covenants,
and Agreements . . . . . . . . . . . . . . . . . 38
Section 8.2 Indemnification by Read-mor Shareholders . . . . 38
Section 8.3 Indemnification by Unimag . . . . . . . . . . . . 39
Section 8.4 Limitations on Indemnification . . . . . . . . . 40
Section 8.5 Procedure for Indemnification with Respect to
Third Party Claims . . . . . . . . . . . . . . . 41
Section 8.6 Procedure For Indemnification with Respect to
Non-Third Party Claims . . . . . . . . . . . . . 42
Section 8.7 Right of Setoff . . . . . . . . . . . . . . . . . 42
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . . 43
Section 9.2 Non-Waiver . . . . . . . . . . . . . . . . . . . 44
Section 9.3 Genders and Numbers . . . . . . . . . . . . . . . 44
Section 9.4 Headings . . . . . . . . . . . . . . . . . . . . 44
Section 9.5 Counterparts . . . . . . . . . . . . . . . . . . 44
Section 9.6 Entire Agreement . . . . . . . . . . . . . . . . 44
Section 9.7 No Third Party Beneficiaries . . . . . . . . . . 44
Section 9.8 Governing Law . . . . . . . . . . . . . . . . . . 44
Section 9.9 Binding Effect; Assignment . . . . . . . . . . . 45
Section 9.10 Expenses . . . . . . . . . . . . . . . . . . . . 45
Section 9.11 Public Announcements . . . . . . . . . . . . . . 45
Section 9.12 Severability . . . . . . . . . . . . . . . . . . 45
INDEX OF SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . 47
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
v
<PAGE> 7
STOCK TRANSFER AND EXCHANGE AGREEMENT
This Stock Transfer and Exchange Agreement (this "Agreement") is made and
entered into August 30, 1996, to be effective as of August 2, 1996, among
United Magazine Company, an Ohio corporation ("Unimag"), Read-mor Book Stores,
Inc., an Ohio corporation ("Read-MOr"), and all of Read-mor's shareholders
which are listed on Schedule 4.2 (individually, a "Read-Mor Shareholder" and
collectively, the "Read-mor Shareholders").
BACKGROUND INFORMATION
A. Unimag desires to acquire the magazine, book, newspaper and sundries
distribution, retail and related businesses of Read-mor (the "Retail Periodical
Business") through an exchange (the "Exchange"), pursuant to which Read-mor's
Class A common shares, voting, without par value, and Class B common shares,
nonvoting, without par value (each a "Read-mor share" and collectively, the
"Read-Mor Shares"), outstanding at the Escrow Closing (defined in Section 1.2,
below) shall be exchanged for (1) Unimag's common shares, without par value
("Unimag Shares"), and (2) senior and subordinated debentures of Unimag,
subject to and upon the terms and conditions set forth in this Agreement.
B. The respective boards of directors of Unimag and Read-mor have (1)
determined that the Exchange and the other transactions contemplated in this
Agreement are desirable and in the best interests of their respective
shareholders, and (2) duly approved and adopted this Agreement.
C. Unimag and Read-mor intend that the Exchange qualify, along with other
exchanges between other companies and Unimag occurring both before and after
the closing of the transactions contemplated by this Agreement, as a tax-free
exchange under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Code"), subject to the rules of Section 351 of the Code and the
regulations promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules).
STATEMENT OF AGREEMENT
The parties to this Agreement (each a "Party," and collectively, the
"Parties") hereby acknowledge the accuracy of the above Background Information
and, in consideration of the representations, warranties, covenants, and
agreements set forth in this Agreement, the Parties agree as follows:
ARTICLE 1
EXCHANGE
Section 1.1 EXCHANGE. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the provisions of Section
351 of the Code, the Read-mor Shareholders shall transfer all of the Read-mor
Shares to Unimag in exchange for Unimag's
1
<PAGE> 8
transfer to the Read-mor Shareholders of Unimag Shares and senior and
subordinated debentures of Unimag (both in the amounts and as described in
Section 2.1). Immediately after this exchange, the former Read-mor
Shareholders shall represent a part of the group of transferors, a list of whom
is attached as Schedule 1.1, who will be in control (as defined in Section
368(c) of the Code) of Unimag.
Section 1.2 ESCROW CLOSING; CLOSING. The escrow closing of the
Exchange and the other transactions contemplated by this Agreement (the "Escrow
Closing") shall be held at the offices of Baker & Hostetler, 65 East State
Street, Columbus, Ohio 43215, commencing at 10:00 a.m. Columbus, Ohio time on
such date (the "Escrow Closing Date") as may be reasonably designated by
Unimag; provided that it is the intention of the Parties that the Escrow
Closing shall be held not later than September 28, 1996. As provided in
Section 6.5, after the Escrow Closing the only conditions to the release of
this Agreement and the other documents executed in connection with the
transactions contemplated by this Agreement (the "Additional Documents") from
the Document Escrow Agreement (defined in Section 6.4) shall be the approval of
the Exchange by the board of directors and the shareholders of Unimag and the
escrow closing of certain other acquisitions. Within ten days after such
shareholder approval (the "Closing Date"), the Parties will cause the Agreement
and the Additional Documents to be delivered to the appropriate Party in
accordance with the terms and conditions of the Document Escrow Agreement and
the Parties will close the Exchange (the "Closing"). In no event shall the
Closing be held later than December 31, 1996.
ARTICLE 2
EXCHANGE OF CAPITAL STOCK AND DEBENTURES
Section 2.1 EXCHANGE OF CAPITAL STOCK. At the Closing:
(a) Outstanding Read-mor Shares. Each Read-mor Share which is
issued and outstanding immediately prior to the Escrow Closing shall,
subject to the provisions of Section 2.2, and subject to the adjustments
provided for in Section Section 2.1(b) and 3.3, be exchanged for (i)
427.33 Unimag Shares (an aggregate of 213,665.48 Unimag Shares for all
Read-mor Shares exchanged), and (ii) 615.86 principal amount of Unimag
debentures (an aggregate of $307,929.67 principal amount of Unimag
debentures for all Read-mor Shares exchanged) (the "Unimag Debentures").
The Unimag Debentures shall be issued pursuant to the terms of the
Debenture Agreement attached hereto as Exhibit A. An aggregate of
$175,273.56 principal amount of the Unimag Debentures ($350.55 per
Read-mor Share converted) will be Senior Debentures (as defined in the
Debenture Agreement), and the balance of the Unimag Debentures will be
Subordinated Debentures (as defined in the Debenture Agreement).
(b) Valuation Adjustment. The amount of Unimag Shares and the
principal amount of Unimag Debentures to be received upon exchange of the
Read-mor Shares is based upon a total valuation of Read-mor of
$628,427.91, or $1,256.86 per Read-mor Share, with 51.00% of this value
being exchanged for Unimag Shares at an agreed upon
2
<PAGE> 9
price of $1.50 per Unimag Share, and 49.00% of this value being exchanged
for Unimag Debentures. The value of Read-mor was determined by adding the
sum of:
(i) An amount equal to 60% of the annual retail sales of Read-mor
for the 52-week period ended on or about December 31, 1995, which is
currently estimated to be $537,082.57 ("1995 Sales"); plus
(ii) The tangible net worth of Read-mor as of December 31, 1995,
which is currently estimated to be $91,345.34 (the "Tangible Net
Worth").
Within 30 days after the Escrow Closing Date, the Read-mor
Shareholders shall cause to be prepared and delivered to Unimag (A) the
balance sheet of Read-mor as of June 30, 1996 (the "June 30th Balance
Sheet"), and (B) copies of Read-mor's sales and related reports (and all
supporting documentation relating to such reports) for the 52-week period
ended on or about December 31, 1995 (the "1995 Sales Reports"), and the
sales and related reports for each of the three weeks before the beginning
of and after the end of such 52-week period. The June 30th Balance Sheet
shall: (1) be prepared from and in accordance with the books and records
of Read-mor; (2) be prepared in conformity with generally accepted
accounting principles applied on a consistent basis, including without
limitation the generally accepted accounting principles set forth on
Schedule 2.1(b), but subject to the exceptions to generally accepted
accounting principles also set forth on Schedule 2.1(b); and (3) fairly
present in all material respects the financial condition of Read-mor as of
such date in accordance with such practices. The Read-mor Shareholders
shall also deliver to Unimag copies of the work papers used in connection
with the preparation of the June 30th Balance Sheet and the 1995 Sales
Reports. The 1995 Sales Reports shall fairly present in all material
respects Read-mor's 1995 Sales.
As soon as practical after Read-mor delivers to Unimag the June
30th Balance Sheet, the 1995 Sales Reports, and the related workpapers,
Unimag shall cause Arthur Andersen LLP to conduct an audit of the June
30th Balance Sheet to determine the actual Tangible Net Worth of Read-mor
as of such date, and, if necessary, to conduct a review of the 1995 Sales
Reports to confirm the accuracy of the recorded amount of 1995 Sales. In
connection with the review of the 1995 Sales Reports, Arthur Andersen will
also review the sales and related reports for each of the three weeks
before and after the 52-week period to confirm that there has been an
appropriate cut-off of sales and related matters (in accordance with
Generally Accepted Accounting Principles) at the beginning and end of the
52-week period. In connection with the determination of 1995 Sales,
Arthur Andersen shall deduct the aggregate amount of purchases made by
Read-mor from Ohio Periodical Distributors, Inc., during the 52-week
period. The determination of the Tangible Net Worth shall be made
consistent with the generally accepted accounting principles (and
exceptions therefrom) set forth in Schedule 2.1(b). Arthur Andersen LLP
shall promptly deliver a report as to its determination of the actual
value of Read-mor to Unimag and the Read-mor Shareholders. Within thirty
(30) days after the delivery of this
3
<PAGE> 10
report to them, the Read-mor Shareholders shall deliver to Unimag a
written statement describing their objections (if any) to Arthur Andersen
LLP's determination of Tangible Net Worth, 1995 Sales, and the actual
value of Read-mor. Unimag and the Read-mor Shareholders shall use
reasonable efforts to resolve any disputes regarding these determinations,
and if they are unable to resolve any such disputes within thirty (30)
days after the Read-mor Shareholders have submitted their objections to
Unimag, then Price Waterhouse LLP, an independent accounting firm, shall
resolve any such disputes. The Parties shall use reasonable efforts to
cause Price Waterhouse LLP to decide all disputed items as soon as
practicable (but in any event within thirty (30) days). All fees and
expenses of Arthur Andersen LLP shall be borne by Unimag, but the fees and
expenses of Price Waterhouse LLP shall be borne equally between Unimag, on
the one hand, and the Read-mor Shareholders, on the other.
If the actual value of Read-mor, as so determined, is more than
$628,427.91, then Unimag shall issue additional Unimag Shares, valued at
$1.50 per share, equal to 51.00% of, and additional Unimag Subordinated
Debentures in a principal amount equal to 49.00% of, the amount by which
the actual value of Read-mor, as so determined, exceeds $628,427.91. If
the actual value of Read-mor, as so determined, is less than $628,427.91,
then the parties shall reduce the number of Unimag Shares, valued at $1.50
per share, issued to the Read-mor Shareholders by an amount equal to
51.00% of, and the Unimag Subordinated Debentures issued to the Read-mor
Shareholders by an amount equal to 49.00% of, the amount by which the
actual value of Read-mor, as so determined, is less than $628,427.91.
Notwithstanding the foregoing, if any reduction in the amount of Unimag
Shares to be issued would in any way prevent the Exchange, along with
other exchanges between other companies and Unimag occurring both before
and after the closing of the transactions contemplated by this Agreement,
from being treated as a tax-free exchange under Section 351 of the Code,
then the relative percentage of Unimag Shares and Unimag Subordinated
Debentures to be so returned shall be adjusted in order to maintain the
tax-free exchange nature of these transactions. In the event that the
Read-mor Shareholders fail to return such Unimag Shares and Unimag
Subordinated Debentures within 30 days after a determination that the
actual value of Read-mor is less than $628,427.91, then, in addition to
any other rights or remedies Unimag may have under this Agreement or
otherwise, Unimag shall have the right to setoff the value of such Unimag
Shares and Unimag Subordinated Debentures against any amount owed to the
Read-mor Shareholders by Unimag, whether pursuant to this Agreement or the
Unimag Debentures.
(c) Read-mor Treasury Shares. Each Read-mor Share, if any, which is
held by Read-mor as a treasury share immediately prior to the Escrow
Closing shall, by virtue of the Exchange and without any required action
on the part of Read-mor, cease to exist and be canceled and retired, and
no cash or other property shall be issued in respect thereof.
Section 2.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF SHARES AND
DEBENTURES.
4
<PAGE> 11
(a) Delivery of Read-mor Share Certificates. At the Closing, each
Read-mor Shareholder shall surrender to Unimag the certificates evidencing
all the Read-mor Shares (the "Read-Mor Share Certificates") owned by such
Read-mor Shareholder immediately prior to the Escrow Closing.
(b) Issuance of Unimag Shares. At the Closing, upon delivery of the
Read-mor Share Certificates evidencing all of the Read-mor Shares owned by
each Read-mor Shareholder pursuant to Section 2.2(a), Unimag shall issue
to each Read-mor Shareholder that number of Unimag Shares which such
Read-mor Shareholder is entitled to receive as described in Section 2.1.
Unimag shall not be obligated to issue any fractional Unimag
Shares as a result of the Exchange described in Section 2.1 and this
subsection. To the extent that an outstanding Read-mor Share would
otherwise become a fractional Unimag Share as a result of such exchange,
the holder of such Read-mor Share shall be entitled to receive a cash
payment for such fractional interest in an amount equal to such fractional
interest multiplied by $1.50 upon presentation of an appropriate Read-mor
Share Certificate representing such fractional interest to Unimag pursuant
to this Section 2.2. Such payment is merely intended to provide a
mechanical rounding off of, and is not a separately bargained for,
consideration. If more than one Read-mor Share Certificate is exchanged
by the same Read-mor Shareholder, the number of Unimag Shares issuable to
such Read-mor Shareholder pursuant to Section 2.1 and this subsection
shall be computed on the basis of the aggregate number of Read-mor Shares
represented by such Read-mor Share Certificates.
(c) Issuance of Unimag Debentures. At the Closing, upon the
delivery of the Read-mor Share Certificates evidencing all of the Read-
mor Shares owned by each Read-mor Shareholder pursuant to Section 2.2(a),
Unimag shall issue to each Read-mor Shareholder the Unimag Debentures
which such Read-mor Shareholder is entitled to receive as described in
Section 2.1.
(d) Distributions with Respect to Unexchanged Shares. The Read-mor
Shareholders shall have no rights as shareholders of Unimag and no rights
as debentureholders of Unimag (except that the Debenture Agreement shall
provide that interest will begin accruing under both the Unimag Senior and
Subordinated Debentures effective as of July 1, 1996) until they have
exchanged their Read-mor Shares, and no dividends or other distributions
or payments with respect to Unimag Shares or Unimag Debentures having a
record date either before or after the Closing shall be paid to the holder
of any delivered Read-mor Share Certificate until such holder delivers
such certificate.
(e) Unimag Shares to be Restricted Securities. The Unimag Shares to
be received by the Read-mor Shareholders in the Exchange shall be
restricted securities within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Act"). The Read- mor
Shareholders understand and agree that such shares may not be sold,
5
<PAGE> 12
pledged, hypothecated or otherwise transferred unless such shares are
registered under the Act or pursuant to an opinion of counsel, which
opinion and counsel are reasonably acceptable to Unimag and its counsel,
that an exemption from such registration is available. The Read- mor
Shareholders agree that the following legend may be placed on the
certificates for the Unimag Shares to be received by them and that
appropriate stop-transfer instructions may be given to Unimag's transfer
agent and registrar:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED, UNLESS THEY ARE AT THE
TIME SO REGISTERED, OR THE SALE OR TRANSFER THEREOF IS NOT
REQUIRED TO BE SO REGISTERED, OR IS MADE PURSUANT TO THE
APPLICABLE EXEMPTION FROM REGISTRATION PROVIDED IN THE
SECURITIES ACT OF 1933, AS AMENDED, OR IN THE RULES OR
REGULATIONS THEREUNDER.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF UNIMAG
In order to induce Read-mor and the Read-mor Shareholders to
enter into this Agreement, Unimag hereby represents and warrants to Read-mor
and the Read-mor Shareholders that the statements set forth in this Article 3
are true, correct and complete.
Section 3.1 ORGANIZATION AND STANDING. Unimag is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise), to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated, and conducted. Unimag is duly qualified to
do business and is in good standing in each state where the nature of the
business or other activities conducted by Unimag or the properties it owns,
leases, or operates requires it to qualify to do business as a foreign
corporation, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, assets, properties, or
condition (financial or otherwise) of Unimag. Unimag is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 3.2 CORPORATE POWER AND AUTHORITY. Unimag has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Unimag (except for
final approval by the board of directors and the shareholders of Unimag to be
obtained after the date of this Agreement). This
6
<PAGE> 13
Agreement has been duly executed and delivered by Unimag and constitutes a
legal, valid, and binding obligation of Unimag, enforceable against Unimag in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, or other similar laws from time to time in
effect which may affect the enforcement of creditors' rights in general, and
(b) general principles of equity.
Section 3.3 CAPITALIZATION OF UNIMAG. As of the date of this
Agreement, Unimag's authorized capital stock consists solely of 53,250,000
Unimag Shares of which (a) 27,660,334 shares are issued and outstanding and (b)
16,074,718 shares are issued and held as treasury shares. Each outstanding
Unimag Share is, and all Unimag Shares to be issued in connection with the
Exchange will be, duly authorized, validly issued, fully paid, and
nonassessable. Read-mor and the Read-mor Shareholders acknowledge that prior
to the Closing, Unimag may (i) authorize additional capital stock, including
additional Unimag Shares, or (ii) reduce the number of outstanding Unimag
Shares by means of a reverse stock split, or any other method which would
result in a reduction in the number of outstanding Unimag Shares. Unimag will
deliver written notice to Read-mor and the Read-mor Shareholders if it
authorizes any such action. Except as otherwise described in this Agreement,
and except as disclosed in Schedule 3.3, Unimag has not entered into any
agreement which would require it to reduce or increase the number of Unimag
Shares outstanding. In the event that Unimag authorizes a reverse stock split
or other reduction in the number of outstanding Unimag Shares, then the $1.50
agreed upon price of a Unimag Share for purposes of the exchange of Read-mor
Shares for Unimag Shares pursuant to Section 2.1 shall be proportionately
adjusted with the objective that the Read-mor Shareholders, in the aggregate,
shall have the right to receive the same proportionate ownership interest in
Unimag as before the reduction in the number of outstanding Unimag Shares.
Read-mor and the Read-mor Shareholders also acknowledge that prior to the
Closing, Unimag will have issued Unimag Shares and Unimag Debentures to
Michiana, Stoll and certain of the Scherer Companies (all defined in Section
5.3(c)) and that such issuances will have no affect whatsoever on the amount of
Unimag Shares and Unimag Debentures to be issued to the Read-mor Shareholders
in connection with the Exchange.
Section 3.4 CONFLICTS; CONSENTS; AND APPROVALS. Neither the
execution and delivery of this Agreement by Unimag nor compliance by Unimag
with the terms and provisions of this Agreement, including without limitation
the consummation of the transactions contemplated by this Agreement, shall:
(a) Violate, conflict with, result in a violation or
breach of any provision of, constitute a default (or an event which,
with the giving of notice, the passage of time, or otherwise, would
constitute a default) under, entitle any third party (with the giving
of notice, the passage of time, or otherwise) to terminate,
accelerate, or declare a default under, or result in the creation of
any lien, security interest, charge, or other encumbrance upon any of
the properties or assets of Unimag under any of the terms or
conditions of the articles of incorporation or code of regulations of
Unimag, or under any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking,
7
<PAGE> 14
agreement, lease, or other instrument or obligation to which Unimag is
a party and which is material to Unimag and its subsidiaries, taken as
a whole;
(b) Violate any order, writ, injunction, decree, statute,
rule, or regulation, applicable to Unimag or its respective properties
or assets; or
(c) Require any action, consent, or approval of, review
by, or registration with any third party, court, governmental body, or
other agency, instrumentality, or authority, other than (i) actions
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the
"HSR Act"), (ii) actions to be taken in respect of federal and state
securities laws as contemplated by this Agreement, and (iii) approval
by the shareholders of Unimag.
Section 3.5 LITIGATION. Except as disclosed in Schedule 3.5:
(a) there is no (and over the last three years there have been no) suits,
claims, actions, proceedings, or investigations (collectively, "Actions")
pending or, to the best knowledge of Unimag, threatened against Unimag or any
of its subsidiaries in which the amount in dispute exceeds (or exceeded)
$25,000, or which has or could result in liability or loss for Unimag or any of
its subsidiaries of more than $25,000, or which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on Unimag and
its subsidiaries, taken as a whole, or a material adverse effect on the ability
of Unimag to consummate the Exchange and other transactions contemplated by
this Agreement; and (b) to the best knowledge of Unimag, there exist no
disputes, conflicts or circumstances providing the basis for a dispute or
conflict which could reasonably be expected to result in any such Action.
Neither Unimag nor any subsidiary is subject to any outstanding judgment,
order, writ, injunction, or decree which, individually or in the aggregate, has
a reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition (financial or otherwise), or
prospects of Unimag, or a material adverse effect on the ability of Unimag to
consummate the Exchange or other transactions contemplated by this Agreement.
Section 3.6 BROKERAGE AND FINDER'S FEES. Neither Unimag nor any
of its shareholders, directors, officers, or employees has incurred any
brokerage, finder's, or similar fee in connection with the Exchange and other
transactions contemplated by this Agreement.
Section 3.7 UNIMAG 10-K AND 10-Q. Unimag has previously made
available to Read-mor and the Read-mor Shareholders true, correct, and complete
copies of Unimag's most recent 10-KSB for the fiscal year ending September 30,
1995 (the "10-K"), and Unimag's most recent 10-QSB for the fiscal quarter
ending June 30, 1996 ("10-Q"), both of which have been filed with the
Securities and Exchange Commission ("SEC"). The financial statements of Unimag
included in the 10-K and 10-Q have been prepared from and in accordance with
the books and records of Unimag and in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the 10-Q,
as permitted by the SEC under the Securities and Exchange Act of 1934, as
amended) and fairly present (subject, in the case of the 10-Q, to normal and
recurring audit
8
<PAGE> 15
adjustments) the consolidated financial position of Unimag and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Section 3.8 TAXES. Unimag has duly paid, or caused to be paid,
all taxes, assessments, fees, and other governmental charges (hereinafter,
"taxes") payable by Unimag or its subsidiaries. Unimag has duly filed, or
caused to be filed, all federal, state, local and foreign tax returns and tax
reports required to be filed by it or its subsidiaries and all such returns and
reports are true, correct, and complete. There is no pending or, to the best
knowledge of Unimag, threatened federal, state, local or foreign tax audit or
assessment relating to it or its subsidiaries and there is no agreement with
any federal, state, local, or foreign tax authority that may affect the
subsequent tax liabilities of Unimag and its subsidiaries.
Section 3.9 UNDISCLOSED LIABILITIES. Unimag has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent, or otherwise and whether due or to become due) except:
(a) Those set forth or reflected in the 10-Q or the
financial statements therein set forth, which have not been paid or
discharged since the date thereof;
(b) Current liabilities (determined in accordance with
generally accepted accounting principles) incurred since June 30,
1996, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
which are not inconsistent with the other representations, warranties
and agreements of Unimag set forth in this Agreement; and
(c) Liabilities which, consistent with generally accepted
accounting principles, are not required to be reflected in its
financial statements.
Section 3.10 COMPLIANCE WITH LAW. To the best knowledge of
Unimag, Unimag has complied and is in compliance in all material respects with
all laws, statutes, ordinances, orders, rules and regulations promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to it or to its businesses or properties.
Section 3.11 NO MATERIAL ADVERSE CHANGE. Since the filing of the
10-Q with the SEC, there has been no material adverse change in the properties,
assets, liabilities, business, results of operations, or condition (financial
or otherwise) of Unimag. Unimag is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any entity.
Section 3.12 SECTION 351 EXCHANGE. It is the intention of Unimag
to treat the acquisition of Read-mor pursuant to this Agreement along with
other exchanges and acquisitions occurring
9
<PAGE> 16
before and after the closing of the transactions contemplated by this
Agreement, as an exchange under Section 351 of the Code, subject to the rules
of Section 351 of the Code and the regulations promulgated thereunder
applicable to the receipt and taxability of "boot" (within the meaning of such
rules). Unimag shall be solely responsible for evaluating (and determining the
appropriate methods required for reporting) all federal, state, and local
income and other tax consequences to Unimag which will and may result from the
transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
READ-MOR AND THE READ-MOR SHAREHOLDERS
In order to induce Unimag to enter into this Agreement,
Read-mor and each of the Read-mor Shareholders hereby jointly and severally
represent and warrant to Unimag that the statements contained in this Article 4
are true, correct, and complete.
Section 4.1 ORGANIZATION AND STANDING. Read-mor is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio with full power and authority (corporate and otherwise) to own,
lease, use, and operate its properties and to conduct its business as and where
now owned, leased, used, operated and conducted. Read-mor is duly qualified to
do business and is in good standing in each state listed in Schedule 4.1, is
not qualified to do business in any other state and, except as set forth in
Schedule 4.1, neither the nature of the business or other activities conducted
by Read-mor nor the properties it owns, leases, or operates requires it to
qualify to do business as a foreign corporation in any other state, except
where the failure to be so qualified would not have a material adverse effect
on the business, operations, assets, properties, condition (financial or
otherwise) or prospects of Read-mor. Read-mor has not received any written
notice or assertion within the last three years from any governmental official
in any state to the effect that Read-mor is required to be qualified or
authorized to do business in a state in which Read-mor is not so qualified or
has not obtained such authorization. Read-mor is not in default or in
violation of the performance, observation or fulfillment of any material
provision of its articles of incorporation or code of regulations.
Section 4.2 CAPITALIZATION AND SECURITY HOLDERS; SUBSIDIARIES.
The authorized capital stock of Read-mor consists solely of (a) 500 common
shares, voting, without par value, (i) 300 of which are issued and outstanding
and (ii) none of which are held as treasury shares. Schedule 4.2 contains a
correct and complete list of the names and addresses of all of the shareholders
of Read-mor and indicates all Read-mor Shares owned beneficially and of record
by each such shareholder. Each outstanding Read-mor Share has been duly
authorized and validly issued and
10
<PAGE> 17
is fully paid and nonassessable, and no Read-mor Share has been issued in
violation of preemptive or similar rights. Except as set forth and briefly
described in Schedule 4.2, there are no outstanding subscriptions, options,
warrants, puts, calls, agreements, understandings, claims, or other commitments
or rights of any type relating to the issuance, sale, or transfer by Read-mor
or any Read-mor Shareholder of any securities of Read-mor, nor are there
outstanding any securities which are convertible into or exchangeable for
shares of capital stock of Read-mor; and Read-mor has no obligations of any
kind to issue any additional securities. The issuance and sale of all
securities of Read-mor has been in full compliance with all applicable federal
and state securities laws. Read-mor does not own, directly or indirectly, any
equity or other ownership interest in any corporation, partnership, joint
venture, or any other entity or enterprise. Read-mor is not subject to any
obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution, or otherwise) in any entity.
Section 4.3 OWNERSHIP OF SHARES AND AUTHORITY. Except as set
forth and briefly described in Schedule 4.3, all of the Read-mor Shares are
owned free and clear of all liens, security interests, encumbrances, pledges,
charges, claims, voting trusts, and restrictions of any nature whatsoever,
except restrictions on transfer imposed by or pursuant to federal or state
securities laws. Each Read-mor Shareholder owns beneficially and of record all
of the Read-mor Shares disclosed as being owned by him or her on Schedule 4.2,
and each Read-mor Shareholder has the full and unrestricted right, power and
capacity to transfer and deliver the same and to execute this Agreement and
consummate the transactions contemplated by this Agreement without the consent
or approval of any other person. This Agreement has been duly executed and
delivered by each Read-mor Shareholder and constitutes the legal, valid and
binding obligation of each Read-mor Shareholder, enforceable against such
Read-mor Shareholder in accordance with its terms except as such enforceability
may be limited by (a) applicable bankruptcy, insolvency, or other similar laws
from time to time in effect which may affect the enforcement of creditors'
rights in general, and (b) general principles of equity.
Section 4.4 CORPORATE POWER AND AUTHORITY. Read-mor has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the Exchange and other
transactions contemplated by this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Read-mor. This
Agreement has been duly executed and delivered by Read-mor and constitutes the
legal, valid, and binding obligation of Read-mor, enforceable against Read-mor
in accordance with its terms, except as such enforceability may be limited by
(a) applicable bankruptcy, insolvency, or other similar laws from time to time
in effect which may affect the enforcement of creditors' rights in general, and
(b) general principles of equity.
Section 4.5 CONSENTS AND APPROVALS. Except for the consents
described in Schedule 4.5, all of which shall be obtained prior to the Escrow
Closing (unless otherwise agreed by Unimag in writing), neither the execution
and delivery of this Agreement by Read-mor or the Read-mor Shareholders nor the
consummation of the transactions contemplated by this Agreement requires
11
<PAGE> 18
or will require any action, consent, or approval of, review by, or registration
with any third party, court, governmental body, or other agency,
instrumentality, or authority, other than (i) actions required by the HSR Act,
and (ii) actions to be taken in respect of federal and state securities laws as
contemplated by this Agreement.
Section 4.6 FINANCIAL STATEMENTS. Read-mor has furnished to
Unimag the balance sheet of Read-mor as of December 31, 1995, and the related
statements of income, changes in shareholders' equity, and cash flows for the
fiscal year then ended, including, in each case, the related notes
(collectively, the "Compiled Statements"). The Compiled Statements have been
prepared from and are in accordance with the books and records of Read-mor, and
fairly present in all material respects the financial condition of Read-mor as
of the date stated and the results of operations of Read-mor for the period
then ended in accordance with such practices.
Section 4.7 UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 4.7, Read-mor has no liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent, or otherwise and
whether due or to become due) except:
(a) Those set forth or reflected in the Compiled
Statements which have not been paid or discharged since the date thereof;
(b) Current liabilities (determined in accordance with
generally accepted accounting principles) incurred since December 31,
1995, in transactions in the ordinary course of business consistent
with past practices which are properly reflected on its books and
which are not inconsistent with the other representations, warranties,
and agreements of Read-mor and the Read-mor Shareholders set forth in
this Agreement; and
(c) Liabilities which, consistent with generally accepted
accounting principles, are not required to be reflected in the
Compiled Statements.
Section 4.8 ABSENCE OF CERTAIN CHANGES. Except as expressly
provided for or permitted under Section 5.2(a) or Section 5.2(f) of this
Agreement, or as set forth in Schedule 4.8, since December 31, 1995, there has
not been:
(a) Any material adverse change in the business,
operations, assets, properties, customer base, prospects, rights, or
condition (financial or otherwise) of Read-mor or any occurrence,
circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change;
(b) Any declaration, setting aside, or payment of any
dividend or any distribution (in cash or in kind) to any Read-mor
Shareholder, or any direct or indirect redemption, purchase, or other
acquisition by Read-mor of any of its capital stock, or any options,
warrants, rights, or agreements to purchase or acquire such stock;
12
<PAGE> 19
(c) Any increase in amounts payable by Read-mor to or for
the benefit of, or committed to be paid by Read-mor to or for the
benefit of, any shareholder, director, officer, or other consultant,
agent, or employee of Read-mor whose total annual compensation exceeds
$50,000 or any relatives of such person, or any increase in any
benefits granted under any bonus, stock option, profit-sharing,
pension, retirement, severance, deferred compensation, group health,
insurance, or other direct or indirect benefit plan, payment or
arrangement made to, with, or for the benefit of any such person;
(d) Any transaction entered into or carried out by
Read-mor other than in the ordinary and usual course of business
consistent with past practices;
(e) Any borrowing or agreement to borrow funds by
Read-mor, any incurring by Read-mor of any other obligation or
liability (contingent or otherwise), except liabilities incurred in
the usual and ordinary course of Read-mor's business (consistent with
past practices), or any endorsement, assumption or guarantee of
payment or performance of any loan or obligation of any other person
or entity by Read-mor;
(f) Any material change in Read-mor's method of doing
business or any change in its accounting principles or practices or
its method of application of such principles or practices;
(g) Any mortgage, pledge, lien, security interest,
hypothecation, charge, or other encumbrance imposed or agreed to be
imposed on or with respect to the property or assets of Read-mor;
(h) Any sale, lease, or other disposition of, or any
agreement to sell, lease, or otherwise dispose of any of the operating
properties or assets of Read-mor, other than sales of inventory in the
usual and ordinary course of business for fair equivalent value to
persons other than directors, officers, shareholders, or other
affiliates of Read-mor;
(i) Any purchase of or any agreement to purchase assets
(other than inventory purchased in the ordinary course of business
consistent with past practices) for an amount in excess of $50,000 for
any one purchase or $100,000 for all such purchases made by Read-mor
or any lease or any agreement to lease, as lessee, any capital assets
with payments over the term thereof to be made by Read- mor exceeding
an aggregate of $100,000;
(j) Any loan or advance made by Read-mor to any person
other than loans made to Read-mor's customers in the ordinary course
of business consistent with past practices not exceeding $50,000, in
the aggregate, to any customer;
(k) Any modification, waiver, change, amendment, release,
rescission, or termination of, or accord and satisfaction with respect
to, any material term, condition, or provision of any contract,
agreement, license, or other instrument to which Read-mor is a
13
<PAGE> 20
party, other than any satisfaction by performance in accordance with
the terms thereof in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance adversely affecting
the business operations or condition (financial or otherwise) of
Read-mor, including without limitation the filing of any petition or
charge of unfair labor practice with any governmental or regulatory
authority, efforts to effect a union representation election, or
actual or threatened employee strike, work stoppage, or slow down.
Section 4.9 TAXES.
(a) Except as set forth and briefly described in Schedule
4.9, Read-mor has duly paid all taxes payable by Read-mor. Read-mor
has duly filed all federal, state, local, and foreign tax returns and
tax reports required to be filed by it and all such returns and
reports are true, correct, and complete. Except as disclosed and
briefly described in Schedule 4.9, since December 31, 1991, none of
such returns and reports have been amended, and except as set forth
and briefly described in Schedule 4.9, all taxes, arising under or
reflected on such returns and reports have been fully paid or were
fully accrued as liabilities in the Compiled Statements and shall be
paid before the Closing. During the last five (5) years, no claim has
been made by authorities in any jurisdiction where Read-mor did not
file tax returns that it is or may be subject to taxation therein.
(b) Read-mor has delivered to Unimag copies of all
federal, state, local, and foreign income tax returns filed with
respect to it for taxable periods ended on or after December 31, 1991.
Schedule 4.9 sets forth the dates and results of any and all audits
conducted by taxing authorities within the last five years or
otherwise with respect to any tax year for which assessment is not
barred by any applicable statute of limitations. No waivers of any
applicable statute of limitations for the filing of any tax returns or
payment of any taxes or assessments of any deficient or unpaid taxes
are outstanding. Except as set forth and briefly described in
Schedule 4.9, all deficiencies proposed as a result of any audits have
been paid or settled or have been fully accrued as liabilities in the
Compiled Statements and shall be paid before the Closing. Except as
set forth and briefly described in Schedule 4.9, there is no pending
or, to the best knowledge of Read-mor and the Read-mor Shareholders,
threatened federal, state, local, or foreign tax audit or assessment
relating to Read-mor, and there is no agreement with any federal,
state, local, or foreign taxing authority that may affect the
subsequent tax liabilities of Read-mor.
(c) Except as set forth and briefly described in Schedule
4.9, all taxes attributable to the existence or operation of Read-mor
as at or through December 31, 1995 are, to the extent not already
paid, accurately reflected in the Compiled Statements.
(d) Except as set forth and briefly described in Schedule
4.9, there exists no tax-sharing agreement or arrangement pursuant to
which Read-mor is obligated to pay the
14
<PAGE> 21
tax liability of any other person or entity or to indemnify any other
person or entity with respect to any tax.
(e) Schedule 4.9 includes a list of all states,
territories and jurisdictions to which any tax is properly payable by
Read-mor.
Section 4.10 COMPLIANCE WITH LAW. Except as disclosed and briefly
described in Schedule 4.10, to the best knowledge of Read-mor and the Read-mor
Shareholders, Read-mor has complied and is in compliance in all material
respects with all nonenvironmental (environmental matters being addressed in
Section 4.15) laws, statutes, ordinances, orders, rules and regulations
promulgated, and all judgments, decisions, and orders entered, by any federal,
state, local, or foreign court or governmental authority or instrumentality
which are applicable or relate to it or to its business or properties including
without limitation: (a) all zoning, fire, safety, and building laws,
ordinances, regulations, and requirements; (b) Title VII of the Civil Rights
Act of 1964, as amended; (c) the Fair Labor Standards Act, as amended; (d) the
Occupational Safety and Health Act of 1970, as amended; (e) the Americans with
Disabilities Act of 1990; (f) all applicable federal, state and local laws,
rules and regulations relating to employment; (g) all applicable laws, rules
and regulations governing payment of minimum wages and overtime rates, and the
withholding and payment of taxes from compensation of employees; (h) federal
and state antitrust and trade regulation laws applicable to competition
generally or to agreements restricting, allocating, or otherwise affecting
geographic or product markets; and (i) the Controlled Substances Act
(collectively, the "Applicable Laws"). To the best knowledge of Read-mor and
the Read-mor Shareholders, Read-mor has all franchises, licenses, permits,
covenants, authorizations, approvals, and certifications necessary or
appropriate for the operation of its business or the ownership of its
properties. Schedule 4.10 includes a list of all material franchises,
licenses, permits, consents, authorizations, approvals, and certificates owned
or held by Read-mor (collectively, the "Permits"), each of which is currently
valid and in full force and effect. To the best knowledge of Read-mor and the
Read-mor Shareholders, Read-mor is not in violation of any of the Permits, and
there is no pending nor, to the best knowledge of Read-mor and the Read-mor
Shareholders, any threatened proceeding which could result in the revocation,
cancellation or inability of Read-mor to renew any Permit. Except as disclosed
and briefly described in Schedule 4.10, Read- mor has not been charged with or
given actual notice of any violation of any of the Applicable Laws which
violation has not been remedied in full (without any remaining liability of
Read-mor).
Section 4.11 PROPRIETARY RIGHTS. Schedule 4.11 sets forth:
(a) All material names, patents, inventions, trade
secrets, proprietary rights, computer software, trademarks, trade
names, service marks, logos, copyrights, and franchises and all
applications therefor, registrations thereof, and licenses,
sublicenses, or agreements in respect thereof which Read-mor owns, has
the right to use, or to which Read-mor is a party; and
15
<PAGE> 22
(b) All filings, registrations, or issuances of any of
the foregoing with or by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices (all
items in (a) and (b) of this Section 4.11, together with the customer
lists described below, being sometimes hereinafter referred to
collectively as the "Proprietary Rights").
Except as set forth in Schedule 4.11, Read-mor is, to
the best knowledge of Read-mor and the Read-mor Shareholders, the sole
and exclusive owner of all right, title, and interest in and to all
Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances, and restrictions whatsoever,
and there is not pending or, to the best knowledge of Read-mor and the
Read-mor Shareholders, threatened any investigation, proceeding,
inquiry, or other review by any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices with
respect to Read-mor's right, title, or interest in any Proprietary
Right.
Other than those Proprietary Rights listed in
Schedule 4.11, no name, patent, invention, trade secret, customer
list, proprietary right, computer software, trademark, trade name,
service mark, logo, copyright, franchise, license, sublicense, or
other such right is necessary for the operation of the business of
Read-mor in substantially the same manner as such business is
presently conducted. To the best knowledge of Read-mor and the
Read-mor Shareholders, the business of Read-mor has not been and is
not being conducted in contravention of any trademark, copyright, or
other proprietary right of any person or entity.
Except as set forth in Schedule 4.11, none of the
Proprietary Rights: (i) has been hypothecated, sold, assigned, or
licensed by Read-mor, or to the best knowledge of Read-mor and the
Read-mor Shareholders, any other person or entity; (ii) to the best
knowledge of Read-mor and the Read-mor Shareholders, infringes upon or
violate the rights of any person or entity; (iii) to the best
knowledge of Read-mor and the Read-mor Shareholders, is subject to
challenge, claims of infringement, unfair competition, or other
claims; or (iv) to the best knowledge of Read-mor and the Read-mor
Shareholders, is being infringed upon or violated by any person or
entity. Except as set forth in Schedule 4.11, Read-mor has not given
any indemnification against patent, trademark, or copyright
infringement as to any equipment, materials, products, services, or
supplies which Read-mor uses, licenses, or sells. To the best
knowledge of Read-mor and the Read-mor Shareholders, no product,
process, method, or operation presently sold, engaged in, or employed
by Read-mor infringes upon any rights owned by any other person or
entity. There is not pending or, to the best knowledge of Read-mor
and the Read-mor Shareholders, threatened any claim or litigation
against Read-mor contesting the right of Read-mor to sell, engage in,
or employ any such product, process, method, or operation.
Except as set forth in Schedule 4.11, Read-mor has
exclusive rights to own and use the computer software used by it (the
"Software"). Schedule 4.11 lists and briefly describes, all material
licenses, agreements, documents, and other materials relating to the
Software and to Read-mor's rights therein. Except as set forth in
Schedule
16
<PAGE> 23
4.11, Read-mor has not licensed or otherwise authorized any other
person to use or make use of all or any part of the Software, nor
granted, assigned, or otherwise conveyed any right in or to the
Software.
Section 4.12 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of
the matters listed in Schedule 4.12, Read-mor is not a party to or bound under
any mortgage, lien, lease, agreement, contract, instrument, law, order,
judgment or decree, or any similar restriction not of general application which
materially and adversely affects, or reasonably could be expected to so affect
(a) the business, operations, assets, properties, prospects, rights, or
condition (financial or otherwise) of Read-mor; (b) the continued operation by
Unimag of Read-mor's business after the Closing Date on substantially the same
basis as such business is currently operated; or (c) the consummation of the
transactions contemplated by this Agreement.
Section 4.13 INSURANCE. Read-mor has been and is insured with
respect to its properties and the conduct of its business in such amounts and
against such risks as are sufficient for compliance with applicable law and as
are adequate to protect its property and business in accordance with normal
industry practice. Such insurance is and has been provided by insurers
unaffiliated with Read-mor, which insurers are, to the best knowledge of
Read-mor and the Read-mor Shareholders, financially sound and reputable. Set
forth in Schedule 4.13 is a true, correct, and complete list of all insurance
policies and bonds in force in which Read-mor is named as an insured party, or
for which Read-mor has paid any premiums, and such list correctly states the
name of the insurer, the name of each insured party, the type and amount of
coverage, deductible amounts, if any, the expiration date, and the premium
amount of each such policy or bond. Except as disclosed in Schedule 4.13, all
such policies or bonds are currently in full force and effect and no notice of
cancellation or termination has been received by Read-mor with respect to any
such policy. Read-mor will continue all of such insurance in full force and
effect through the Closing Date. All premiums due and payable on such policies
have been paid. Except as disclosed in Schedule 4.13, Read-mor is not a
co-insurer under any term of any insurance policy.
Section 4.14 BANK ACCOUNTS, DEPOSITORIES; POWERS OF ATTORNEY. Set
forth in Schedule 4.14 is a true, correct, and complete list of the names and
locations of all banks or other depositories in which Read-mor has accounts or
safe deposit boxes, and the names of the persons authorized to draw thereon,
borrow therefrom, or have access thereto. Except as set forth in Schedule
4.14, no person has a power of attorney from Read-mor.
Section 4.15 TITLE TO AND CONDITION OF PROPERTIES. Except as set
forth in Schedule 4.15, Read-mor has good, valid, and indefeasible title to all
of its assets and properties of every kind, nature, and description, tangible
or intangible, wherever located, which constitute all of the property now used
in and necessary for the conduct of its business as presently conducted
(including without limitation all operating property and assets shown or
reflected on the Compiled Statements, except inventory sold in the ordinary
course of business). Except as set forth in Schedule 4.15, to the best
knowledge of Read-mor and the Read-mor Shareholders, all such properties are
owned
17
<PAGE> 24
free and clear of all mortgages, pledges, liens, security interests,
encumbrances, and restrictions of any nature whatsoever, including without
limitation: (a) rights or claims of parties in possession; (b) easements or
claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes, or any other matters; (d) any lien or right to a lien for
services, labor, or material furnished; (e) special tax or other assessments;
(f) options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties; and (h)
violations of any Applicable Laws applicable to such properties. To the best
knowledge of Read-mor and the Read-mor Shareholders, all such properties are
usable for their current uses without violating any Applicable Laws, or any
applicable private restriction, and such uses are legal conforming uses.
Except as set forth in Schedule 4.15, no financing statement under the Uniform
Commercial Code or similar law naming Read-mor or any of its predecessors is on
file in any jurisdiction in which Read-mor owns property or does business, and
Read-mor is not a party to or bound under any agreement or legal obligation
authorizing any party to file any such financing statement. Schedule 4.15
contains a complete and accurate list of the location of all real property
which is owned, leased, or operated by Read-mor and describes the nature of
Read-mor's interest in that real property. With respect to any real property
leased by Read-mor, Read- mor, except as set forth in Schedule 4.15, has an
insurable leasehold interest in that real property.
Except as set forth in Schedule 4.15, to the best knowledge of
Read-mor and the Read-mor Shareholders, all real property and structures, all
machinery and equipment, and all tangible personal property owned, leased or
used by Read-mor and material to the operation of its business are reasonably
suitable for the purpose or purposes for which they are being used (including
full compliance with all Applicable Laws) and are in good condition and repair,
ordinary wear and tear excepted. Except as set forth in Schedule 4.15, to the
best knowledge of Read-mor and the Read-mor Shareholders, there are no material
structural defects in the exterior walls or the interior bearing walls, the
foundation, or the roof of any building, garage or other such structure owned,
leased, or used by Read-mor, and, to the best knowledge of Read- mor and the
Read-mor Shareholders, the electrical, plumbing, heating systems, and air
conditioning systems, of any such structure are in good operating condition,
ordinary wear and tear excepted. The utilities servicing the real properties
owned, leased, or used by Read-mor are adequate to permit the continued
operation of its business, and there are no pending or, to the best knowledge
of Read-mor and the Read-mor Shareholders, threatened zoning, condemnation or
eminent domain proceedings, building, utility, or other moratoria, or
injunctions or court orders which would materially and adversely affect such
continued operation. Schedule 4.15 lists, and Read-mor and the Read-mor
Shareholders have furnished or made available to Unimag, copies of all
engineering, geologic, and environmental reports prepared by or for Read-mor or
with respect to the real property owned, leased or used by Read-mor in their
possession which Read-mor and the Read-mor Shareholders have been able to
reasonably locate after conducting a good-faith review.
Except as set forth in Schedule 4.15, no real or personal
property owned, leased, or used by Read-mor has been used to produce, process,
store, handle, or transport any hazardous or toxic substance or waste (as those
terms are defined or described in any of the applicable laws relating to the
protection, preservation, conservation, restoration, or quality of
18
<PAGE> 25
the environment), except to the extent immaterial quantities of hazardous
substances are used as an incidental aspect of the operation of its business.
Except as set forth in Schedule 4.15, no hazardous or toxic substance or waste
has been disposed of, released or discharged on, leaked from, or has otherwise
contaminated any real property owned, leased, or used by Read-mor. Except as
set forth in Schedule 4.15, no asbestos or substances containing material
quantities of asbestos have been installed in any such property. Except as set
forth in Schedule 4.15, there are no oil or gas wells capped or uncapped or
piping, structures, fixtures or other appliances relating thereto on or about
any such property and no such property has been used as a landfill.
Section 4.16 BROKERS AND FINDERS. No investment banker, broker,
finder, or other intermediary: (a) has been retained by or is authorized to act
on behalf of Read-mor or the Read-mor Shareholders; (b) has submitted the
transactions contemplated by this Agreement to Read-mor or the Read-mor
Shareholders; or (c) is or might be entitled to any fee, commission, or other
payment from Read-mor or any Read-mor Shareholder as a direct or indirect
result of the transactions contemplated by this Agreement
Section 4.17 LEGAL PROCEEDINGS. Except as described in Schedule
4.17: (a) there are no (and over the last three years there have been no)
Actions pending or, to the best knowledge of Read-mor and the Read-mor
Shareholders, threatened against or relating to Read-mor (or any of its
officers, directors, shareholders, agents, or representatives in connection
with the business or affairs of Read-mor), before any federal, state, local, or
foreign court or governmental body in which the amount in dispute exceeds (or
exceeded) $25,000 or which has or could result in liability or loss for
Read-mor or any Read-mor Shareholder of more than $25,000; and (b) to the best
knowledge of Read-mor and the Read-mor Shareholders, there exist no disputes,
conflicts, or circumstances providing the basis for a dispute or conflict which
could reasonably be expected to result in any such Action. There are no
Actions pending or, to the best knowledge of Read-mor and the Read-mor
Shareholders, threatened for the purpose of enjoining or preventing this
Agreement or any other transaction contemplated by this Agreement or otherwise
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as disclosed in Schedule 4.17, Read-mor is not subject to
any judgment, order or decree, or any governmental restriction, which has a
reasonable probability of having a material adverse effect on the business
operations, assets, properties, condition (financial or otherwise), or
prospects of Read-mor.
Section 4.18 ERISA.
(a) Schedule 4.18(a) identifies each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") which (i) is subject to any provision
of ERISA, and (ii) is or was at any time during the last 5 years
maintained, administered, or contributed to by Read-mor or any
affiliate (as defined below) and covers any employee or former
employee of Read-mor or any affiliate or under which Read-mor or any
affiliate has any liability. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto have
been furnished to Unimag together with the three most recent annual
reports (Form 5500 and all related
19
<PAGE> 26
schedules) and actuarial valuation reports, if any, prepared in
connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans". For purposes of this
section, "affiliate" of any person or entity means (A) any other
person or entity which, together with such person or entity, would be
treated as a single employer under Section 414 of the Internal Revenue
Code of 1986, as amended (the "Code"), or (B) is an "affiliate,"
whether or not incorporated, as defined in Section 407(d)(7) of ERISA,
of such person or entity. The only Employee Plans which individually
or collectively would constitute an "employee pension benefit plan" as
defined in Section 3(2) of ERISA (the "Pension Plans") are identified
as such on Schedule 4.18(a).
(b) Except as set forth in Schedule 4.18(b), no Employee
Plan constitutes a "multiemployer plan," as defined in Section 3(37)
of ERISA, or a "defined benefit plan," as defined in Section 3(35) and
subject to Title IV of ERISA, nor does Read-mor have any obligation to
create, maintain, or contribute to any such "multiemployer plan" or
"defined benefit plan". No Employee Plan is maintained in connection
with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the
Code, has been incurred with respect to any Employee Plan, whether or
not waived. Full payment has been made of all amounts which Read-mor
is required to have paid as contributions to or benefits under any
Employee Plan as of the end of the most recent fiscal year thereof,
and there are no unfunded obligations under any Employee Plan.
Read-mor knows of no "reportable event," within the meaning of Section
4043 of ERISA, and no event described in Section 4041, 4042, 4062 or
4063 of ERISA has occurred in connection with any Employee Plan. No
condition exists and no event has occurred which could constitute
grounds for termination of any Employee Plan, and neither Read-mor nor
any of its affiliates has incurred any material liability under Title
IV of ERISA arising in connection with the termination of, or complete
or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any
Employee Plan has or will make Read-mor, or any officer or director of
Read-mor, subject to any liability under Title I of ERISA or liable
for any tax pursuant to Section 4975 of the Code. There is no pending
or, to the best knowledge of Read-mor and the Read-mor Shareholders,
threatened litigation, arbitration, disputed claim, adjudication,
audit, examination, or other proceeding with respect to any Employee
Plan or any fiduciary or administrator thereof in their capacities as
such.
(c) Except as set forth in Schedule 4.18(c), each
Employee Plan which is intended to be qualified under Section 401(a)
of the Code is, to the best knowledge of Read-mor and the Read-mor
Shareholders, so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. Read-mor has
furnished to Unimag copies of the most recent Internal Revenue Service
determination letters with respect to each such plan for which it is
the plan sponsor. Except as set forth in Schedule 4.18(c), to the
best knowledge of Read-mor and the Read-mor Shareholders, each
Employee Plan has been maintained in compliance with its terms and the
requirements prescribed by any and all
20
<PAGE> 27
statutes, orders, rules, and regulations, including but not limited to
ERISA and the Code, which are applicable to such plan.
(d) Except as set forth in Schedule 4.18(d), there is no
contract, agreement, plan, or arrangement covering any employee or
former employee of Read-mor or any affiliate that, individually or
collectively, could give rise to the payment of any amount that would
not be deductible pursuant to the terms of the Code.
(e) Schedule 4.18(e) identifies each employment,
severance, or other similar contract, arrangement, or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, or for deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not
an Employee Plan, (ii) is entered into, maintained, or contributed to,
as the case may be, by Read-mor or any of its affiliates, and (iii)
covers any employee or former employee of Read-mor or any of its
affiliates. Such contracts, plans, and arrangements as are described
above, copies or descriptions of which have been furnished previously
to Unimag, are referred to collectively herein as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with requirements prescribed
by any and all statutes, orders, rules, and regulations that are
applicable to such Benefit Arrangement.
(f) Except as set forth in Schedule 4.18(f), there is no
liability in respect of post-retirement health and medical benefits
for current or retired employees of Read-mor or any of its affiliates.
Except as set forth in Schedule 4.18(f), Read-mor has reserved its
right to amend or terminate any Employee Plan or Benefit Arrangement
providing health or medical benefits in respect of any active employee
of Read-mor under the terms of any such plan and descriptions thereof
given to employees. With respect to any of Read-mor's Employee Plans
which are "group health plans" under Section 4980B of the Code and
Section 607(1) of ERISA, there has been substantial compliance with
all requirements imposed thereunder .
(g) Except as set forth in Schedule 4.18(g), there has
been no amendment to, written interpretation, or announcement (whether
or not written) by Read-mor or any of its affiliates relating to any
Employee Plan or Benefit Arrangement which would increase the expense
of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year
ended immediately prior to the Closing Date.
(h) Except as set forth in Schedule 4.18(h), Read-mor is
not a party or subject to any union contract or any material
employment contract or arrangement providing for
21
<PAGE> 28
annual future compensation of more than $25,000 to any officer,
consultant, director or employee, except for employment agreements to
be entered into as provided in Section 6.1(g).
(i) Except as set forth in Schedule 4.18(i), the
execution, delivery, and consummation of the transactions contemplated
by this Agreement do not constitute a triggering event under any
Employee Plan, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or
may result in any payment (of severance pay or any other type),
acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee, or director of Read-mor.
(j) Any reference to ERISA or the Code or any section
thereof shall be construed to include all amendments thereto and
applicable regulations and administrative rulings issued thereunder.
Section 4.19 CONTRACTS. Schedule 4.19 lists and briefly describes
all contracts, agreements, leases, arrangements, and understandings (written or
oral) ("Contracts") to which Read-mor is a party and which fall within any of
the following categories: (a) Contracts with any of Read-mor's top 20
customers based on Read-mor's revenues for the 12-month period ended June 30,
1996; (b) Contracts not entered into in the ordinary course of Read-mor's
business (including without limitation Contracts with any present or former
shareholder, director, or officer of Read-mor, or any person related by blood
or marriage to any such person, or any person controlling, controlled by, or
under common control with any such person, or with any employee, agent, or
consultant of Read-mor not terminable at will); (c) Contracts which are service
contracts (excluding contracts for delivery services entered into in the
ordinary course of business) or equipment leases involving payments by Read-mor
of more than $10,000 per year; (d) Contracts containing covenants or
restrictions purporting to limit the freedom of Read- mor to compete in any
line of business in any geographic area or to employ or otherwise engage any
person; (e) Contracts which extend beyond one year, unless cancelable on 60 or
fewer days' notice without any liability, penalty, or premium; (f) Contracts
which relate to any borrowings or guarantees in excess of $25,000; (g)
Contracts containing any obligation or commitment which limits the freedom of
Read-mor to sell, lease, or otherwise distribute any product or customer
information; or (h) Contracts which are not listed above but which are material
to the condition (financial or otherwise), operations, assets, prospects, or
business of Read-mor. All such Contracts are valid and binding and in full
force and effect, and, to the best knowledge of Read-mor and the Read-mor
Shareholders, enforceable in accordance with their respective terms in all
material respects. Except as set forth in Schedule 4.19, neither Read-mor nor,
to the best knowledge of Read-mor and the Read-mor Shareholders, any other
party thereto, is in violation of, in default in respect of, nor, to the best
knowledge of Read-mor and the Read-mor Shareholders, has there occurred an
event or condition which, with the passage of time or giving of notice (or
both) would constitute a default under any such Contract.
22
<PAGE> 29
Section 4.20 ACCOUNTS RECEIVABLE. Except as set forth in Schedule
4.20, all accounts and notes receivable (customer, vendor, and other) of
Read-mor as of June 30, 1996, are and will be collectible in full, after
application of a reserve for uncollectible accounts determined in accordance
with generally accepted accounting principles, and are and will be valid and
subsisting (unless previously paid) and represent and will represent sales
actually made (net of all applicable credits and rebates) in the ordinary and
usual course of business consistent with past practices.
From the date of this Agreement through the Closing Date, no
customer or vendor accounts receivable of Read-mor will be converted to notes
receivable or written off without the prior written consent of Unimag.
Section 4.21 NO CONFLICT OR DEFAULT. Except as set forth on
Schedule 4.21, neither the execution and delivery of this Agreement by Read-mor
or the Read-mor Shareholders, nor compliance by Read-mor and the Read-mor
Shareholders with the terms and provisions of this Agreement, including without
limitation the consummation of the transactions contemplated by this Agreement,
will: (a) violate any Applicable Laws or Permits; (b) conflict with or result
in the breach of any term, condition, or provision of (i) the articles of
incorporation, code of regulations, or other organizational document of
Read-mor or (ii) any material agreement, deed, contract, undertaking, mortgage,
indenture, writ, order, decree, restriction, legal obligation, or instrument to
which Read-mor or any Read-mor Shareholder is a party or by which Read-mor or
any Read-mor Shareholder or any of their respective assets or properties are or
may be bound or affected; (c) constitute a default (or an event which, with the
giving of notice, the passage of time, or both, would constitute a default)
thereunder; (d) result in the creation or imposition of any lien, security
interest, charge or encumbrance, or restriction of any nature whatsoever with
respect to any material properties or assets of Read-mor or any Read-mor
Shareholder; or (e) give to others any interest or rights, including rights of
termination, acceleration, or cancellation in or with respect to any of the
material properties, assets, contracts, or business of Read-mor.
Section 4.22 BOOKS OF ACCOUNT; RECORDS. Read-mor's general
ledgers, stock record books, minute books and other material records relating
to the assets, properties, contracts, and outstanding legal obligations of
Read-mor are, in all material respects, complete and correct, and have been
maintained in accordance with good business practices and the matters contained
therein are, to the extent required by generally accepted accounting
principles, accurately reflected in the Compiled Statements, except as may be
set forth in Section 4.6.
Section 4.23 EMPLOYEES AND COMPENSATION. Schedule 4.23 lists and
describes the current compensation of the five most highly compensated managers
of Read-mor and any other employee of Read-mor whose total current salary and
bonus exceeds $50,000. Except as disclosed in Schedule 4.23: (a) there are no
other forms of compensation paid to any such employee of Read-mor; (b) the
amounts accrued or to be accrued on the books and records of Read-mor for
vacation pay, sick pay, and all commissions and other fees payable to agents,
salespersons and representatives of Read-mor will be adequate to cover
Read-mor's liabilities for
23
<PAGE> 30
all such items; (c) Read-mor has not become obligated, directly or indirectly,
to any shareholder, director, or officer of Read-mor or any person related to
any such person by blood or marriage, except for current liability for such
compensation; and (d) to the best knowledge of Read-mor and the Read-mor
Shareholders, no shareholder, director, officer, agent, employee, or
representative of Read-mor or any person related to such person by blood or
marriage holds any position or office with or has any material financial
interest, direct or indirect, in any supplier, customer, or account of, or other
outside business which has material transactions with, Read-mor. Neither
Read-mor nor any Read-mor Shareholder has any agreement or understanding with
any shareholder, director, officer, agent, employee, or representative of
Read-mor which would influence any such person not to become associated with
Unimag from and after the Closing or not to serve Read-mor after the Closing in
a capacity similar to the capacity presently held.
Section 4.24 LABOR RELATIONS. Except as set forth in Schedule
4.24, there is no unfair labor practice complaint against Read-mor pending
before the National Labor Relations Board. Except as set forth in Schedule
4.24, Read-mor is not a party to or bound by any collective bargaining
agreement and there is no labor strike, dispute, slowdown or stoppage, or any
union organizing campaign, actually pending or, to the best knowledge of
Read-mor and the Read-mor Shareholders, threatened against or involving
Read-mor. Except as set forth in Schedule 4.24, no labor grievance has been
filed against Read-mor in the last three years, and no arbitration proceeding
has arisen out of or under a collective bargaining or other labor agreement and
is pending and no claim therefor has been asserted. Except as set forth in
Schedule 4.24, no collective bargaining or other labor agreement is currently
being negotiated by Read-mor and no union or collective bargaining unit
represents any of Read-mor's employees. Read-mor has not experienced any work
stoppage or other material labor difficulty during the past five years.
Section 4.25 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 4.25, no supplier of Read-mor has indicated that it shall stop, or
decrease the rate of, or substantially increase its fees for, supplying
products or services to Read-mor either prior to, or following the consummation
of, the Closing. Schedule 4.25 sets forth a list of all customers which have
terminated their relationships with Read-mor since December 31, 1995, or have
notified Read-mor or the Read-mor Shareholders since December 31, 1995, that
they intend to terminate their relationships with Read-mor. Except as set
forth in Schedule 4.25, Read-mor and the Read-mor Shareholders do not know of
any customers of Read-mor which alone or in the aggregate comprise more than 1%
of actual annualized sales as shown in the Compiled Statements, which have
indicated that they are considering or planning to (a) discontinue being
customers of Read-mor, (b) discontinue being customers of Unimag or Read-mor
after the Escrow Closing or the Closing, or (c) substantially decrease the
amount of their purchasing from Read-mor or Unimag or otherwise materially
alter the terms of such purchasing either before or after the Closing.
Section 4.26 SPECIAL TERMS; PRODUCT WARRANTIES. Schedule 4.26
sets forth the terms and conditions of any credit, discount, or other terms
given by Read-mor to any customer outside the usual and ordinary course of
business.
24
<PAGE> 31
Section 4.27 BUSINESS OF READ-MOR. Read-mor is and since 1970 has
been engaged in the retail book and magazine business and is presently engaged
in no other business whatsoever except as may be incidental to the foregoing.
Section 4.28 INVESTMENT REPRESENTATION. Each of the Read-mor
Shareholders: (a) represents that such Read-mor Shareholder owns beneficially
and of record the number of Read-mor Shares set forth opposite such Read-mor
Shareholder's name on Schedule 4.2; and (b) acknowledges, represents, and
warrants to Unimag that (i) such Read-mor Shareholder is an "accredited
investor," as that term is defined in Regulation D, because he or she has a net
worth at this time in excess of $1 million or had income in each of the two
most recent years in excess of $200,000 and has a reasonable expectation of
reaching the same income level in the current year, or, in the case of a
Read-mor Shareholder that is a trust, because such trust has total assets in
excess of $5,000,000, was not formed for the purpose of the transactions
contemplated by this Agreement, and the investment decision respecting the
Unimag Shares and Unimag Debentures will be directed by a person who has such
knowledge and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of an investment in the Unimag
Shares and Unimag Debentures, (ii) such Read-mor Shareholder has been provided
the opportunity to ask questions and receive answers from Unimag concerning the
business operations and financial condition of Unimag and the terms and
conditions of the transactions described in this Agreement, and to obtain any
additional information necessary to verify the accuracy of information provided
to such Read-mor Shareholder by Unimag, and (iii) is acquiring the Unimag
Shares and Unimag Debentures to be issued pursuant to this Agreement for such
Read-mor Shareholder's own accounts for investment only and not with a view to
the distribution thereof.
Section 4.29 SECTION 351 EXCHANGE. It is the intention of
Read-mor and the Read-mor Shareholders to treat the acquisition of Read- mor
pursuant to this Agreement, along with other exchanges and acquisitions
occurring before and after the closing of the transactions contemplated by this
Agreement, as an exchange under Section 351 of the Code, subject to the rules
of Section 351 of the Code and the regulations promulgated thereunder
applicable to the receipt and taxability of "boot" (within the meaning of such
rules). Read-mor and the Read-mor Shareholders shall be solely responsible for
evaluating (and determining the appropriate methods required for reporting) all
federal, state, and local income and other tax consequences to each of them
which will and may result from the transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1 MUTUAL COVENANTS.
(a) General. Each Party shall use all reasonable efforts
to take all actions and do all things necessary, proper, or advisable
to consummate the Exchange and the other transactions contemplated by
this Agreement, including without limitation using all
25
<PAGE> 32
reasonable efforts to cause the conditions set forth in Article 6 of
this Agreement for which such Party is wholly or partially responsible
to be satisfied as soon as reasonably practicable and to prepare,
execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as
any other Party may reasonably request.
(b) HSR Filings. The Parties shall cooperate with each
other with respect to the preparation and filing of any Notification
and Report Forms and related materials that they may be required to
file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act with respect
to the Exchange and shall promptly make any further filings pursuant
the HSR Act that may be necessary, proper, or advisable.
(c) Other Governmental Matters. Each Party shall use all
reasonable efforts to take any additional action that may be
necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make, or
obtain.
(d) Tax-Free Treatment. Each of the Parties shall use
all reasonable efforts to cause the Exchange to constitute (along with
other exchanges and acquisitions occurring before and after the
Exchange) a tax-free exchange under Section 351 of the Code, subject
to the rules of Section 351 of the Code and the regulations
promulgated thereunder applicable to the receipt and taxability of
"boot" (within the meaning of such rules). Each of the Parties shall
be solely responsible for evaluating (and determining the appropriate
methods required for reporting) all federal, state, and local income
and other tax consequences to each such Party which will and may
result from the transactions contemplated by this Agreement.
Section 5.2 COVENANTS OF READ-MOR AND THE READ-MOR SHAREHOLDERS.
Read-mor and the Read-mor Shareholders, jointly and severally, covenant and
agree that:
(a) Conduct of Business. Except as otherwise expressly
contemplated by this Agreement, from the date of this Agreement until
the Closing (the "Pre-Exchange Period"): (i) neither Read-mor nor any
Read-mor Shareholder shall take or permit to be taken any action or do
or permit to be done anything in the conduct of the business of
Read-mor, or otherwise, that would be contrary to or in breach of any
of the terms or provisions of this Agreement or which would cause any
of their representations and warranties contained in this Agreement to
be or become untrue in any material respect; (ii) Read-mor shall
conduct its business in the ordinary course consistent with past
practices (iii) Read-mor and the Read-mor Shareholders shall permit
Unimag to manage and oversee the business operations of Read-mor as
provided in Section 5.3(b); and (iv) Read-mor and the Read-mor
Shareholders shall use all reasonable efforts to assist Unimag in
preserving the business organization intact, keeping available to
Read-mor and Unimag
26
<PAGE> 33
the present service of Read-mor's employees, and preserving for
Read-mor and Unimag the goodwill of Read-mor's suppliers, customers,
and others with whom business relationships exist. Without limiting
the generality of the foregoing, during the Pre-Exchange Period,
except as otherwise expressly contemplated by this Agreement or with
the prior written consent of Unimag, Read-mor shall not:
(A) Adopt or propose any change in its articles
of incorporation or code of regulations; adjust, split,
combine, or reclassify any of its capital stock; or make any
other changes in its authorized or issued capital stock;
(B) Redeem, purchase, or otherwise acquire any
shares of its capital stock; grant any person or entity any
right to acquire any shares of its capital stock; issue,
deliver, sell, or agree to issue, deliver, or sell, any
additional shares of its capital stock or any other
securities; or enter into any agreement or arrangement with
respect to the sale or voting of its shares of capital stock;
(C) Merge or consolidate with any other person or
entity or acquire a material amount of assets of any other
person or entity except for the acquisition of inventory in
the ordinary course of business consistent with past
practices;
(D) Sell, lease, license, pledge, encumber, or
otherwise dispose of any operating assets other than sales of
inventory in the ordinary course of business consistent with
past practices;
(E) Incur, create, assume, or otherwise become
liable for any indebtedness other than indebtedness incurred
in the ordinary course of business consistent with past
practices;
(F) Except for those arrangements disclosed in
Schedule 5.2(a), enter into or modify any employment,
severance, termination, or similar agreement or arrangement
with, or grant any bonuses, salary increases, severance, or
termination pay to, any officer, director, consultant, or
employee;
(G) Adopt, amend, or terminate any employee
benefit plan or increase, amend, or terminate any benefits to
officers, directors, consultants, or employees;
(H) Modify in any material way or terminate any
of the contracts listed or required to be listed in Schedule
4.19, except in the ordinary course of business consistent
with past practices;
(I) Except as disclosed in Schedule 4.17, settle
any claims, litigation, or actions, whether now pending or
hereafter made or brought, unless such settlement does not
involve a payment by Read-mor of more than $25,000;
27
<PAGE> 34
(J) Engage in any transaction, or enter into any
agreement, contract, lease, or other arrangement or
understanding, with any affiliate of Read-mor, except for
transactions expressly permitted by this Agreement; or
(K) Agree or commit to do any of the foregoing.
(b) Exclusive Rights. Neither Read-mor nor any Read-mor
Shareholder shall, directly or indirectly, solicit (including without
limitation by way of furnishing or making available any non-public
information concerning the business, properties, or assets of
Read-mor) or engage in negotiations or discussions with, disclose any
of the terms of this Agreement to, accept any offer from, furnish any
information to, or otherwise cooperate, assist, or participate with
any person or organization (other than Unimag and its representatives)
regarding any Acquisition Proposal (defined below), except that any
person or entity making an Acquisition Proposal may be informed of the
restrictions contained in this sentence. Read-mor and the Read-mor
Shareholders shall notify Unimag promptly by telephone, and thereafter
promptly confirm in writing, if any such information is requested
from, or any Acquisition Proposal is received by, Read-mor or any of
the Read-mor Shareholders. For purposes of this Agreement,
"Acquisition Proposal" shall mean any offer or proposal received by
Read-mor or any Read-mor Shareholder prior to the Closing regarding
the acquisition by purchase, merger, lease, or otherwise of any
capital stock of Read-mor, the business of Read-mor, or any material
assets, customer relationships, or other operations of Read-mor.
(c) Access to Records and Other Due Diligence. During
the Pre-Exchange Period, Read-mor shall: (i) make or cause to be made
available to Unimag and its representatives, attorneys, accountants,
and agents, for examination, inspection, and review, the assets and
property of Read-mor and all books, contracts, agreements,
commitments, records, and documents of every kind relating to
Read-mor's business, and shall permit Unimag and its representatives,
attorneys, accountants and agents to have access to the same at all
reasonable times, including without limitation access to all tax
returns filed and in preparation and all review and other accounting
work papers of Read-Mor's accounts and all reports to management and
related responses; and (ii) permit representatives of Unimag to
interview suppliers, customers, and personnel of Read-mor, provided,
however, that a Read-mor representative shall be entitled to be
present at and participate in each such interview.
(d) Disclosures. After the date of this Agreement,
neither Read-mor nor any Read-mor Shareholder shall: (i) disclose to
any person, association, firm, corporation or other entity (other than
Unimag or those designated in writing by Unimag) in any manner,
directly or indirectly, any proprietary information or data relevant
to the business of Read-mor, whether of a technical or commercial
nature; or (ii) use, or permit or assist, by acquiescence or
otherwise, any person, association, firm, corporation, or other entity
(other than Unimag or those designated in writing by Unimag) to use,
in any manner, directly or indirectly, any such information or data,
excepting only use of such data or
28
<PAGE> 35
information as is at the time generally known to the public and which
did not become generally known through any breach of any provision of
this section by Read-mor or any Read-mor Shareholder. Upon the
termination of this Agreement for any reason, Read-mor shall promptly
cause all copies of such information and data in its possession, or in
the possession of the Read-mor Shareholders, to be returned to Unimag.
(e) Employee Retention. Read-mor and the Read-mor
Shareholders understand that in Unimag's view it is essential to the
successful operation of the business of Read-mor that Read-mor assist
Unimag in retaining substantially unimpaired Read-mor's operating
organization. During the Pre-Exchange Period, neither Read-mor nor
any Read-mor Shareholder shall take any action which would induce any
employee or representative of Read-mor (other than himself or herself)
or Unimag not to become or continue as an employee or representative
of Read-mor or Unimag.
(f) Dividends and Distributions. During the Pre-Exchange
Period, except as permitted in Section 5.2(a), Read-mor and the
Read-mor Shareholders shall not permit Read-mor to declare, set aside
or pay any dividend or any distribution (in cash or in kind) to its
shareholders.
(g) Notices of Certain Events. Read-mor and the Read-mor
Shareholders shall promptly notify Unimag of:
(i) Any notice or other communication from any
person or entity alleging that the consent of such person or
entity is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) Any notice or other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement; and
(iii) Any actions, suits, claims, investigations,
or proceedings commenced or, to the knowledge of Read-mor or
any Read-mor Shareholder, threatened against, relating to, or
involving or otherwise affecting Read-mor or any Read-mor
Shareholder, or any of their property which, if in existence
on the date of this Agreement would have been required to have
been disclosed by Read-mor and the Read-mor Shareholders
pursuant to Section 4.17 or which relate to the consummation
of the transactions contemplated by this Agreement.
(h) Title Evidence. Read-mor shall deliver to Unimag as
soon as practicable after the date of this Agreement title opinions,
title reports, or other evidence of title, in form and substance
reasonably satisfactory to Unimag, showing in Read-mor indefeasible
fee simple title in all of the facilities and real property owned by
Read-mor, subject only to such exceptions, encumbrances, or other
matters as are reasonably satisfactory to Unimag.
29
<PAGE> 36
(i) Compiled Financial Statements. The Read-mor
Shareholders shall deliver to Unimag, within 75 days after the Escrow
Closing Date, compiled financial statements for the fiscal year ended
December 31, 1995, and for the fiscal year ending December 31, 1994.
These compiled financial statements shall be prepared from and shall
be in accordance with the books and records of Read-mor, prepared in
conformity with generally accepted accounting principles applied on a
consistent basis, including without limitation the generally accepted
accounting principles set forth on Schedule 2.1(b), but subject to the
exceptions to generally accepted accounting principles also set forth
on Schedule 2.1(b), and fairly present in all material respects the
financial condition of Read-mor as of the dates stated and the results
of operations of Read-mor for the periods then ended in accordance
with such practices. If Arthur Andersen LLP should at any time
determine that in connection with Unimag's reporting requirements to
the SEC the financial statements described above should be audited,
then, in such event, (A) Read-mor shall cause Arthur Andersen LLP to
perform the December 31, 1994 audit and Read-mor shall pay all costs
and expenses incurred in connection with such audit, and (B) Unimag
shall cause Arthur Andersen LLP to perform the December 31, 1995 audit
and Unimag shall pay all costs and expenses incurred in connection
with such audit.
(j) Noncompetition. During the five year period
beginning on the Escrow Closing Date, the Read-mor Shareholders shall
not, directly or indirectly, whether in their own capacity or as a
shareholder or other owner, partner, member, manager, consultant,
creditor or agent of any person, firm, association, organization or
other entity:
(i) Enter into or engage in any business anywhere
in the United States which competes with Unimag's, or any of
its subsidiaries', wholesale and retail magazine, book,
newspaper and sundries distribution and related business (the
"Unimag Business") during such period;
(ii) Solicit customers or business patronage
anywhere in the United States which results in competition with
the Unimag Business; or
(iii) Promote or assist, financially or otherwise,
any person, firm, association, corporation or other entity
engaged in any business which competes with the Unimag Business
anywhere in the United States.
The foregoing covenant shall not be deemed to have been
violated solely by the ownership of shares of any class of capital
stock of any publicly traded corporation involved in the wholesale and
retail magazine, book, newspaper and sundries distribution and related
businesses, so long as the aggregate holdings of any Read- mor
Shareholder in such publicly traded corporation other than Unimag
represents less than 1% of such corporation's outstanding capital
stock.
30
<PAGE> 37
The Read-mor Shareholders acknowledge that (a) the provisions
of this section are fundamental and essential for the protection of
Unimag's legitimate business and proprietary interests, and (b) such
provisions are reasonable and appropriate in all respects.
Section 5.3 COVENANTS OF UNIMAG. Unimag covenants and agrees
that:
(a) Conduct of Unimag's Business. Except as otherwise
expressly contemplated by this Agreement, during the Pre-Exchange
Period: (i) Unimag shall not take or permit to be taken any action or
do or permit to be done anything in the conduct of the business of
Unimag, or otherwise, that would be contrary to or in breach of any of
the terms or provisions of this Agreement or which would cause any of
its representations and warranties contained in this Agreement to be
or become untrue in any material respect; and (ii) Unimag shall
conduct its business in the ordinary course consistent with past
practices.
(b) Joint Operations of Unimag and Read-mor.
Notwithstanding anything in this Agreement to the contrary, from and
after the Escrow Closing Date, Unimag shall manage and oversee the
operation of the business of Read-mor as if the Exchange had already
occurred.
(c) Consummation of Acquisitions. Unimag shall use all
reasonable efforts to take all actions and do all things necessary,
proper, or advisable to consummate the: (i) acquisition of Michiana
News Services, Inc., a Michigan corporation ("Michiana"), pursuant to
and upon the terms and conditions of the Stock Transfer and Exchange
Agreement among Unimag, Michiana, and all of the shareholders of
Michiana (the "Michiana Acquisition"); (ii) acquisition of The Stoll
Companies, an Ohio corporation ("Stoll"), pursuant to and upon the
terms and conditions of the Stock Transfer and Exchange Agreement
among Unimag, Stoll and all of the shareholders of Stoll (the "Stoll
Acquisition"); and (iii) acquisition of certain assets and liabilities
of Ohio Periodical Distributors, Inc., an Ohio corporation ("OPD"),
Northern News Company, a Michigan corporation ("Northern"), and
Wholesaler's Leasing Corp., a Delaware corporation, pursuant to and
upon the terms and conditions of the respective Asset Transfer and
Exchange Agreements between Unimag and those companies and the
acquisition of The Scherer Companies, a Delaware Corporation, pursuant
to and upon the terms and conditions of the Stock Transfer and
Exchange Agreement among Unimag, that company, and all of its
shareholders (collectively, the "Scherer Companies Acquisitions").
Neither the acquisition agreement for the Michiana Acquisition (the
"Michiana Acquisition Agreement"), the acquisition agreement for the
Stoll acquisition (the "Stoll Acquisition Agreement"), nor the
acquisition agreements for the Scherer Companies Acquisitions (the
"Scherer Companies Acquisition Agreements") shall be modified or
amended, in any material respect, without the prior written consent of
the Unimag Board of Directors, Stoll, Michiana and each of the
companies which are a part of the Scherer Companies Acquisitions (the
"Scherer Companies").
31
<PAGE> 38
In addition to the transferors described in this Section
5.3(c), the remainder of the control group (as defined in Section
368(c) of the Code) of Unimag is specified in Schedule 1.1.
(d) Confidential Information. Upon the termination of
this Agreement for any reason, Unimag shall promptly cause all
proprietary information or data relevant to the business of Read-mor,
whether of a technical, financial or commercial nature and whether
furnished by Read-mor hereunder or otherwise received by Unimag, and
all copies, extracts and summaries thereof in its possession or in the
possession of any of its officers, shareholders or agents, to be
promptly returned to Read-mor.
ARTICLE 6
CONDITIONS
Section 6.1 MUTUAL CONDITIONS TO ESCROW CLOSING. The obligations
of each of the Parties to complete the Escrow Closing and to consummate the
other transactions contemplated by this Agreement to be completed at the Escrow
Closing shall be subject to fulfillment of all of the following conditions:
(a) Completion of Schedules and Exhibits. Except for the
Debenture Agreement attached as Exhibit A and the Employment
Agreements attached as Exhibits C-1 through C-3, the Parties
acknowledge that at the time of the execution of this Agreement the
schedules and exhibits will not be attached. Unimag and Read-mor will
proceed in good faith to finalize the form and content of such
schedules and exhibits in a manner consistent with the terms and
conditions of this Agreement and otherwise mutually acceptable to both
Parties. Upon finalizing the form and content of such schedules and
exhibits they will be attached to and become a part of this Agreement
as if they had been attached to this Agreement at the time of
execution.
(b) No Adverse Proceeding. No temporary restraining
order, preliminary or permanent injunction, or other order or decree
which prevents the consummation of the Exchange or the other
transactions contemplated by this Agreement shall have been issued and
remain in effect, and no statute, rule, or regulation shall have been
enacted by any state or federal government or governmental agency
which would prevent the consummation of the Exchange or the other
transactions contemplated by this Agreement.
(c) Certain Approvals. Unimag and Read-mor each shall
have filed any Notification and Report Forms and related materials
that either such Party may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department
of Justice under the HSR Act with respect to the Exchange, and all
waiting periods applicable to the consummation of the Exchange under
the HSR Act shall have expired or been terminated.
32
<PAGE> 39
(d) Other Governmental Approvals. Any governmental or
other approvals or reviews of this Agreement and the transactions
contemplated by this Agreement required under any applicable laws,
statutes, orders, rules, regulations, policies or guidelines
promulgated thereunder, or any governance document of Unimag or
Read-mor shall have been received, except for any filings which Unimag
must make with the Securities and Exchange Commission in connection
with obtaining approval from Unimag's Shareholders of the Exchange and
other transactions contemplated by this Agreement.
(e) Escrow Closing of Certain Acquisitions. Read-mor
shall have received copies of the final form of the Stoll Acquisition
Agreement, the Michiana Acquisition Agreement and the Scherer
Companies Acquisition Agreements, all of which shall be of a form and
content substantially similar to this Agreement, with the exception
that certain of the Scherer Companies Acquisition Agreements shall be
for the purchase and sale of assets. In addition, Unimag shall have
consummated the escrow closings of the Stoll Acquisition, the Michiana
Acquisition and the Scherer Companies Acquisitions for Northern and
OPD.
(f) Tax Commentary. Unimag shall have received a tax
commentary, dated the Escrow Closing Date, of Arthur Andersen LLP, in
form and substance satisfactory to Unimag, as to the qualification of
the Exchange for Unimag as a tax-free exchange under Section 351 of
the Code, and Unimag shall have delivered a copy of such commentary to
Read-mor.
Section 6.2 CONDITIONS TO OBLIGATIONS OF READ-MOR AND THE
READ-MOR SHAREHOLDERS TO COMPLETE THE ESCROW CLOSING. The obligations of
Read-mor and the Read-mor Shareholders to complete the Escrow Closing and to
consummate the other transactions contemplated by this Agreement to be
completed at the Escrow Closing shall be subject to the fulfillment of all of
the following conditions unless waived by Read- mor and the Read-mor
Shareholders in writing:
(a) Representations and Warranties. The representations
and warranties of Unimag set forth in Article 3 of this Agreement
shall be true and correct in all material respects as of the date of
this Agreement and as of the Escrow Closing as though made at and as
of the Escrow Closing.
(b) Performance of Agreement. Unimag shall have
performed and observed in all material respects all covenants,
agreements, obligations, and conditions to be performed or observed by
them under this Agreement at or prior to the Escrow Closing.
(c) Certificate. Unimag shall have furnished Read-mor
and the Read-mor Shareholders with a certificate dated the Escrow
Closing Date signed by its chairman, president, or any vice president
to the effect that the conditions set forth in Section 6.2(a) and
Section 6.2(b) have been satisfied.
33
<PAGE> 40
(d) Opinion of Counsel. Read-mor and the Read-mor
Shareholders shall have received the legal opinion, dated the Escrow
Closing Date, of Baker & Hostetler, counsel to Unimag, in
substantially the form attached to this Agreement as Exhibit B.
(e) Adverse Change and Condition. There shall have been
no material adverse change in the properties, assets, liabilities,
business, results of operations, condition (financial or otherwise),
or prospects of Unimag since the date of the 10-Q or of the Scherer
Companies, Stoll Companies, Michiana News Service or Read-mor since
December 31, 1995.
(f) Unimag Shareholder Letters. As of the date of
this Agreement, shareholders of Unimag who have the right to vote more
than 50% of the outstanding Unimag Shares intend to submit letters to
Unimag indicating they intend to vote in favor of the Exchange, the
Michiana Acquisition, the Stoll Acquisition and the Scherer Companies
Acquisitions at the Unimag shareholders meeting to be held for that
purpose. Copies of these letters will be provided to Read-mor by
Unimag prior to the Escrow Closing.
(g) Due Diligence. Read-mor's completion of its due
diligence review of Unimag, Stoll, Michiana and the Scherer Companies
with results satisfactory to Read-mor on or before September 6, 1996.
(h) Other Documents. Unimag shall have delivered the
following items to Read-mor:
(i) Unimag's articles of incorporation, certified
by the Ohio Secretary of State as of a date not more than ten
days prior to the Escrow Closing Date;
(ii) A good standing certificate of Unimag, issued
by the Ohio Secretary of State as of a date not more than ten
days prior to the Escrow Closing Date;
(iii) The code of regulations of Unimag, certified
by the secretary of Unimag on the Escrow Closing Date; and
(iv) Resolutions of the directors of Unimag
approving, adopting, and authorizing this Agreement and the
transactions contemplated by this Agreement, certified by the
secretary of Unimag on the Escrow Closing Date.
Section 6.3 CONDITIONS TO OBLIGATIONS OF UNIMAG TO COMPLETE THE
ESCROW CLOSING. The obligations of Unimag to complete the Escrow Closing and
to consummate the other transactions contemplated by this Agreement to be
completed at the Escrow Closing shall be subject to the fulfillment of all of
the following conditions unless waived by Unimag in writing:
34
<PAGE> 41
(a) Representations and Warranties. The representations
and warranties of Read-mor and the Read-mor Shareholders set forth in
Article 4 of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Escrow Closing
as though made at and as of the Escrow Closing.
(b) Performance of Agreement. Read-mor and the Read-mor
Shareholders shall have performed and observed in all material
respects all covenants, agreements, obligations, and conditions to be
performed or observed by them under this Agreement at or prior to the
Escrow Closing.
(c) Certificate. Read-mor shall have furnished Unimag
with a certificate dated the Escrow Closing Date signed on its behalf
by its chairman, president or any vice president to the effect that
the conditions set forth in Section 6.3(a) and Section 6.3(b) have
been satisfied.
(d) Opinion of Counsel. Unimag shall have received the
legal opinion, dated the Escrow Closing Date, of Ruth Hunter Smith,
Esq., counsel to Read-mor and the Read-mor Shareholders, substantially
in the form attached to this Agreement as Exhibit D.
(e) Books and Records. Read-mor shall have delivered to
Unimag all corporate books and records and other materials of
Read-mor, including without limitation stock books and ledgers, minute
books, bank account lists, tax returns, and financial and operational
records and materials.
(f) Third Party Consents. Unimag shall have received all
necessary customer, vendor, and other third party consents and
approvals of this Agreement and the transactions contemplated by this
agreement
(g) Adverse Change and Condition. There shall have been
no material adverse change in the properties, assets, liabilities,
business, results of operations, condition (financial or otherwise) or
prospects of Read-mor from that reflected in the Compiled Statements.
(h) Termination of Stock Pledge. Linda S. Talbott shall
have terminated its stock pledge agreement with Mr. Ted Rysz, pursuant
to which he has pledged certain of the Read-mor Shares owned by him as
security.
(i) Other Documents. Read-mor shall have delivered the
following items to Unimag:
(i) Read-mor's articles of incorporation,
certified by the Michigan Secretary of State as of a date not
more than ten days prior to the Escrow Closing Date;
35
<PAGE> 42
(ii) A good standing certificate of Read-mor,
issued by the Michigan Secretary of State as of a date not
more than ten days prior to the Escrow Closing Date;
(iii) The code of regulations of Read-mor, certified
by the secretary of Read-mor on the Escrow Closing Date; and
(iv) The resolutions of the shareholders and
directors of Read-mor approving, adopting, and authorizing
this Agreement and the transactions contemplated by this
Agreement, certified by the secretary of Read-mor on the
Escrow Closing Date.
(j) Due Diligence. Unimag's completion of its due
diligence review with results satisfactory to Unimag on or before
September 6, 1996.
Section 6.4 DOCUMENT ESCROW AGREEMENT; UNIMAG SHAREHOLDER
APPROVAL. Upon the satisfaction or waiver of all of the conditions set forth
in Sections 6.1, 6.2, and 6.3, the Parties shall hold the Escrow Closing at
which the Parties and Baker & Hostetler shall execute and deliver the document
escrow agreement in the form attached to this Agreement as Exhibit E (the
"Document Escrow Agreement"). The Document Escrow Agreement shall provide,
among other things, that at the Escrow Closing this Agreement and all of the
Additional Documents shall be deposited with Baker & Hostetler to be held
pursuant to the terms of the Document Escrow Agreement and that upon the escrow
closing of certain acquisitions and the approval of the Exchange by Unimag's
board of directors and shareholders, this Agreement and the Additional
Documents shall be released and delivered to the appropriate Party at the
Closing and the Exchange and other transactions contemplated by this Agreement
shall be consummated.
Section 6.5 MUTUAL CONDITIONS TO CONSUMMATE THE EXCHANGE. Upon
the execution and delivery of the Document Escrow Agreement, the obligation of
each of the Parties to consummate the Exchange and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of both of
the following conditions:
(a) Escrow Closing of the Remaining Scherer Companies
Acquisitions. Unimag shall have consummated the escrow closings of
the Scherer Companies Acquisitions (except for the escrow closing for
the acquisitions of Northern and OPD which were closed into escrow
prior to the Escrow Closing under this Agreement). Such escrow
closings shall be completed no later than September 28, 1996, and
shall be substantially similar to the Escrow Closing under this
Agreement.
(b) Unimag Board of Directors Approval. The Exchange and
the Scherer Companies Acquisitions shall have been approved by
Unimag's board of directors.
36
<PAGE> 43
(c) Unimag Shareholder Approval. The Exchange, the
Michiana Acquisition, the Stoll Acquisition and the Scherer Companies
Acquisitions shall have been approved by the affirmative vote of the
shareholders of Unimag to the extent such approval is required by the
provisions of Ohio Revised Code Chapter 1701 and Unimag's articles of
incorporation.
ARTICLE 7
TERMINATION AND AMENDMENT
Section 7.1 TERMINATION.
(a) Termination by Read-mor and the Read-mor
Shareholders. This Agreement may be terminated and canceled prior to
the Closing by Read-mor and the Read-mor Shareholders if: (i) (A) any
of the representations or warranties of Unimag contained in this
Agreement shall prove to be inaccurate in any material respect, or any
covenant, agreement, obligation, or condition to be performed or
observed by Unimag under this Agreement has not been performed or
observed in any material respect at or prior to the time specified in
this Agreement, and (B) such inaccuracy or failure shall not have been
cured within 15 business days after receipt by Unimag of written
notice of such occurrence from Read-mor and the Read-mor Shareholders;
(ii) any permanent injunction or other order of a court or other
competent authority preventing consummation of the Exchange or any
other transaction contemplated by this Agreement shall have become
final and nonappealable; (iii) so long as Read-mor and the Read-mor
Shareholders are not in material breach of any representation,
warranty, covenant, or agreement, if the Escrow Closing has not
occurred on or before September 28, 1996; or (iv) so long as Read-mor
and the Read-mor Shareholders are not in material breach of any
representation, warranty, covenant, or agreement, if the Closing has
not occurred on or before December 31, 1996.
(b) Termination by Unimag. This Agreement may be
terminated and canceled at any time prior to the Closing by Unimag if:
(i) (A) any of the representations or warranties of Read-mor or any
Read-mor Shareholder contained in this Agreement shall prove to be
inaccurate in any material respect, or any covenant, agreement,
obligation, or condition to be performed or observed by Read-mor or
any Read-mor Shareholder under this Agreement has not been performed
or observed in any material respect at or prior to the time specified
in this Agreement, and (B) such inaccuracy or failure shall not have
been cured within 15 business days after receipt by Read-mor and the
Read-mor Shareholders of written notice of such occurrence from
Unimag; (ii) any permanent injunction or other order of a court or
other competent authority preventing consummation of the Exchange or
any other transaction contemplated by this Agreement shall have become
final and nonappealable; (iii) so long as Unimag is not in material
breach of any representation, warranty, covenant, or agreement, if the
Escrow Closing has not occurred on or before September 28, 1996; or
(iv) so long as Unimag is not in material breach of
37
<PAGE> 44
any representation, warranty, covenant, or agreement, if the Closing
has not occurred on or before December 31, 1996.
Section 7.2 AMENDMENT. This Agreement may be amended by the
Parties, by action taken or authorized by their respective boards of directors
(to the extent such action or authorization is required by law), at any time
before or after adoption of this Agreement by the Read-mor Shareholders and
Unimag Shareholders, but, after such adoption, no amendment shall be made which
by law requires further adoption by the Read-mor Shareholders or Unimag
Shareholders without such further adoption. Notwithstanding the foregoing,
this Agreement may not be amended except by an instrument in writing signed by
each of the Parties.
Section 7.3 EXTENSION; WAIVER. At any time prior to the Escrow
Closing or Closing, as the case may be, Unimag (with respect to Read-mor and
the Read-mor Shareholders) and Read-mor (with respect to Unimag) may, to the
extent legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of such Party; (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto; or (c) waive compliance with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a
Party to any such extension or waiver shall be valid only if set forth in a
written instrument signed by such Party.
ARTICLE 8
INDEMNIFICATION
Section 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS.
(a) Notwithstanding any investigation conducted at any
time with regard thereto by or on behalf of any Party, all
representations, warranties, covenants and agreements of Read-mor, the
Read-mor Shareholders and Unimag in this Agreement and in the Document
Escrow Agreement shall survive the execution, delivery, and
performance of this Agreement and the Document Escrow Agreement. All
representations and warranties of the Parties set forth in this
Agreement and in the Document Escrow Agreement shall be deemed to have
been made again by them at and as of the Escrow Closing.
(b) As used in this Article 8, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
Section 8.2 INDEMNIFICATION BY READ-MOR SHAREHOLDERS.
(a) Subject to the provisions of this Section 8.2 and of
Section 8.4, below, the Read-mor Shareholders, jointly and severally,
shall indemnify and hold harmless Unimag from and against any and all
losses, liabilities, damages, demands, claims, suits, actions,
judgments
38
<PAGE> 45
or causes of action, assessments, costs and expenses, including
without limitation interest, penalties, reasonable attorneys' fees,
any and all reasonable expenses incurred in investigating, preparing,
or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred or suffered by Unimag,
directly or indirectly, as a result of or arising from any material
inaccuracy in or breach of any of the representations, warranties,
covenants, or agreements made by the Read-mor Shareholders in this
Agreement or the Document Escrow Agreement (collectively,
"Indemnifiable Read-mor Claims").
(b) Unimag shall be deemed to have suffered Damages
arising out of or resulting from the matters referred to in Section
8.2(a), above, if the same shall be suffered by any parent,
subsidiary, or affiliate of Unimag.
(c) The Read-mor Shareholders may satisfy any obligation
of indemnification under this Article 8 by delivery of Unimag Shares
to Unimag with a value equal to the amount of the payment being
satisfied. For purposes of this Section 8.2(c), Unimag Shares shall
be valued at the greater of (i) $1.50 per share, or (ii) their market
value at the time the indemnification obligation has been finally
established.
(d) Notwithstanding anything contained in this Agreement
to the contrary, the collective indemnification obligations of the
Read-mor Shareholders as a group under this Agreement shall never
exceed, in the aggregate, the sum of $62,800.00 and no single Read-mor
Shareholder shall have any indemnification obligation in excess of the
total consideration received by such Read-mor Shareholder in exchange
for his or her Read-mor Shares.
Section 8.3 INDEMNIFICATION BY UNIMAG.
(a) Unimag shall indemnify and hold harmless each of the
Read-mor Shareholders from and against any Damages asserted against,
resulting to, imposed upon, or incurred or suffered by any of the
Read-mor Shareholders, directly or indirectly, as a result of or
arising from any (i) material inaccuracy in or breach or
nonfulfillment of any of the representations, warranties, covenants,
or agreements made by Unimag in this Agreement or the Document Escrow
Agreement, (ii) subject to the limitations set forth in Section
8.3(c), below, any and all claims, liabilities or obligations arising
out of the operation of the business of Read-mor after the Escrow
Closing Date, or (iii) any and all claims, liabilities and obligations
arising out of any failure by Unimag to pay, following the Escrow
Closing Date, any liability of Read-mor disclosed on the June 30th
Balance Sheet or to pay any amount or perform any obligation under any
of the Contracts, (collectively, "Indemnifiable Unimag Claims" and,
together with Indemnifiable Read-mor Claims, the "Indemnifiable
Claims").
39
<PAGE> 46
(b) Unimag shall satisfy any obligation of indemnification
under this Article 8 in cash.
(c) Notwithstanding anything contained in this Agreement
to the contrary, the Read-mor Shareholders hereby acknowledge that
Unimag shall not be liable to the Read-mor Shareholders, under this
Article 8 or any other provision of this Agreement, for any claims,
liabilities, or obligations arising out of the operation of the
business of Read-mor prior to the Escrow Closing Date, if such claim,
liability, or obligation is caused by or results from any
Indemnifiable Read-mor Claim.
Section 8.4 LIMITATIONS ON INDEMNIFICATION. Rights to
indemnification under this Article 8 are subject to the following limitations:
(a) For purposes of this Article 8, all Damages shall be
computed net of any insurance coverage which reduces the Damages that
would otherwise be sustained; provided that in all cases the timing of
the receipt or realization of insurance proceeds shall be taken into
account in determining the amount of reduction of Damages.
(b) Subject to the provisions of Section 8.4(c), below,
Unimag shall not be entitled to indemnification hereunder with respect
to an Indemnifiable Claim or Claims unless the aggregate amount of
Damages with respect to such Indemnifiable Claim or Claims exceeds
$6,280.00. Once Unimag's Damages exceeds $6,280.00 in the aggregate,
Unimag shall only be entitled to be indemnified to the extent of such
Damages in excess of such initial $6,280.00 of Damages.
(c) Notwithstanding and in lieu of the provisions of
Section 8.4(b), above, Unimag shall not be entitled to indemnification
with respect to an Indemnifiable Claim or Claims resulting from a
breach of the representations and warranties contained in the last
paragraph of Section 4.15 unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $2,000.00. Once
Unimag's Damages for any such breach exceeds $2,000.00 in the
aggregate, Unimag shall only be entitled to be indemnified to the
extent of such Damages in excess of such initial $2,000.00 of Damages.
(d) The obligations of indemnity under this Article 8
with respect to any indemnifiable claim shall terminate two years
after the Escrow Closing Date.
(e) If, prior to the termination of the obligation to
indemnify, written notice of an Indemnifiable Claim is given by Unimag
or any of the Read-mor Shareholders, as the case may be (an
"Indemnified Party") to the other Party or Parties, as the case may be
(the "Indemnifying Party"), or a suit or action based upon an alleged
Indemnifiable Claim is commenced against the Indemnifying Party, the
Indemnified Party shall not be precluded from pursuing such
Indemnifiable Claim (whether through the courts or
40
<PAGE> 47
otherwise) by reason of the termination of the obligation of indemnity
as described in Section 8.4(d) above.
Section 8.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS.
(a) If an Indemnified Party determines to seek
indemnification under this Article 8 from an Indemnifying Party with
respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, the Indemnified Party shall give written
notice to the Indemnifying Party, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party of such liability,
the Indemnifying Party shall be entitled, if they so elect by written
notice delivered to the Indemnified Party within 10 days after
receiving the Indemnified Party's notice, to assume the defense of
such asserted liability with counsel reasonably satisfactory to the
Indemnified Party. Notwithstanding the foregoing: (i) the
Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be
payable by the Indemnified Party; (ii) the Indemnified Party shall not
have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing; and (iii) the
rights of the Indemnified Party to be indemnified in respect of
Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only
to the extent that, the Indemnifying Party is prejudiced by such
failure. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party fails to
assume the defense of the Indemnified Party against any such
Indemnifiable Claim, within 15 days after receipt of the Indemnified
Party's notice of such Indemnifiable Claim, the Indemnified Party
shall have the right to defend, compromise, or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Party.
(c) Notwithstanding anything in this Section 8.5 to the
contrary, (i) if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely affect the
Indemnified Party, including without limitation any of its
subsidiaries or affiliates (other than as a result of money damages or
other money payments), then the Indemnified Party shall have the
right, at the cost and expense of the Indemnifying Party, to defend,
compromise, or settle such Indemnifiable Claim; and (ii) the
Indemnifying Party shall not, without the Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect of any Indemnifiable
41
<PAGE> 48
Claim unless such settlement, compromise, or consent includes as an
unconditional term the giving by the claimant or the plaintiff to the
Indemnified Party (and its subsidiaries and affiliates) a release from
all liability in respect of such Indemnifiable Claim.
Section 8.6 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim giving rise to Damages (but excluding
Indemnifiable Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party specifying the
nature and amount of the Indemnifiable Claim asserted. If the Indemnifying
Party, within 15 days after the mailing of such notice by the Indemnified
Party, has not given written notice to the Indemnified Party announcing its
intent to contest such assertion by the Indemnified Party, such assertion shall
be deemed accepted and the amount of Indemnifiable Claim shall be deemed a
valid Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of an Indemnifiable Claim by giving such written notice
to the Indemnified Party within such 15-day period, then if the Parties, acting
in good faith, cannot reach agreement with respect to such Indemnifiable Claim
within 10 days after such notice, the contested assertion of the claim shall be
resolved by arbitration. Such dispute shall be submitted to arbitration by a
panel of three disinterested arbitrators. The panel shall be composed of one
arbitrator appointed by the Indemnified Party, one appointed by the
Indemnifying Party, and the third, who shall be an attorney admitted to
practice in the State of Ohio who has experience in periodical distribution,
shall be appointed by the mutual agreement of the two arbitrators chosen by the
Indemnified Party and the Indemnifying Party. The panel shall sit in Columbus,
Ohio, and its procedures shall be governed by the Ohio Arbitration Act
contained in Chapter 2711 of the Ohio Revised Code. The rules of civil
procedure with respect to depositions and requests for production of documents
applicable in Ohio common pleas courts shall apply. A decision in any such
arbitration shall apply both to the particular question submitted and to all
similar questions arising thereafter. The determination made shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting, and other fees in connection with
such a contest; provided that if the contested claim is referred to and
ultimately determined by arbitration, the legal, auditing, and other fees of
the prevailing Party and the fees and expenses of any arbitrator shall be borne
by the nonprevailing Party.
Section 8.7 RIGHT OF SETOFF. If (a) after following the
procedures set forth in Section 8.5 or Section 8.6, as the case may be, a
Party's right to be indemnified for an Indemnifiable Claim has been duly
established and (b) the Damages associated with such Indemnifiable Claim have
not been paid by the Indemnifying Party to the Indemnified Party within 30 days
thereafter, then, in addition to its other rights under this Agreement, the
Indemnified Party shall have the right to setoff any amounts owing to the
Indemnifying Party by the Indemnified Party against any amounts owing to the
Indemnified Party by the Indemnifying Party, whether pursuant to this Agreement
(including taking into consideration the amount of such Indemnifiable Claim in
determining the amount of the valuation adjustment under Section 2.1(b)), the
Unimag Debentures, or the Additional Documents.
42
<PAGE> 49
ARTICLE 9
MISCELLANEOUS
Section 9.1 NOTICES. All notices and other communications under
this Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, by facsimile (which is confirmed), mailed by registered
or certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall have
specified in notice to the other Parties), or delivered to Federal Express,
United Parcel Service, or any other nationally recognized express delivery
service for delivery to that Party at that address:
(a) If to Unimag:
United Magazine Company
5131 Post Road
Dublin, Ohio 43017
Attention: Ronald E. Scherer, Chairman
Facsimile No.: (614) 792-2029
with a copy to:
Baker & Hostetler
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Robert M. Kincaid, Esq.
Facsimile No.: (614) 462-2616
(b) If to Read-mor:
READ-MOR BOOK STORES, INC.
5131 Post Road
Dublin, Ohio 43017
Attn: Eugene J. Alfonsi
Facsimile No. (614) 792-2029
with a copy to:
Ruth Hunter Smith, Esq.
General Counsel
5131 Post Road
Dublin, Ohio 43017
Facsimile No. (614) 792-2029
(c) If to the Read-mor Shareholders:
43
<PAGE> 50
Ted Rysz
160 Lincoln Hill Drive
Battle Creek, Michigan 49015
(616) 963-8295
Section 9.2 NON-WAIVER. No failure by any Party to
insist upon strict compliance with any term or provision of this
Agreement, to exercise any option, to enforce any right, or to seek
any remedy upon any default of any other Party shall affect, or
constitute a waiver of, any other Party's right to insist upon such
strict compliance, exercise that option, enforce that right, or seek
that remedy with respect to that default or any prior,
contemporaneous, or subsequent default. No custom or practice of the
Parties at variance with any provisions of this Agreement shall affect
or constitute a waiver of, any Party's right to demand strict
compliance with all provisions of this Agreement.
Section 9.3 GENDERS AND NUMBERS. Where permitted by the
context, each pronoun used in this Agreement includes the same pronoun
in other genders and numbers, and each noun used in this Agreement
includes the same noun in other numbers.
Section 9.4 HEADINGS. The headings of the various
articles and sections of this Agreement are not part of the context of
this Agreement, are merely labels to assist in locating such articles
and sections, and shall be ignored in construing this Agreement.
Section 9.5 COUNTERPARTS. This Agreement may be executed
in multiple counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the
same Agreement.
Section 9.6 ENTIRE AGREEMENT. This Agreement (including
all exhibits, schedules, and other documents referred to in this
Agreement, all of which are hereby incorporated herein by reference)
constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the Parties with
respect to the subject matter of this Agreement.
Section 9.7 NO THIRD PARTY BENEFICIARIES. Nothing
contained in this Agreement, expressed or implied, is intended or
shall be construed to confer upon or give to any person, firm,
corporation, or other entity, other than the Parties, any rights,
remedies, or other benefits under or by reason of this Agreement.
Section 9.8 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Ohio without regard to principles of conflicts of law.
44
<PAGE> 51
Section 9.9 BINDING EFFECT; ASSIGNMENT. This Agreement
shall be binding upon, inure to the benefit of and be enforceable by
and against the Parties and their respective heirs, personal
representatives, successors, and assigns. Neither this Agreement nor
any of the rights, interests, or obligations under this Agreement
shall be transferred or assigned by any of the Parties without the
prior written consent of the other Parties.
Section 9.10 EXPENSES. Except as otherwise specifically
provided in this Agreement: (a) Unimag shall pay its costs and
expenses associated with the transactions contemplated by this
Agreement, including without limitation the fees and expenses of its
legal counsel, independent public accountants, and other financial
advisors; (b) the Read-mor Shareholders shall pay their own costs and
expenses associated with this Agreement, including without limitation
the fees and expenses of their legal counsel, accountants, and
financial advisors; and (c) all such costs and expenses incurred by
Read-mor in connection with this Agreement and the transactions
contemplated hereby shall be accrued and expensed, or otherwise
accounted for, so that such costs and expenses (if not paid prior to
June 30, 1996) will be taken into consideration when determining the
Tangible Net Worth of Read-mor pursuant to Section 2.1(b).
Section 9.11 PUBLIC ANNOUNCEMENTS. Neither Read-mor nor
any Read-mor Shareholder shall, without the prior written consent of
Unimag, make any public announcement or statement with respect to the
transactions contemplated in this Agreement. The provisions of this
section are subject to each Party's obligation to comply with
applicable requirements of the federal or state securities laws or any
governmental order or regulation.
Section 9.12 SEVERABILITY. With respect to any provision
of this Agreement finally determined by a court of competent
jurisdiction to be unenforceable, such court shall have jurisdiction
to reform such provision so that it is enforceable to the maximum
extent permitted by applicable law, and the Parties shall abide by
such court's determination. In the event that any provision of this
Agreement cannot be reformed, such provision shall be deemed to be
severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect.
UNITED MAGAZINE COMPANY
By /s/ Ronald E. Scherer
---------------------------
RONALD E. SCHERER, CHAIRMAN
READ-MOR BOOK STORES, INC.
45
<PAGE> 52
By /s/ David B. Thompson
-----------------------------
DAVID B. THOMPSON, TREASURER
THE READ-MOR SHAREHOLDERS:
/s/ Ted Rysz
-------------------------------
TED RYSZ
46
<PAGE> 53
INDEX OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 Control Group
Schedule 2.1(b) Certain Generally Accepted Accounting Principles
Schedule 3.3 Agreements to Issue Unimag Shares
Schedule 3.5 Litigation
Schedule 4.1 Qualification as Foreign Corporation
Schedule 4.2 Read-mor Shareholders
Schedule 4.3 Restrictions on Read-mor Shares
Schedule 4.5 Consents and Approvals
Schedule 4.7 Undisclosed Liabilities
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Taxes
Schedule 4.10 Compliance with Law
Schedule 4.11 Proprietary Rights
Schedule 4.12 Restrictive Documents and Laws
Schedule 4.13 Insurance
Schedule 4.14 Bank Accounts
Schedule 4.15 Properties
Schedule 4.17 Legal Proceedings
Schedule 4.18 Employee Benefit Plans (Schedules (a) through (j))
Schedule 4.19 Contracts
</TABLE>
-47-
<PAGE> 54
<TABLE>
<S> <C>
Schedule 4.20 Accounts Receivable
Schedule 4.21 Conflicts or Defaults
Schedule 4.23 Employees and Compensation
Schedule 4.24 Labor Relations
Schedule 4.25 Customers and Suppliers
Schedule 4.26 Special Terms to Customers
Schedule 5.2(a) Employment Arrangements
</TABLE>
-48-
<PAGE> 55
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Debenture Agreement
Exhibit B Opinion of Baker & Hostetler
Exhibit C-1 Form of Employment Agreement with
Exhibit C-2 Form of Employment Agreement with
Exhibit C-3 Form of Employment Agreement with
Exhibit D Opinion of Ruth Hunter Smith, Esq.
Exhibit E Document Escrow Agreement
</TABLE>
-49-
