<PAGE>
<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Quarterly Period Ended December 31, 1996
Commission File Nos. 0-9115 and 0-24494
MATTHEWS INTERNATIONAL CORPORATION
(Exact Name of registrant as specified in its charter)
PENNSYLVANIA 25-0644320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO NORTHSHORE CENTER, PITTSBURGH, PA 15212-5851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 442-8200
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Class of Common Stock Outstanding at January 31, 1997
Class A - $1.00 par value 6,353,981 shares
Class B - $1.00 par value 2,338,709 shares
<PAGE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
----------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,153,496 $ 12,418,718
Short-term investments 3,061,761 3,079,084
Accounts and notes receivable, net 24,360,600 26,158,666
Inventories:
Materials and finished goods $10,335,481 $10,424,521
Labor and overhead in process 755,738 879,593
Supplies 588,719 669,080
---------- ----------
11,679,938 11,973,194
Other current assets 1,861,726 2,130,556
---------- ----------
Total current assets 56,117,521 55,760,218
Investments 34,750,224 35,333,326
Property, plant and equipment: Cost 64,346,545 63,492,651
Less accumulated depreciation (26,943,587) (26,169,878)
---------- ----------
37,402,958 37,322,773
Deferred income taxes and other assets 12,811,557 13,569,805
Goodwill 11,268,858 11,425,587
----------- -----------
Total assets $152,351,118 $153,411,709
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 191,109 270,092
Accounts payable 4,091,774 6,049,732
Accrued compensation 5,877,846 8,536,221
Accrued income taxes 3,413,812 963,886
Customer prepayments 3,168,478 3,069,904
Other current liabilities 4,757,079 6,021,095
---------- ----------
Total current liabilities 21,500,098 24,910,930
Long-term debt - -
Estimated finishing costs 2,985,613 2,954,299
Postretirement benefits 20,850,818 21,005,067
Other liabilities 2,119,518 2,082,370
Shareholders' equity:
Common stock: Class A, par value $1.00 6,401,422 6,039,542
Class B, par value $1.00 2,682,076 3,043,956
Other shareholders' equity 95,811,573 93,375,545
---------- ----------
104,895,071 102,459,043
----------- -----------
Total liabilities and shareholders' equity $152,351,118 $153,411,709
=========== ===========
/TABLE
<PAGE>
<PAGE> 3
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Sales $ 42,582,795 $ 41,185,350
Cost of sales 23,719,377 22,602,002
---------- ----------
Gross profit 18,863,418 18,583,348
Selling and administrative expenses 12,249,660 12,131,095
---------- ----------
Operating profit 6,613,758 6,452,253
Investment income 604,419 459,391
Interest expense 12,030 21,359
Other income (deductions), net (95,804) (54,766)
---------- ----------
Income before income taxes 7,110,343 6,835,519
Income taxes 2,805,935 2,589,530
---------- ----------
Net income $ 4,304,408 $ 4,245,989
========== ==========
Earnings per share $ .49 $ .48
===== =====
Dividends per share $ .08 $ .07
===== =====
Weighted average number of
common shares outstanding 8,748,654 8,850,350
========= =========
</TABLE>
<PAGE> 4
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,304,408 $ 4,245,989
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,281,502 1,249,725
Deferred taxes 118,214 (197,098)
Net increase in certain working capital items (587,306) (3,403,944)
(Increase) decrease in other noncurrent assets 580,837 (159,652)
Increase in estimated finishing costs 31,314 133,758
Decrease in other liabilities 37,148 40,321
Increase (decrease) in postretirement benefits (154,249) 224,277
Net loss on sale of property, plant and equipment 5,678 9,474
Net loss on investments 2,034 -
Effect of exchange rate changes on operations 74,946 (30,866)
---------- ----------
Net cash provided by operating activities 5,694,526 2,111,984
---------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (1,366,500) (1,304,795)
Proceeds from disposals of property,
plant and equipment 3,920 3,931
Investments (535,526) (26,463,478)
Proceeds from disposition of investments 1,523,062 -
Collections on loans to officers and employees 132,155 485,883
---------- ----------
Net cash used in investing activities (242,889) (27,278,459)
---------- ----------
Cash flows from financing activities:
Payments on long-term debt (78,983) (107,215)
Proceeds from the sale of treasury stock - -
Purchases of treasury stock (1,858,231) -
Dividends paid (698,461) (619,455)
---------- ----------
Net cash used in financing activities (2,635,675) (726,670)
---------- ----------
Effect of exchange rate changes on cash (81,184) (8,991)
---------- ----------
Net increase (decrease) in cash and cash equivalents $ 2,734,778 $(25,902,136)
========== ==========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 12,030 $ 21,359
Income Taxes 128,364 745,806
</TABLE>
<PAGE> 5
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Nature of Operations
Matthews International Corporation, founded in 1850 and incorporated in
Pennsylvania in 1902, is a designer, manufacturer and marketer principally of
custom-made products which are used to identify people, places, products and
events. The Company's products and operations are comprised of three business
segments: Bronze, Graphic Systems and Marking Products. The Bronze segment
is a leading manufacturer of cast bronze memorial products, crematories and
cremation-related products. The Graphic Systems segment manufactures and
provides custom identification-related products, pre-press services and
imaging systems used by the corrugated and flexible packaging industries. The
Marking Products segment designs, manufactures and distributes a wide range of
equipment and consumables used by customers to mark or identify various
consumer and industrial products, components and packaging containers. The
Company has sales and manufacturing facilities in the United States, Canada,
Australia and Sweden as well as sales and distribution operations in France
and the United Kingdom.
Note 2. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information for commercial and industrial companies and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the
three-month period ended December 31, 1996 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3. Income Taxes
The income tax provision for the period is based on the effective tax rate
expected to be applicable for the full year. The difference between the
estimated effective tax rate of 39.5% and the Federal statutory rate of 35%
primarily reflects the impact of state and foreign income taxes.
<PAGE>
<PAGE> 6
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
DECEMBER 31, 1996
Note 4. Subsequent Event
On January 31, 1997, Matthews International Corporation acquired 50% of Tukaiz
Litho, Inc.("Tukaiz"), a Chicago-based pre-press and pre-media firm. The
remaining 50% will continue to be owned by the existing president and chief
executive officer of Tukaiz. The transaction was structured as an asset
purchase with the purchase price consisting of $4,000,000 cash and the
assumption of a 50% interest in certain of the Company's liabilities. The
parties have each agreed to contribute their respective 50% interests into a
newly-formed Illinois limited liability company, Tukaiz Communications, L.L.C.
Matthews also agreed to provide the new company with subordinated convertible
debt of $5.5 million. Matthews has accounted for this acquisition using the
purchase method and, accordingly, has recorded the acquired assets and
liabilities at their estimated fair values at the date of acquisition. The
excess of the purchase price over the fair value of the net assets was
recorded as goodwill to be amortized on a straight-line basis over 25 years.
Note 5. Reclassifications
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the current year presentation.
<PAGE>
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods indicated.
Three months ended Years ended
December 31, September 30,
------------------ --------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 44.3 45.1 44.6 44.8 45.1
Operating profit 15.5 15.7 15.6 14.7 15.1
Income before income taxes 16.7 16.6 19.5 15.0 14.9
Net income 10.1 10.3 11.8 9.3 8.8
Sales for the three months ended December 31, 1996 were $42.6 million and were
$1.4 million, or 3.4%, higher than sales of $41.2 million for the first three
months of fiscal 1996. The increase for the first three months of fiscal 1997
reflected higher sales in the Company's Bronze segment. Bronze segment sales
were up 18% over the fiscal 1996 first quarter, primarily reflecting higher
volume of memorial products as well as sales by Industrial Equipment and
Engineering Company, Inc. (IEEC) of crematories and cremation-related
products. Fiscal 1997 revenues of IEEC, which was acquired in March 1996,
also reflected sales of All Crematory Corporation, which was acquired in
August 1996. Sales for the Bronze segment increased over the prior year
despite the absence of Sunland Memorial Park, Inc. (the Company's only
cemetery/mortuary facility) which was sold in January 1996. Graphic Systems
segment sales for the three months ended December 31, 1996 were relatively
unchanged from the same period a year ago as demand for this segment's
products continues to be flat. Marking Products sales for the first quarter
of fiscal 1997 declined approximately 20% from the first three months of
fiscal 1996. The decline, which was expected, resulted from the sale of the
Division's label printer application business in September 1996 and the
Company's decision in September 1996 to liquidate its German subsidiary. The
label printer application business had historically produced marginal results
for the Company and the German subsidiary had accumulated significant losses
during the past few years.
Gross profit for the three months ended December 31, 1996 was $18.9 million,
or 44.3% of sales, compared to $18.6 million, or 45.1% of sales, for the first
three months of fiscal 1996. The increase in gross profit of $280,000, or
1.5%, was attributable principally to the Bronze segment. Bronze gross profit
improved as a result of higher sales for the current period while gross profit
as a percent of sales approximated the first quarter of last year. Gross
profit and gross profit as a percent of sales for the Graphic Systems segment
were slightly below the prior period. Gross profit for the Marking Products
segment declined from the fiscal 1996 first quarter as a result of lower
sales. Gross profit as a percent of sales for the segment was relatively
consistent for the periods.
<PAGE> 8
Selling and administrative expenses for the three months ended December 31,
1996 were $12.2 million, representing an increase of $119,000, or 1.0%, over
$12.1 million for the fiscal 1996 first quarter. Selling and administrative
expenses for the Bronze segment increased over the first quarter of fiscal
1996 reflecting the additions of IEEC and All Crematory Corporation. These
increases were offset by reductions in Marking Products selling and
administrative costs with the disposition of the label printer application
business and the liquidation of the German subsidiary.
Operating profit for the three months ended December 31, 1996 was $6.6 million
and was $162,000, or 2.5%, higher than the first three months of fiscal 1996.
Higher sales of the Bronze segment resulted in an increase in its operating
profit which more than offset an operating profit decline in the Graphic
Systems segment. Operating profit for the Marking Products segment was
relatively unchanged from the prior period. However, the segment's operating
profit percentage improved as a result of the disposition of the label printer
application business and the liquidation of the German subsidiary. Operating
profit of the Graphic Systems segment declined from the same period a year ago
reflecting flat sales, slightly lower gross profit and increased selling and
administrative costs. Consolidated operating profit for the first quarter of
fiscal 1997 also reflected the favorable impact of changes to the retiree
medical plan which were approved by the Board of Directors in September 1996.
These changes, which provide additional plan options while limiting future
Company contributions to retiree benefits, have reduced net periodic
postretirement benefit cost from the prior year. The reduction was partially
offset by costs associated with the Company's planned implementation of a
401(k) employee savings plan and related Company contributions.
Investment income for the first quarter of fiscal 1997 was $604,000, compared
to $459,000 for the first quarter of fiscal 1996. The increase reflects the
Company's higher cash and investment position during the current period and a
higher rate of return as a result of a shift in the Company's investments in
December 1995 to short-term and intermediate-term securities of the U.S.
government and its agencies and corporate obligations. These investments are
designed to improve the investment rate of return on the Company's excess cash
position while maintaining a sufficient degree of liquidity for future
cash needs.
Interest expense for the three months ended December 31, 1996 was
approximately $12,000, compared to $21,000 for the first three months of
fiscal 1996. Interest expense principally relates to the Company's capital
lease obligations. Other income (deductions), net for the three months ended
December 31, 1996 represented a net reduction to pre-tax income of $96,000
compared to a net reduction of $54,000 for the first three months of
fiscal 1996.
The Company's effective tax rate for the first quarter of fiscal 1997 was
39.5%, compared to 39.6% for the year ended September 30, 1996. The
difference between the Company's effective tax rate and the Federal statutory
rate of 35% primarily reflects the impact of state and foreign income taxes.
<PAGE> 9
Liquidity and Capital Resources
Net cash provided by operating activities was $5.7 million for the three
months ended December 31, 1996, compared to $2.1 million for the first three
months of fiscal 1996. Operating cash flow was higher for the current period
principally as a result of a decrease in consolidated inventory from
September 30, 1996 compared to an increase in the prior period and lower
income tax payments during the fiscal 1997 first quarter. Operating cash flow
for both periods reflected the payment of year-end compensation and profit
distribution accruals.
Cash used in investing activities was approximately $243,000 for the three
months ended December 31, 1996 compared to $27.3 million for the same period a
year ago. Investing activities for the fiscal 1997 first quarter primarily
reflected capital expenditures of $1.4 million and net proceeds from the
disposition of investments of $1.5 million. Investing activities for the
three months ended December 31, 1995 included capital expenditures of
$1.3 million and investments of $26.5 million in short-term and
intermediate-term securities of the U.S. government and its agencies and
corporate obligations. The Company's investment strategies are designed to
improve the investment rate of return on the Company's excess cash position
while maintaining a sufficient degree of liquidity for future cash needs.
Capital spending for property, plant and equipment has averaged approximately
$5.1 million for the last three fiscal years. The capital budget of the
Company for fiscal 1997 is $8.8 million. The Company expects to generate
sufficient cash from operations to fund all anticipated capital spending
projects.
Cash used in financing activities for the three months ended December 31, 1996
was $2.6 million consisting of treasury stock purchases, the Company's
quarterly dividend of $.08 per share and repayments under the Company's
capital lease agreements. Cash used in financing activities in the first
three months of fiscal 1996 was $727,000 consisting of dividends and capital
lease payments. Dividends for the fiscal 1996 first quarter were $.07 per
share. The Company currently has available lines of credit of approximately
$11 million. There were no outstanding borrowings on any of the Company's
lines of credit at December 31, 1996.
At December 31, 1996 and September 30, 1996 and 1995, the Company's current
ratio was 2.6, 2.2 and 3.5, respectively. The Company had cash and cash
equivalents at December 31, 1996 and September 30, 1996 of $15.2 million and
$12.4 million, respectively. Net working capital at December 31, 1996 was
$34.6 million. The Company believes that its current liquidity sources,
combined with its operating cash flow and additional borrowing capacity, will
be sufficient to meet its capital needs for the next 12 months.
<PAGE> 10
Subsequent Event
On January 31, 1997, Matthews International Corporation acquired 50% of Tukaiz
Litho, Inc.("Tukaiz"), a leading Chicago-based pre-press and pre-media firm.
A pre-press firm prepares art or digital files for printing or reproduction.
The remaining 50% will continue to be owned by the existing president and
chief executive officer of Tukaiz. The transaction was structured as an asset
purchase with the purchase price consisting of $4,000,000 cash and the
assumption of a 50% interest in certain of the Company's liabilities. The
parties have each agreed to contribute their respective 50% interests into a
newly-formed Illinois limited liability company, Tukaiz Communications, L.L.C.
Matthews also agreed to provide the new company with subordinated convertible
debt of $5.5 million. Matthews has accounted for this acquisition using the
purchase method and, accordingly, has recorded the acquired assets and
liabilities at their estimated fair values at the date of acquisition. The
excess of the purchase price over the fair value of the net assets was
recorded as goodwill to be amortized on a straight-line basis over 25 years.
Tukaiz has annual sales of approximately $16.5 million and is headquartered in
Franklin Park, Illinois. The combination of the Company's Graphic Systems
business and Tukaiz is designed to create a leader in the graphics industry,
providing a unique array of pre-press and pre-media services to ad agencies,
manufacturers, printers and publishers. These services include creative
design, audio, video, animation, multimedia, digital photography, web site
service and on-demand digital printing.
<PAGE>
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits to this report are filed herewith:
Exhibit
No. Description
------- -----------
10.1 Asset Purchase Agreement among TKZ Holding Corp., Tukaiz
Litho, Inc. and Michael Vitallo
10.2 Membership Interest Agreement among TKZ Holding Corp.,
Tukaiz Litho, Inc., Frank Defino, Sr. and Tukaiz
Communications, L.L.C.
10.3 Subordinated Convertible Note from Tukaiz
Communications, L.L.C. in favor of Venetian
Investment Corporation.
10.4 Operating Agreement of Tukaiz Communications, L.L.C. between
TKZ Holding Corp. and Tukaiz Litho, Inc.
11 Computation of Earnings Per Share
27 Financial Data Schedule (via EDGAR)
(b) Reports on Form 8-K
None
<PAGE>
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTHEWS INTERNATIONAL CORPORATION
(Registrant)
Date 2/11/97 D.M. Kelly
------------- -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 2/11/97 E.J. Boyle
------------- -----------------------------------------
E. J. Boyle, Vice President, Accounting &
Finance - Secretary and Treasurer
<PAGE>
<PAGE>
<PAGE> 1
EXHIBIT 10.1
TKZ HOLDING CORP.
TUKAIZ LITHO, INC.
AND
MICHAEL VITALLO
ASSET PURCHASE AGREEMENT
Dated as of January 31, 1997
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I - AGREEMENT TO SELL ASSETS; PURCHASE PRICE FOR
ASSETS; CLOSING
1.01 Agreement to Sell Assets 1
1.02 Purchase Price for Assets; Assumption of Liability 1
1.03 Closing 2
1.04 Allocation of Consideration 2
1.05 TCS Stock 2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF VITALLO
2.01 Power and Authority of Vitallo 2
2.02 Enforceability 2
2.03 Absence of Conflicts 2
2.04 Litigation and Claims Against Vitallo 3
2.05 Broker's Fees 3
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF VITALLO AND SELLER
3.01 Organization and Authority 3
3.02 Capitalization 3
3.03 Due Authorization 4
3.04 Absence of Conflicts 4
3.05 Financial Information 4
3.06 Absence of Material Changes 5
3.07 Title to Properties; Liens 5
3.08 Contracts and Agreements 6
3.09 Customers and Suppliers 6
3.10 Employment Agreements 7
3.11 Employee Benefit Plans 7
3.12 Patents, Trademarks, Copyrights, Licenses
and Secrecy Agreements 8
3.13 Trade Secrets 9
3.14 Governmental Licenses and Permits 9
3.15 Indebtedness and Commitments 9
3.16 Taxes 9
3.17 Insurance 11
3.18 Litigation and Claims 11
3.19 Compliance with Laws 11
3.20 Environmental and Occupational Safety Matters 11
3.21 Brokers' Fees 12
3.22 Contingencies 12
3.23 Employee Severance Claims 12
3.24 Bank Accounts 12
3.25 Accounts Receivable 12
3.26 Condition of Tangible Assets 12
<PAGE>
<PAGE> 3
Page
3.27 Inventory 12
3.28 Hazardous Wastes 13
3.29 Warranty Expense 13
3.30 Powers-of-Attorney 13
3.31 Books and Records 13
3.32 No Undisclosed Information 13
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER
4.01 Organization and Authority 13
4.02 Due Authorization 13
4.03 Absence of Conflicts 14
4.04 Litigation and Claims Against Buyer 14
4.05 Brokers' Fees 14
ARTICLE V - COVENANTS OF VITALLO
5.01 Certain Changes and Conduct of Business 14
5.02 Access to Information 16
5.03 Governmental Approvals 16
5.04 Consents and Approvals 16
5.05 All Reasonable Efforts 16
5.06 Exclusivity 16
5.07 Disclosure Schedule 16
ARTICLE VI - COVENANTS OF BUYER
6.01 Information Kept Confidential 17
6.02 Governmental Approvals 17
6.03 Consents and Approvals 17
6.04 All Reasonable Efforts 18
ARTICLE VII - CONDITIONS OF CLOSING
7.01 Preamble 18
7.02 Conditions to Obligations All Parties 18
7.03 Conditions to Obligations of Buyer 18
7.04 Conditions to Obligations of Vitallo 20
ARTICLE VIII - REMEDIES FOR BREACHES OF THIS AGREEMENT
8.01 Survival of Representations, Warranties
and Covenants 20
8.02 Indemnification Provisions for Benefit of Buyer 21
8.03 Indemnification Provisions for Benefit of Vitallo 21
8.04 Notice of Claim for Indemnification 21
8.05 Matters Involving Third Parties 21
8.06 Treatment of Indemnification Payments 22
8.07 Other Indemnification Provisions 22
<PAGE>
<PAGE> 4
Page
ARTICLE IX - DEFINITIONS 22
ARTICLE X - MISCELLANEOUS
10.01 Termination 25
10.02 Further Assurances; Books and Records 26
10.03 Press Releases and Public Announcements 26
10.04 Expenses 26
10.05 Governing Law; Submission to Jurisdiction 26
10.06 Entire Agreement; Modification; Waiver 27
10.07 Notices 27
10.08 Counterparts 27
10.09 Matters of Construction, Interpretation
and the Like 28
10.10 No Third-Party Beneficiaries 28
10.11 Succession and Assignment 28
10.12 Noncompetition 28
10.13 Supplemental Health Insurance Payment 29
EXHIBITS
Exhibit A - Form of Opinion of Counsel to Seller and Tukaiz
Exhibit B - Form of Bill of Sale
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D - Form of Stock Purchase Agreement and General Release
Exhibit E - Form of Lease
Exhibit F - Form of Opinion of Counsel to Buyer
SCHEDULES
Schedule 2.03 - Third Party Consents for Seller
Schedule 3.01 - Subsidiaries and Investments; Foreign Jurisdictions
Schedule 3.02 - Capitalization
Schedule 3.04 - Third Party Consents for Seller
Schedule 3.05 - Financial Statements
Schedule 3.06 - Changes Since January 31, 1996
Schedule 3.07(a) - Real Property
Schedule 3.07(b) - Buildings and Plants
Schedule 3.07(c) - Other Assets
Schedule 3.08 - Contracts and Agreements
Schedule 3.09 - Customers and Suppliers
Schedule 3.10 - Employment and Collective Bargaining Agreements
Schedule 3.11 - Employee Benefit Plans
Schedule 3.12 - Patents, Trademarks and Copyrights
Schedule 3.13 - Trade Secrets
Schedule 3.14 - Governmental Licenses and Permits
Schedule 3.15 - Indebtedness and Commitments
Schedule 3.16 - Taxes
Schedule 3.17 - Insurance
<PAGE>
<PAGE> 5
Schedule 3.18 - Litigation and Claims
Schedule 3.19 - Compliance with Laws
Schedule 3.20 - Environmental and Occupational Safety Matters
Schedule 3.24 - Bank Accounts
Schedule 3.30 - Powers-of-Attorney
<PAGE>
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of January 31, 1997,
among TKZ HOLDING CORP., a Pennsylvania corporation ("Buyer"), TUKAIZ LITHO,
INC., an Illinois corporation ("Seller") and MICHAEL VITALLO, an individual
50% shareholder of Seller ("Vitallo"). Capitalized terms used in this
Agreement which are not otherwise defined herein are defined in Article IX
hereof.
WITNESSETH:
WHEREAS, Seller has one class of capital stock, that being Common Stock,
without par value (the "Common Stock"), issued and outstanding at this time;
WHEREAS, Vitallo owns 50% of all of the issued and outstanding shares of
Common Stock;
WHEREAS, Frank Defino, Sr. ("Defino"), an individual, owns the other 50% of
the issued and outstanding shares of Common Stock;
WHEREAS, concurrently with this the execution of Agreement, Defino is entering
into a Membership Interest Agreement of even date herewith among Defino,
Seller, Buyer and the L.L.C. (the "Membership Interest Agreement"), the
closing of which shall be held at the same time as the Closing hereunder; and
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the parties hereto
covenant and agree as follows:
ARTICLE I
Agreement to Sell Assets; Purchase Price
for Assets; Closing
1.01 Agreement to Sell Assets. On the Closing Date, Seller shall sell,
convey, assign, transfer and deliver to Buyer, free and clear of Liens, and
Buyer shall purchase from Seller, for the consideration specified in
Section 1.02 hereof, a 50% interest in the assets of Seller (the "Assets"),
including without limitation the following:
(a) all tangible assets used or useful in Seller's conduct of its business,
including without limitation, all equipment, computers, furniture, fixtures,
supplies, books and records;
(b) all accounts receivable and similar claims;
(c) all inventory of Seller; and
(d) all intangible assets, such as computer programs and rights under leases,
licenses, contracts and other agreements and instruments.
Notwithstanding the foregoing, Seller shall not sell and Buyer shall not
purchase an interest in the Excluded Assets and any loans receivable
(including interest due thereon) from Defino.
1.02 Purchase Price for Assets; Assumption of Liabilities.
(a) Buyer shall purchase the Assets pursuant to Section 1.01 hereof and, in
exchange therefor, shall deliver $4,000,000 to Seller.
<PAGE>
<PAGE> 7
(b) Buyer shall, pursuant to the Assignment and Assumption Agreement
described in Section 2.01 hereof, assume a 50% interest in the Liabilities of
the Seller.
(c) Buyer shall use all reasonable efforts to cause Vitallo to be removed
from the personal guarantees, loans and other obligations as described in
Section 7.04(g) hereof.
(d) All cash to be delivered pursuant to Section 1.02(a) hereof shall be
represented by a certified check payable to the order of Seller or paid by
wire transfer.
1.03 Closing. Subject to the terms and conditions set forth herein, the
closing of this Agreement and the transactions contemplated hereby (the
"Closing") shall be held at the offices of Reed Smith Shaw & McClay, 435 Sixth
Avenue, Pittsburgh, Pennsylvania at 10:00 a.m., prevailing Pittsburgh time, on
January 31, 1997 or such other date mutually agreeable to the parties which is
following the satisfaction of the conditions contained in Article VII hereof
(the date of the Closing is referred to herein as the "Closing Date"). If the
Closing Date is January 31, 1997, such Closing shall be deemed effective at
12:01 a.m. on February 1, 1997.
1.04. Allocation of Consideration. The Purchase Price shall be allocated
among the Assets in accordance with the values to be agreed upon by Seller and
Buyer on or before the Closing Date. Such allocation shall be made in
accordance with Section 1060 of the Code.
1.05. TCS Stock. At the Closing, Vitallo shall contribute his shares of
stock of Tukaiz Creative Services, Inc., an Illinois corporation ("TCS"), to
Seller.
ARTICLE II
Representations and Warranties of Vitallo
Vitallo represents and warrants to Buyer that the statements contained in this
Article II are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article II), except in each case as set forth in the
Disclosure Schedule.
2.01 Power and Authority of Vitallo. Vitallo has the unrestricted right and
power to execute and deliver this Agreement and the other Transaction
Documents to which he is a party, to perform his obligations hereunder and
thereunder.
2.02 Enforceability. This Agreement and each of the other Transaction
Documents to which Vitallo is a party constitute the legal, valid and binding
obligations of Vitallo enforceable against Vitallo in accordance with their
respective terms, subject to bankruptcy, insolvency or other similar laws of
general application affecting creditors' rights and general principles of
equity.
2.03 Absence of Conflicts. Neither the execution and delivery by Vitallo of
this Agreement or the other Transaction Documents to which Vitallo is a party,
the compliance by Vitallo with the terms and conditions hereof and thereof,
nor the consummation by Vitallo of the transactions contemplated hereby and
thereby will:
(a) violate any provision of, or require any consent, authorization or
approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
<PAGE> 8
decree applicable to, or any governmental permit or license issued to, or
notice to or filing with a governmental body with respect to Vitallo,
(b) conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, Lien, lease,
agreement or instrument to which Vitallo is a party or by which Vitallo is
bound or to which any property of Vitallo is subject,
(c) result in the creation of any Lien upon any of the assets of Vitallo, or
(d) give to others any material rights or interests (including rights of
purchase, termination, cancellation or acceleration), under any such
indenture, mortgage, Lien, lease, agreement or instrument,
except that prior to the Closing of the transactions contemplated hereby the
consents, approvals and filings referred to in Schedule 2.03 have to be
obtained or made.
2.04 Litigation and Claims Against Vitallo. There are no actions, suits or
proceedings pending or threatened against Vitallo which could reasonably be
expected, if adversely determined, to delay, prevent or hinder the
consummation of the transactions contemplated by this Agreement.
2.05 Brokers' Fees. Vitallo has not incurred any liability for brokerage
fees, finder's fees, agent's commissions or other similar forms of
compensation in connection with this Agreement or any transaction contemplated
hereby.
ARTICLE III
Representations and Warranties of Vitallo and Seller
Each of Vitallo and Seller represents and warrants to Buyer that the
statements contained in this Article III are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article III), except in each case as
set forth in the Disclosure Schedule.
3.01 Organization and Authority. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois.
Seller (i) has full corporate power and authority to own and lease the
property and assets it now owns and leases and to carry on its business as and
where such property and assets are now owned or leased and such business is
now conducted and (ii) is duly licensed or qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
character of the property and assets now owned or leased by it or the nature
of the business now conducted by it requires it to be so licensed or qualified
and (iii) except as set forth on Schedule 3.01, has not owned and does not now
own directly or indirectly any debt or equity securities issued by any other
corporation, or any interest in any partnership, joint venture or other
business enterprise. Seller is not authorized to do business as a foreign
corporation in any jurisdiction. The copies of the articles of incorporation
and bylaws of Seller, which have previously been delivered to Buyer, are
complete and correct and in either case have not been amended since prior to
June 1, 1996. Seller has the corporate power and authority to execute and
deliver this Agreement and the other Transaction Documents to which it is a
party and to perform its obligations hereunder and thereunder. There are no
dissolution, liquidation or bankruptcy proceedings pending, contemplated by or
threatened against Seller.<PAGE>
<PAGE> 9
3.02 Capitalization. The entire authorized capital stock of Seller, and the
capital stock of Seller which is as of the date of this Agreement issued and
outstanding, is as set forth on Schedule 3.02. All such outstanding shares of
capital stock of Seller as set forth on Schedule 3.02 are validly issued,
fully paid and nonassessable and are owned beneficially and of record by the
persons set forth on such Schedule, free and clear of all Liens. Except as
set forth on Schedule 3.02, there are outstanding no securities,
subscriptions, options, warrants, phantom stock rights, calls or rights of any
kind, or rights with respect to convertible debt, issued or granted by, or
binding upon, Seller or Vitallo to purchase or otherwise acquire any shares of
capital stock of Seller, or other equity securities or equity interests in
Seller.
3.03 Due Authorization. The execution and delivery by Seller of this
Agreement and the other Transaction Documents to which it is a party, the
performance by it of all the terms and conditions hereof and thereof to be
performed by it and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized and approved by all necessary corporate
proceedings on the part of Seller. This Agreement and each of the other
Transaction Documents to which Seller is a party constitute the legal, valid
and binding obligations of Seller enforceable against Seller in accordance
with their respective terms, subject to bankruptcy, insolvency or other
similar laws of general application affecting creditors' rights and general
principles of equity.
3.04 Absence of Conflicts. Neither the execution and delivery by Seller of
this Agreement or the other Transaction Documents to which Seller is a party,
the compliance by Seller with the terms and conditions hereof and thereof, nor
the consummation by Seller of the transactions contemplated hereby and thereby
will:
(a) conflict with any of the terms, conditions or provisions of the articles
of incorporation or bylaws of Seller,
(b) violate any provision of, or require any consent, authorization or
approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
decree applicable to, or any governmental permit or license issued to, or
notice to or filing with a governmental body with respect to Seller,
(c) conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, Lien, lease,
agreement or instrument to which Seller is a party or by which it is bound or
to which any property of Seller is subject,
(d) result in the creation of any Lien upon any of the assets of Seller, or
(e) give to others any material rights or interests (including rights of
purchase, termination, cancellation or acceleration), under any such
indenture, mortgage, Lien, lease, agreement or instrument,
except that prior to the Closing of the transactions contemplated hereby the
consents, approvals and filings referred to in Schedule 3.04 have to be
obtained or made.
3.05 Financial Information. Vitallo has heretofore furnished to Buyer the
financial statements and information with respect to Seller described on
Schedule 3.05 (the "Financial Statements"). The Financial Statements were
<PAGE>
<PAGE> 10
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present:
(a) the consolidated financial position of Seller as at October 31, 1996 and
as of January 31, 1996, 1995 and 1994, and
(b) the consolidated results of operations and changes in financial position
of Seller for the period ending October 31, 1996 and for the years ended
January 31, 1996, 1995 and 1994.
The books and records of Seller from which the Financial Statements were
prepared properly and accurately record the transactions and activities which
they purport to record.
3.06 Absence of Material Changes. Except as set forth in Schedule 3.06 or
the Financial Statements, since January 31, 1996 there has not been:
(a) any Material Adverse Effect with respect to Seller, or any event,
condition or state of facts which could be reasonably expected (i) to have a
Material Adverse Effect on Seller, or (ii) to impair materially the ability of
Seller or Vitallo to perform its obligations under this Agreement,
(b) any damage, destruction, condemnation or loss, whether covered by
insurance or not, which has had, or could reasonably be expected to have, a
Material Adverse Effect on Seller,
(c) any strikes or work stoppages against the operations of Seller relating
to the conduct of its business or any injunction, order, writ or decree of any
court or other governmental agency or instrumentality against such strikes or
work stoppages, or
(d) any action taken by Seller of the nature referred to in Section 5.01
hereof.
3.07 Title to Properties; Liens.
(a) Real Property. Seller does not own any real property in fee. Schedule
3.07(a) identifies all interests of Seller in leaseholds under leases and
material easements and other material interests in real property owned by
Seller (the "Real Property"). Except for the Real Property, no other real
property is used in the business of Seller. Schedule 3.07(a) identifies, and
Vitallo has heretofore made available to Buyer true and complete copies of,
all leases or other instruments, in each case as in effect on the date hereof
(the "Real Property Instruments"), which evidence the interests of Seller in
the Real Property. Except as set forth in Schedule 3.07(a), all of such
leases and other instruments are in full force and effect and there is no
material default, nor any event which with notice or the lapse of time or both
will become a material default, under any such leases or other instruments, by
Seller or, to the knowledge of Vitallo, any other party thereto. To the best
of Vitallo's and Seller's knowledge, the Real Property includes all material
easements and rights-of-way necessary for present access to and use of the
Real Property. The Real Property conforms to all applicable zoning laws and
regulations and no notice of violation of any such laws or regulations
relating to any of the Real Property has been received by Seller or Vitallo.
No condemnation proceedings are proposed, threatened or pending which would
materially affect the Real Property.
(b) Buildings and Equipment. Schedule 3.07(b) hereto identifies separately:
(i) all buildings in which Seller has an interest or which are used in the
business of Seller,
(ii) all machinery and equipment owned or leased by Seller as lessee or used
in its business having a current replacement cost in excess of $10,000 and the
location thereof (the "Equipment"),
<PAGE>
<PAGE> 11
(iii) all leases and other instruments which evidence the interests of Seller
in Equipment and any other equipment leases under which Seller is lessee and
which provide for aggregate rental payments after January 1, 1996 in excess of
$10,000 (the "Equipment Instruments") and
(iv) any other equipment used but not owned or leased by Seller.
Vitallo has heretofore delivered to Buyer true and complete copies of all
Equipment Instruments, in each case as in effect on the date hereof. Except
as set forth in Schedule 3.07(b), all such Equipment Instruments are in full
force and effect and there is no material default, nor any event which with
notice or the lapse of time or both will become a material default, under any
such Equipment Instruments, by Seller or, to the knowledge of Vitallo, any
other party thereto. Except as set forth in Schedule 3.07(b), Seller has good
title to the Equipment it owns, free and clear of any and all Liens other than
Permitted Liens. The buildings and plants referred to in clause (i) of this
Section 3.07(b) and the Equipment do not encroach on the property of others.
(c) Other Assets. Except as set forth in Schedule 3.07(c), all other assets
of Seller, including all assets shown on the consolidated balance sheet of
Seller as at January 31, 1996 described in Section 3.05 hereof (other than
assets disposed of in the ordinary course of business since such date) are
owned by Seller , as the case may be, free and clear of any and all Liens
other than Permitted Liens.
3.08 Contracts and Agreements. Schedule 3.08 identifies all of the
contracts, commitments and agreements of Seller, not otherwise identified in
any other Schedule, which
(i) individually or in the aggregate involve purchases after the date hereof
of more than $10,000 from any one seller or group of related sellers,
(ii) individually or in the aggregate involve sales or leases after the date
hereof of more than $10,000 to any one buyer or lessee or group of related
buyers or lessees,
(iii) are contracts, commitments or agreements or involve transactions, with
any Affiliate of Seller,
(iv) are contracts, commitments and agreements not in the ordinary course of
business of Seller, or
(v) are contracts, commitments or agreements otherwise material to the
business of Seller.
The contracts, commitments and agreements listed on Schedule 3.08 are
hereinafter called the "Contracts". Vitallo has heretofore delivered to Buyer
true and complete copies of all Contracts as in effect on the date hereof.
Except as set forth in Schedule 3.08, all Contracts are in full force and
effect (other than those which have been duly performed) and there is no
material default, nor any event which with notice or the lapse of time or both
will become a material default, under any of the Contracts, by Seller or, to
the knowledge of Vitallo, any other party thereto.
3.09 Customers and Suppliers. Schedule 3.09 identifies each of the customers
and suppliers of Seller whose purchases from or sales to Seller constituted 5
percent or more of the combined net revenues or net purchases, respectively,
of Seller taken as a whole during the year ended January 31, 1996, and during
the nine fiscal months ended October 31, 1996, showing, with respect to each,
the name and address, dollar volume and nature of the relationship (including
the principal categories of products leased or sold).
<PAGE>
<PAGE> 12
3.10. Employment Agreements. Schedule 3.10 identifies
(a) each management or employment contract or contract for personal services
with any officer, consultant, salesman or other non-union employee or agent of
Seller which is not by its terms terminable at will or on less than 30 days'
notice without penalty,
(b) each officer, consultant, salesman or other non-union employee or agent
of Seller receiving as at the date hereof compensation (including bonuses and
commissions, if any) at an annual rate of $50,000 or more, specifying the rate
of such compensation (including such bonuses and commissions) and the
positions held by such persons, and
(c) each collective bargaining agreement or other agreement covering
unionized or hourly employees to which Seller is a party or which covers
employees of Seller .
The contracts and agreements identified on Schedule 3.10 are hereinafter
called the "Employment Contracts." Vitallo has heretofore made available to
Buyer true and complete copies of each of the Employment Contracts as in
effect on the date hereof. Except as listed on Schedule 3.10, there are no
material disputes presently subject to any grievance procedure, arbitration or
litigation under the Employment Contracts nor is there any material default,
or any event which with notice or the lapse of time or both will become a
material default, under the Employment Contracts, by Seller or, to the
knowledge of Vitallo, any other party thereto. There are no strikes, lockouts
or work stoppages or slowdowns or, to the knowledge of Vitallo, jurisdictional
disputes or organizing activity occurring or threatened with respect to the
business operations of Seller.
3.11 Employee Benefit Plans.
(a) Schedule 3.11 lists each Employee Benefit Plan that Seller maintains or
to which Seller contributes:
(i) Each such Employee Benefit Plan (and each related trust, insurance
contract or fund) complies in form and operation in all respects with the
applicable requirements of ERISA, the Code and other applicable Laws.
(ii) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Section 4980B have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit Plan, and all
contributions for any period ending on or before the Closing Date which are
not yet due have been or will be paid to each such Employee Pension Benefit
Plan before the Closing Date or within 60 days after the Closing Date. All
premiums or other payments for all periods ending on or before the Closing
Date have been paid, or will be paid before the Closing Date, with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
<PAGE>
<PAGE> 13
(iv) Each such Employee Benefit Plan which is an Employee Pension Benefit
Plan meets the requirements of a "qualified plan" under Code Section 401(a)
and has received a favorable determination letter from the Internal Revenue
Service.
(v) The market value of assets under each such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of all vested and nonvested Liabilities thereunder,
determined in accordance with PBGC methods, factors and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for determination.
(vi) Vitallo has delivered to Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent Form 5500 Annual
Report and all related trust agreements, insurance contracts and other funding
agreements which implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that Seller maintains or ever
has maintained or to which it contributes, ever has contributed or ever has
been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to terminate
any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been instituted or, to the knowledge of any of Vitallo, threatened.
(ii) There have been no Prohibited Transactions with respect to any such
Employee Benefit Plan. No Fiduciary has any Liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or, to the knowledge
of Vitallo, threatened, except that the former plan administrator is being
investigated for self dealing practices with all of his clients, with respect
to which Seller is not involved in such investigation as a possible defendant.
Vitallo has no knowledge of any basis for any such action, suit, proceeding,
hearing or investigation.
(iii) Seller has not incurred, and Vitallo has no reason to expect that
Seller will incur, any Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
(c) Seller has not contributed to or been required to contribute to any
Multiemployer Plan, and Seller has no Liability (including withdrawal
Liability) under any Multiemployer Plan.
(d) Seller has not maintained or contributed to or been required to
contribute to any Employee Welfare Benefit Plan providing medical, health or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses or their dependents (other than in
accordance with Code Section 4980B).
3.12 Patents, Trademarks, Copyrights, Licenses and Secrecy Agreements.
Schedule 3.12 identifies all patents, patent applications, trademarks,
trademark applications, trade names and copyrights owned by Seller and all
patent, trademark, copyright, trade name and technology licenses or secrecy
<PAGE> 14
agreements of Seller. All such patents, trademarks, copyrights and
applications have been duly registered in, filed in or issued by the United
States Patent and Trademark Office, the United States Registrar of Copyrights
or the corresponding offices of other countries, and have been properly
maintained and renewed in accordance with applicable laws and regulations.
Except as disclosed in Schedule 3.12, there is no patent, copyright, trade
name or trademark infringement or similar proceeding pending or, to the
knowledge of Vitallo, threatened against Seller. Vitallo has no knowledge of
any substantial basis for any contention that
(a) any of the material patents, trademarks, trade names, copyrights or
applications therefor of Seller are invalid or subject to claim of patent
abuse,
(b) Seller is infringing in any material respect any patents, trademarks,
trade names or copyrights of others,
(c) Seller is violating in any material respect any technology or secrecy
rights of any person, or
(d) any patents, trademarks, trade names, copyrights, technology or secrecy
rights are being used contrary to the provisions of any material licensing or
other agreement.
Schedule 3.12 lists all material licenses and other rights which have been
granted by Seller for the use of any patents, trademarks, trade names,
copyrights, trade secrets and similar rights.
3.13 Trade Secrets. Seller has the right to use, subject to the license and
secrecy agreements listed on Schedule 3.13 hereto, free and clear of any
claims of others (pending or threatened), all trade secrets, customer lists
and technical information being used in the business and operations of Seller
to the extent and on the products on which, or in respect of which, such items
are being used.
3.14 Governmental Licenses and Permits. Schedule 3.14 hereto identifies all
licenses, permits and variances of all United States Federal, state and local
governmental authorities relating to the business and operations of Seller
(the "Permits"). Vitallo has heretofore delivered to Buyer true and complete
copies of the Permits as in effect on the date hereof. Except as set forth in
Schedule 3.14, all governmental licenses and permits material to or necessary
in the conduct of the business of Seller have been obtained and are in full
force and effect, and Seller is not in material violation of any such licenses
or permits, and no proceeding is pending or threatened to revoke or limit any
thereof.
3.15 Indebtedness and Commitments. Schedule 3.15 hereto identifies each
contract or agreement under which Seller has outstanding any indebtedness,
obligation (including without limitation guarantees) or liability for borrowed
money or the deferred purchase price of property or has the right or
obligation to incur any such indebtedness, obligation or liability (the "Debt
Instruments"). Vitallo has heretofore delivered to Buyer true and complete
copies of each of the Debt Instruments as in effect on the date hereof.
Except as set forth in Schedule 3.15, there is no event of default or
condition or event which, with the giving of notice or the lapse of time or
both, could become an event of default under any of the Debt Instruments.
3.16 Taxes. Except as set forth in Schedule 3.16 hereto:
(a) as of the Closing Date, Seller will have prepared and executed and duly
filed when due all United States Federal, state and other Tax Returns required
to be filed by applicable laws and regulations for all periods to and
including periods ending on such date and all Taxes or installments thereof
<PAGE> 15
that are shown to be due on such Tax Returns will have been duly and timely
paid,
(b) with respect to any period for which Tax Returns have not yet been filed,
or for which Taxes are not yet due or owing, Seller has made due and
sufficient current accruals for such Taxes in its financial statements, and
Seller has made all required estimated Tax payments sufficient to avoid any
underpayment penalty,
(c) Vitallo has furnished to Buyer complete and correct copies of all United
States Federal, state and local income Tax Returns relative to the operations
of Seller for the period beginning January 1, 1988, and ending January 31,
1996, together with complete and correct copies of all reports of United
States Federal, state and local Tax authorities relating to examinations of
such returns,
(d) there are no agreements, waivers or arrangements by Seller for the
extension of the time for the assessment of any material amounts of Tax, and
no power of attorney granted by Seller with respect to any Taxes is currently
in effect. No closing agreement under Section 7121 of the Code or any similar
provision of any state, or local law has been entered into by or with respect
to Seller,
(e) all United States Federal, state and local income Tax Returns of Seller
for each year to and including the year ended December 31, 1993 have been
examined by or accepted as filed with the relevant Tax authorities and any
asserted deficiencies settled and paid,
(f) the consolidated balance sheets of Seller as at January 31, 1996 and
October 31, 1996 adequately provide (either in accruals for Taxes, deductions
from refundable Taxes or in other recorded liability or reserve accounts) for
the payment of all Taxes payable by Seller for the period ended on each such
date and for all periods prior thereto,
(g) there have been no deficiencies proposed as a result of the examination
of any United States Federal, state or other Tax Returns filed by Seller. No
audit or other proceeding by any court, governmental or regulatory authority,
or similar person, is pending or threatened with respect to any Taxes due from
or with respect to Seller or any Tax Return filed by or with respect to
Seller, and no assessment of Tax is proposed against Seller or any of its
respective assets,
(h) Seller has not filed or consented to the filing of any United States
Federal or state consolidated income Tax Return with any other person,
(i) Seller does not have any liability or potential liability with respect to
any consolidated Tax Return filed or to be filed by any person,
(j) Seller has not consented to the application to it of Section 341(f)(2) of
the Code,
(k) there are no Liens with respect to Taxes upon any of the assets of
Seller, other than Liens with respect to Taxes that are not yet due or remain
payable without penalty or are being contested in good faith and by
appropriate proceedings and for which adequate current reserves have been
established in accordance with generally accepted accounting principles, and
<PAGE>
<PAGE> 16
(l) Seller has not been nor is it in violation (or with notice or lapse of
time or both, would be in violation) of any applicable law relating to the
payment or withholding of Taxes. Seller has duly and timely withheld from
employee salaries, wages, and other compensation and paid over to the
appropriate Taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
3.17 Insurance. Schedule 3.17 hereto is a complete and correct list of all
material insurance policies of Seller or by which Seller or any of its
properties or assets is covered, all of which are presently in full force and
effect. Vitallo has furnished to Buyer complete and correct copies of such
policies as in effect on the date hereof.
3.18 Litigation and Claims. Except as set forth in Schedule 3.18:
(a) there are no actions, suits or proceedings pending or threatened against
Seller which could reasonably be expected, if adversely determined, to have a
Material Adverse Affect on Seller taken as a whole, or to delay, prevent or
hinder the consummation of the transactions contemplated by this Agreement,
(b) Seller has not been charged with violating or threatened with a charge of
violating, nor is it under investigation with respect to a possible violation
of, any provision of any United States Federal, state, local or foreign law or
administrative ruling or regulation, and
(c) Seller has not received any currently effective notice of any default,
nor is in default, under any order, writ, injunction, decree or permit of any
court or of any commission or other administrative or regulatory agency.
To the knowledge of Vitallo, except as set forth in Schedule 3.18, there is no
investigation of the business or properties of Seller being conducted by any
governmental authority or agency which, individually or in the aggregate,
could reasonably be expected to result in any action which might have a
Material Adverse Effect on Seller.
3.19 Compliance with Laws. Except as set forth in Schedule 3.19, Seller has
complied with all laws, regulations, orders, judgments or decrees of any
United States Federal, state or local court or any governmental authority,
noncompliance with which, in the aggregate, might have a Material Adverse
Effect on Seller.
3.20 Environmental and Occupational Safety Matters. Except as set forth in
Schedule 3.20
(a) To the best of Vitallo's and Seller's knowledge, Seller has been and is
in compliance with all Environmental, Health and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced against Seller alleging any failure to so
comply. Without limiting the generality of the preceding sentence, Seller has
obtained, and has been and is in compliance with all of the terms and
conditions of, all permits, licenses and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables which are contained in, all Environmental, Health and Safety Laws
applicable to it. No such permits, licenses or other authorizations have
expired, have been administratively extended or will lapse or become void as a
result of the transactions contemplated by this Agreement.
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(b) To the best of Vitallo's and Seller's knowledge, Seller does not have any
liability (and Seller has not handled or disposed of any substance, arranged
for the disposal of any substance, exposed any employee or other individual to
any substance or condition, or owned or operated any property or facility, in
any manner that could form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
Seller giving rise to any liability) for response or remediation costs, fines
or penalties at any site, location or body of water (surface or subsurface),
for any illness of or personal injury to any employee or other individual, or
for any other reason, under any Environmental, Health or Safety Law.
3.21 Brokers' Fees. Neither Vitallo nor Seller has incurred any liability
for brokerage fees, finder's fees, agent's commissions or other similar forms
of compensation in connection with this Agreement or any transaction
contemplated hereby for which Buyer or Seller will be responsible.
3.22 Contingencies. Except for:
(a) liabilities which are disclosed and fully provided for in the most recent
balance sheet referred to in Section 3.05, and
(b) liabilities incurred in the usual and ordinary course of business of
Seller subsequent to the date of such balance sheet and on or prior to the
Closing Date.
Seller has no material liabilities or obligations (absolute or contingent,
known or unknown, asserted or unasserted), including without limitation
contingent liability for the performance of any obligation by any other
person.
3.23 Employee Severance Claims. There will be no liability of Seller in
respect of severance or separation pay to persons employed by Seller on the
Closing Date as a result of the consummation of this Agreement and the
transactions contemplated hereby.
3.24 Bank Accounts. Schedule 3.24 sets forth a true and complete list of the
names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which Seller maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
3.25 Accounts Receivable. All accounts receivable of Seller represent bona
fide claims against debtors for sales, leases, services performed or other
charges arising on or before the Closing Date. To the best of Vitallo's and
Seller's knowledge, said accounts receivable are subject to no material
defenses, counterclaims or rights of setoff, other than cash discounts,
returns and allowances and credits for freight granted in the ordinary course
of business and are otherwise fully collectible in the ordinary course of
business.
3.26 Condition of Tangible Assets. Except for ordinary wear and tear, the
tangible assets of Seller are in all material respects (i) structurally sound
with no material defects, (ii) in good operating condition and repair, (iii)
adequate for the uses to which they are presently being put, and (iv) not in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs.
3.27 Inventory. The inventory of Seller is (except to the extent of any
reserves reflected on the most recent balance sheet set forth in Section 3.05
hereof) in all material respects of a quality and quantity usable and salable
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<PAGE> 18
in the ordinary course of business and all such inventory is reflected on such
balance sheet, with adequate provisions or adjustments having been made for
excess inventory, slow-moving inventory and inventory obsolescence and
shrinkage, in accordance with generally accepted accounting principles
consistently applied.
3.28 Hazardous Wastes.
(a) To the best of Vitallo's and Seller's knowledge, all properties and
equipment used by Seller are and have been free of asbestos, PCB's,
underground storage tanks, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans and Extremely Hazardous
Substances.
(b) No Extremely Hazardous Substances, have been disposed of, discharged,
spilled, placed or applied on or below the surface of any other property by or
on behalf of Seller.
3.29 Warranty Expense. The aggregate expense incurred by Seller to satisfy
uninsured warranty claims has not exceeded in the aggregate $50,000 in any of
the past three fiscal years, and since January 1, 1993 Seller has not incurred
any material increase in such warranty expense or made any material change in
its warranty practices or policies.
3.30 Powers-of-Attorney. Except as set forth on Schedule 3.30, no person has
been authorized to exercise a power-of-attorney, or to act as
attorney-in-fact, with respect to Seller.
3.31 Books and Records. To the best of Vitallo's and Seller's knowledge, the
minute books and other similar records of Seller contain a true and materially
complete record, in all material respects, of all actions taken at all
meetings and by all written consents in lieu of meetings of Seller's
stockholders, boards of directors, and committees thereof. Such books and
records have been maintained, in all material respects, in accordance with
good business and bookkeeping practices.
3.32 No Undisclosed Information. Except as disclosed herein, Vitallo does
not have any knowledge of any matter involving Seller which might have a
Material Adverse Effect on Seller. Neither this Agreement nor any document,
certificate or statement furnished or to be furnished to Buyer by or on behalf
of Vitallo in connection with the transactions provided for herein contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained
herein or therein not misleading.
ARTICLE IV
Representations and Warranties of Buyer
Buyer represents and warrants to Vitallo that the statements contained in this
Article IV are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date was substituted for the date of this Agreement
throughout this Article IV).
4.01 Organization and Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Buyer has the corporate power and authority to execute and
deliver this Agreement and each of the other Transaction Documents to which it
is a party and to perform its obligations hereunder and thereunder.
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<PAGE> 19
4.02 Due Authorization. The execution and delivery by Buyer of this
Agreement and each of the other Transaction Documents to which it is a party,
the performance by it of all the terms and conditions hereof and thereof to be
performed by it and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by all necessary corporate
proceedings on the part of Buyer. This Agreement and the other Transaction
Documents to which Buyer is a party constitute the legal, valid and binding
obligations of Buyer enforceable against Buyer in accordance with their
respective terms, subject to bankruptcy, insolvency or other similar laws of
general application affecting creditors' rights and general principles of
equity.
4.03 Absence of Conflicts. Neither the execution and delivery by either
Buyer of this Agreement and the other Transaction Documents to which it is a
party, the compliance by Buyer with the terms and conditions hereof or
thereof, nor the consummation by Buyer of the transactions contemplated hereby
or thereby will
(a) conflict with any of the terms, conditions or provisions of the articles
of incorporation or bylaws of Buyer,
(b) violate any provision of, or require any consent, authorization or
approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
decree applicable to, or any governmental permit or license issued to, or
notice to or filing with a governmental body with respect to Buyer,
(c) conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, Lien, lease,
agreement or instrument to which Buyer is a party or by which it is bound or
to which any of its property is subject,
(d) result in the creation of any Lien upon any of the assets of Buyer, or
(e) give to others any material rights or interests (including rights of
purchase, termination, cancellation or acceleration) under any such indenture,
mortgage, Lien, lease, agreement or instrument,
which, with respect to the matters specified in clauses (b) through (e) of
this Section 4.03 could reasonably be expected to delay, prevent or hinder in
any material respect the transactions contemplated hereby.
4.04 Litigation and Claims Against Buyer. There are no actions, suits or
proceedings pending or threatened against Buyer which could reasonably be
expected, if adversely determined, to delay, prevent or hinder the
consummation of the transactions contemplated by this Agreement.
4.05. Brokers' Fees. Buyer has not incurred any liability for brokerage
fees, finder's fees, agent's commissions or other similar forms of
compensation in connection with this Agreement or any transactions
contemplated hereby for which Vitallo will be responsible.
ARTICLE V
Covenants of Vitallo
Vitallo covenants and agrees as follows:
5.01 Certain Changes and Conduct of Business.
(a) Negative Covenants. From and after the date of this Agreement and until
the Closing, without the prior written consent of Buyer, Vitallo will not
permit Seller to:
<PAGE> 20
(i) make any material change in the conduct of its business or operations;
(ii) issue any additional shares of capital stock or equity securities or pay
any dividends or make any distributions with respect to its capital stock;
(iii) incur any indebtedness for borrowed money, issue any notes, bonds,
debentures or other corporate securities or grant any option, warrant or right
to purchase any thereof, except transactions pursuant to existing contracts or
entered into in the usual and ordinary course of business;
(iv) make any sale, assignment, transfer or other conveyance of any of its
assets or any part thereof, except transactions pursuant to existing contracts
or entered into in the usual and ordinary course of business;
(v) subject any of its assets or any part thereof to any Lien or suffer such
to be imposed;
(vi) enter into any new, or amend any existing, contracts, commitments or
agreements which meet the criteria set forth in any of subparagraphs (i)
through (v) of Section 3.08 of this Agreement, except contracts for the
purchase or sale of inventory, equipment, supplies or raw materials entered
into in the usual and ordinary course of business and the pending purchase of
new machinery already disclosed to Buyer to meet its anticipated contractual
obligations to Woldorf and State Farm Insurance Company;
(vii) enter into any new, or amend in any material respect any existing,
employee benefit plan, policy, agreement, arrangement or understanding, except
as required by law, or grant any material increases in rates of pay to hourly
or salaried employees except as required by law or by any existing collective
bargaining or employment agreement;
(viii) enter into any transaction otherwise than in the usual and ordinary
course of business;
(ix) take or omit to take any action which would cause Vitallo to be unable
to furnish the certificate called for by Section 7.03(a) hereof; or
(x) commit itself to do any of the foregoing.
(b) Affirmative Covenants. From and after the date of this Agreement and
until the Closing, Vitallo will cause Seller to:
(i) continue to maintain its properties in accordance with present practice
in a condition suitable for their current use;
(ii) maintain all existing material insurance policies in full force and
effect;
(iii) file when due all required United States Federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted and an adequate bond is posted or other
appropriate action is taken to assure that none of its assets shall be
subjected to any Lien therefor, foreclosed against or taken in payment
thereof;
(iv) continue to conduct its businesses in the ordinary course;
(v) keep its books of account, records and files in the ordinary course in
accordance with their existing practices; and
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<PAGE> 21
(vi) continue to maintain existing business relationships with suppliers,
customers and vendors of leased equipment.
5.02 Access to Information. From and after the date of this Agreement and
until the Closing Date Vitallo will, and will cause Seller to, afford to Buyer
and Buyer's authorized representatives reasonable access to the officers,
employees, properties, books and records of Seller and will, and will cause
Seller to, furnish or make available to Buyer such additional financial and
operating data and other information pertaining to Seller as Buyer may
reasonably request. Any furnishing of such information to Buyer or
investigation by Buyer shall not affect the right of Buyer to rely upon the
representations and warranties of Vitallo in this Agreement.
5.03 Governmental Approvals. Vitallo shall
(a) in a timely, accurate and complete manner make, or cause Seller to make,
such required filings with and prepare such required applications to any
governmental agency with which such filings or applications are required to be
made or whose approval or consent is required for the consummation by Vitallo
or Seller of the transactions contemplated by this Agreement, and
(b) provide to Buyer such information as Buyer may require to make such
filings and prepare such applications as may be required for the consummation
by Buyer of the transactions contemplated by this Agreement.
5.04 Consents and Approvals. Vitallo shall take, and shall cause Seller to
take, all necessary action and use all reasonable efforts to obtain all
consents, approvals, permits and licenses required of any of them to carry out
the transactions contemplated in this Agreement.
5.05 All Reasonable Efforts. Vitallo shall, and shall cause Seller to, use
all reasonable efforts to cause all the conditions precedent to the
consummation of the transactions contemplated hereby applicable to Vitallo and
Seller to be met as promptly as practicable.
5.06 Exclusivity. Until the Closing Date, Vitallo shall not (i) entertain
any proposal or offer from any Person relating to the acquisition of any
capital stock or other voting securities or any of the assets of Seller
(including any acquisition structured as a merger, consolidation or share
exchange) or to any other transaction which could result in control of Seller
by any Person other than Buyer, or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. Vitallo shall notify Buyer
immediately if any Person makes any proposal, offer, inquiry or contact with
respect to any such acquisition or transaction.
5.07 Disclosure Schedule. Vitallo shall promptly supplement the Disclosure
Schedule if events occur prior to the Closing that would have been required to
be disclosed had they existed at the time of executing this Agreement. The
Disclosure Schedule, as supplemented prior to the Closing, will contain a
true, correct and complete list and description of all items required to be
set forth therein. Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein
unless the Disclosure Schedule identifies such exception with particularity.
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ARTICLE VI
Covenants of Buyer
Buyer covenants and agrees as follows:
6.01 Information Kept Confidential. Unless and until the transactions
contemplated hereby have been consummated, Buyer and its officers, employees,
agents and representatives will hold in strict confidence, and not use in any
way except in connection with the transactions contemplated by this Agreement,
all data and information obtained in connection with the transactions
contemplated by this Agreement from Vitallo or Seller or from any officer,
employee, agent or representative of any of them whether pertaining to the
financial condition, results of operations, methods of operations or products
of Seller or otherwise, except any of the same which
(a) was in the public domain prior to being furnished to Buyer,
(b) was known to Buyer prior to its disclosure to Buyer by Vitallo or Seller,
(c) is required to be disclosed by Buyer or by its officers, agents or
representatives in connection with any court action or any proceeding before a
governmental regulatory or administrative body or in connection with securing
any consent or approval required hereunder or any financing contemplated
hereby,
(d) is disclosed to Buyer by a third party, who did not unlawfully acquire or
receive such information on a confidential basis from Vitallo or Seller
subsequent to its disclosure to Buyer by Vitallo or Seller , or
(e) after being furnished to Buyer, entered the public domain through no act
or failure to act on the part of Buyer.
In the event that this Agreement shall be terminated (whether or not as
permitted by Section 10.01), Buyer and its authorized representatives shall
promptly destroy or return to Seller all information furnished by Vitallo or
Seller and any copies or extracts thereof; provided, however, that Buyer may
retain such information until final resolution of any claim made by or against
Buyer pursuant to Section 10.01(b).
6.02 Governmental Approvals. Buyer shall
(a) in a timely, accurate and complete manner make such required filings with
and prepare such required applications to any governmental agency with which
such filings or applications are required to be made or whose approval or
consent is required for the consummation by Buyer of the transactions
contemplated by this Agreement, and
(b) provide to Vitallo such information concerning Buyer as Vitallo may
require to make such filings and prepare such applications as may be required
for the consummation by Vitallo of the transactions contemplated by this
Agreement.
6.03 Consents and Approvals. Buyer shall use all reasonable efforts to
obtain all consents, approvals, permits and licenses required of it to carry
out the transactions contemplated in this Agreement.
6.04 All Reasonable Efforts. Buyer shall use all reasonable efforts to cause
all the conditions precedent to the consummation of the transactions
contemplated hereby applicable to Buyer to be met as promptly as practicable.
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ARTICLE VII
Conditions of Closing
7.01 Preamble. The respective obligations set forth herein of Vitallo,
Seller and Buyer to consummate the agreements and the transactions
contemplated hereby shall be subject to the fulfillment, on or before the
Closing, in the case of the obligations of Buyer, of the conditions set forth
in Sections 7.02 and 7.03, and, in the case of the obligations of Vitallo and
Seller, of the conditions set forth in Sections 7.02 and 7.04. Any of the
following conditions may be waived in whole or in part by the party or parties
whose obligations are subject to such conditions.
7.02 Conditions to Obligations All Parties.
(a) No Orders. There shall be in force no order or decree restraining,
enjoining, prohibiting, invalidating or otherwise preventing to a material
degree the consummation of the transactions contemplated by this Agreement or
the other agreements or documents described herein.
(b) No Litigation. No governmental department, agency, commission or other
governmental entity shall have notified any party hereto of its intention to
institute any suit, proceeding or investigation, and no such suit, proceeding
or investigation and no suit instituted by any person shall be pending (except
for suits, proceedings or investigations which, in the opinions of counsel for
Buyer and Vitallo, have no substantial likelihood of success) against any
party hereto to restrain, enjoin, prohibit, invalidate or otherwise prevent to
a material degree the transactions contemplated by this Agreement or the other
agreements or documents described herein, or to obtain substantial damages
from any party hereto in connection with this Agreement or the other
agreements and documents described herein or the consummation of the
transactions contemplated hereby or thereby.
(c) Consents and Approvals. Any and all consents, orders, permits, licenses,
qualifications, authorizations or approvals from governmental authorities
required for the consummation of the transactions contemplated by this
Agreement shall have been obtained.
(d) Defino Transaction. The closing with Defino under a Membership Interest
Agreement acceptable to both Defino and Buyer shall occur simultaneously with
the Closing.
(e) Netting of Loans. At the Closing, all loans due to Seller from Vitallo
shall have been offset against all loans due to Vitallo from Seller, and the
remaining balance due to Vitallo from Seller shall be cancelled and
contributed to the capital of Seller by Vitallo (it being understood that such
loans are not being purchased or assumed by Buyer).
7.03 Conditions to Obligations of Buyer.
(a) Representations and Warranties of Vitallo; Performance of Covenants.
Except as otherwise consented to in writing by Buyer, the representations and
warranties in Article II and Article III hereof shall be true and correct in
all material respects when made and at and as of the Closing Date with the
same force and effect as though made at and as of such time. Except as
otherwise consented to in writing by Buyer, Vitallo shall have complied in all
material respects with all covenants and conditions contained herein required
to be performed or complied with by it at or before the Closing. At the
Closing Buyer shall have received a certificate of Vitallo to the foregoing
effects, which certificates shall list or attach copies of any such written
consents by Buyer.
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<PAGE> 24
(b) Opinion of Counsel for Vitallo. Buyer shall have received from William
Diamant, Esquire or other counsel satisfactory to Buyer a favorable written
opinion, dated the Closing Date and in substantially the form attached hereto
as Exhibit A. In rendering the foregoing opinion, such counsel may rely on
the opinions, satisfactory in form and substance to Buyer, of other counsel
satisfactory to Buyer.
(c) Permits, Consents, Etc. Any and all orders, permits, licenses,
qualifications, authorizations or approvals, and any and all consents with
respect to agreements required for the closing of the transactions
contemplated by this Agreement to have been obtained by Vitallo or Seller
shall have been obtained.
(d) Retirement of Seller. Vitallo shall have retired from Seller effective
at the Closing, when he receives his $4,000,000 payment pursuant to this
Agreement.
(e) Bill of Sale. Seller shall have executed and delivered to Buyer a Bill
of Sale in the form attached hereto as Exhibit B transferring title to the
Assets identified therein to Buyer.
(f) Assignment and Assumption Agreement. Seller shall have executed and
delivered to Buyer an Assignment and Assumption Agreement in the form attached
hereto as Exhibit C pursuant to which Seller assigns to Buyer its rights under
the contracts, licenses and permits identified therein.
(g) TCS Stock. Vitallo shall have contributed his shares of capital stock of
TCS to Seller at the Closing.
(h) Transaction Documents. Vitallo shall have entered into a Stock Purchase
Agreement and General Release with Seller substantially in the form of Exhibit
D hereto, and the parties thereto shall have entered into the Lease
substantially in the form of Exhibit E hereto.
(i) Proceedings and Incumbency. On the Closing Date there shall have been
delivered to Buyer a certificate in form and substance satisfactory to Buyer,
dated the Closing Date and signed on behalf of Seller by the Secretary or an
Assistant Secretary of Seller, certifying as to (a) true copies of the
articles of incorporation and bylaws of such entity as in effect on such date,
(b) true copies of all corporate action taken by such entity relative to this
Agreement and the other Transaction Documents to which it is a party, and (c)
the names, true signatures and incumbency of the officer or officers of such
entity authorized to execute and deliver this Agreement and the other
Transaction Documents to which it is a party.
(j) Results of "Due Diligence" Inquiry. Any investigation of Seller and
Vitallo undertaken by Buyer shall not have resulted in the discovery of any
information or matter which Buyer in its sole discretion has determined to be
material and adverse.
(k) Material Adverse Change. Seller shall not have suffered any change in
its condition (financial or otherwise) or in its assets, liabilities (absolute
or contingent) or business, except changes in the lawful and ordinary course
of business, and none of such changes as may have occurred, individually or in
the aggregate, shall have materially and adversely affected its business,
property, assets, condition or prospects.
(l) Legal Matters. All actions, proceedings, instruments and documents
required to carry out this Agreement and to close the transactions
contemplated hereby and all other related legal matters shall be satisfactory
to counsel for Buyer.
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<PAGE> 25
7.04 Conditions to Obligations of Vitallo.
(a) Representations and Warranties of Buyer; Performance of Covenants.
Except as otherwise consented to in writing by Vitallo, the representations
and warranties in Article IV hereof shall be true and correct in all material
respects when made and at and as of the Closing Date with the same force and
effect as though made at and as of such time. Except as otherwise consented
to in writing by Vitallo, Buyer shall have complied in all material respects
with all covenants and conditions contained herein required to be performed or
complied with by it at or before the Closing. At the Closing Vitallo shall
have received a certificate of Buyer to the foregoing effects, which
certificate shall list or attach copies of any such written consents of
Vitallo.
(b) Opinion of Counsel for Buyer. Vitallo shall have received from Reed
Smith Shaw & McClay, counsel to Buyer, a favorable opinion, dated the Closing
Date and in substantially the form attached hereto as Exhibit F. In rendering
the foregoing opinion, such counsel may rely on the opinions, satisfactory in
form and substance to Vitallo, of other counsel satisfactory to Vitallo.
(c) Permits, Consents, Etc. Any and all orders, permits, licenses,
qualifications, authorizations or approvals, and any and all consents with
respect to agreements required for the closing of the transactions
contemplated by this Agreement to have been obtained by Buyer shall have been
obtained.
(d) Transaction Documents. The parties thereto shall have entered into the
Lease substantially in the form of Exhibit E hereto.
(e) Proceedings and Incumbency. On the Closing Date there shall have been
delivered to Vitallo a certificate in form and substance satisfactory to
Vitallo, dated the Closing Date and signed on behalf of Buyer by the Secretary
or an Assistant Secretary of such entity, certifying as to (a) true copies of
the articles of incorporation and bylaws of such entity as in effect on such
date, (b) true copies of all corporate action taken by such entity relative to
this Agreement and the other Transaction Documents to which it is a party, and
(c) the names, true signatures and incumbency of the officer or officers of
such entity authorized to execute and deliver this Agreement and the other
Transaction Documents to which it is a party.
(f) Legal Matters. All actions, proceedings, instruments and documents
required to carry out this Agreement and to close the transactions
contemplated hereby and all other related legal matters shall be satisfactory
to counsel for Vitallo.
(g) Release of Obligations. Seller and Buyer shall have caused Vitallo to be
released from pre-Closing third party obligations with respect to Seller,
including any guarantys on third-party debt of Seller, which are in excess of
$50,000, or shall indemnify Vitallo against any such obligations of $50,000 or
less from which he is not released at Closing.
(h) Other Matters. Seller shall have transferred to Vitallo the title of his
Seller-provided automobile and shall have provided a means for Vitallo to
continue his health insurance coverage, dependent upon applicable plan
provisions, until he reaches the age of 65.
ARTICLE VIII
Remedies for Breaches of this Agreement
8.01 Survival of Representations, Warranties and Covenants. All of the
representations, warranties and covenants of the parties contained in this
Agreement shall survive the Closing and shall continue in full force and
effect for a period of three years thereafter.
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<PAGE> 26
8.02 Indemnification Provisions for Benefit of Buyer. If there is any breach
of any of the representations, warranties or covenants of Vitallo and/or
Seller contained herein, or if any third party alleges facts that, if true,
would mean that such a breach existed, and provided that Buyer deliver to
Vitallo, pursuant to Section 8.04 hereof, a claim for indemnification with
respect to such alleged breach, then Vitallo shall indemnify Buyer for any
breach of a representation or warranty or a covenant of Vitallo and/or Seller
contained herein by Vitallo and/or Seller from and against all Adverse
Consequences that Buyer has suffered or may suffer caused by, resulting from,
arising out of or relating to such breach through and after the date of such
claim. Seller also indemnifies Buyer from and against any Adverse
Consequences for failure to comply with any bulk sales laws (in consideration
of which indemnification obligation Buyer hereby waives compliance by Sellers
with any applicable bulk sales laws).
8.03 Indemnification Provisions for Benefit of Vitallo. If there is any
material breach of any of the representations, warranties or covenants of
Buyer contained herein, or if any third party alleges facts that, if true,
would mean that such a breach existed, and provided that Vitallo deliver to
Buyer pursuant to Section 8.04 hereof a claim for indemnification with respect
to such alleged breach, then Buyer shall indemnify Vitallo from and against
all Adverse Consequences that Vitallo has suffered or may suffer caused by,
resulting from, arising out of or relating to such breach through and after
the date of such claim.
8.04 Notice of Claim for Indemnification. No claim for indemnification
hereunder shall be valid unless notice of such claim is delivered to Buyer (in
the case of a claim by Vitallo) or to Vitallo (in the case of a claim by
Buyer). Any such notice shall set forth in reasonable detail, to the extent
known by the person giving such notice, the facts on which such claim is based
and the estimated amount of Adverse Consequences resulting therefrom.
8.05 Matters Involving Third Parties.
(a) If Buyer or Vitallo receives notice or acquires knowledge of any matter
which may give rise to a claim by another person and which may then result in
a claim for indemnification under this Article VIII, then (i) if such notice
or knowledge is received or acquired by Buyer, Buyer shall promptly notify
Vitallo thereof, and (ii) if such notice or knowledge is received or acquired
by Vitallo, he shall promptly notify Buyer thereof; provided, however, that no
delay in giving such notice shall diminish any obligation under this
Article VIII to provide indemnification unless (and then solely to the extent
that) the party from whom such indemnification is sought is prejudiced.
(b) Any party from whom such indemnification is sought (the "Indemnifying
Party") shall have the right to defend the party seeking such indemnification
(the "Indemnified Party") against such claim by another person (the "Third
Party Claim") with counsel of the Indemnifying Party's choice reasonably
satisfactory to the Indemnified Party so long as (i) within fifteen days after
the Indemnified Party has given notice of the Third Party Claim to the
Indemnifying Party, the Indemnifying Party notifies the Indemnified Party that
the Indemnifying Party will indemnify the Indemnified Party from and against
all Adverse Consequences the Indemnified Party may suffer caused by, resulting
from, arising out of or relating to such Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
satisfactory to the Indemnified Party that the Indemnifying Party has the
financial resources necessary to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (iii) the Third Party Claim
seeks only money damages and not an injunction or other equitable relief,
(iv) settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely to
<PAGE> 27
establish a precedential custom or practice adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Party conducts
the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the Third
Party Claim in accordance with Section 8.05(b) hereof, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior consent of
the Indemnifying Party, and (iii) the Indemnifying Party shall not consent to
the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior consent of the Indemnified Party.
(d) If any of the conditions specified in Section 8.05(b) hereof is or
becomes unsatisfied, however, (i) the Indemnified Party, upon prior written
notice to the Indemnifying Party, may defend against, and consent to the entry
of any judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it may deem advisable (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in connection
therewith), (ii) the Indemnifying Parties shall reimburse the Indemnified
Party promptly and periodically for the costs of defending against the Third
Party Claim (including reasonable attorneys' and accountants' fees and
disbursements and amounts paid in settlement), and (iii) the Indemnifying
Party shall remain responsible for any Adverse Consequences the Indemnified
Party may suffer caused by, resulting from, arising out of or relating to such
Third Party Claim to the fullest extent provided in this Article VIII.
8.06 Treatment of Indemnification Payments. All indemnification payments
made by Vitallo or Buyer under this Article VIII shall be deemed adjustments
to the Purchase Price.
8.07 Other Indemnification Provisions. The indemnification provisions in
this Article VIII are in addition to, and not in derogation of, any statutory,
equitable or common law remedy any party may have for breach of
representation, warranty or covenant.
ARTICLE IX
Definitions
As used herein the following terms have the following meanings:
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, Liens, losses, expenses and
fees, including court costs and attorneys' and accountants' fees and
disbursements.
"Affiliate" shall mean a person who, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, the person specified.
"Agreement" shall have the meaning set forth in the preamble hereto.
"Assets" has the meaning set forth in Section 1.01 hereof.
"Assignment and Assumption Agreement" means an Assignment and Assumption
Agreement dated the Closing Date between Seller and Buyer.
<PAGE> 28
"Bill of Sale" means a Bill of Sale dated the Closing Date from Seller to
Buyer.
"Buyer" shall have the meaning set forth in the preamble hereto.
"Closing" shall have the meaning set forth in Section 1.03.
"Closing Date" shall have the meaning set forth in Section 1.03.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals hereto.
"Confidential Information" includes information concerning Seller's sales,
sales volume, sales methods, sales proposals, customers and prospective
customers, identity of customers and prospective customers, identity of key
purchasing personnel in the employ of customers and prospective customers,
amount or kind of customer's purchases from Seller, its sources of supply, its
computer programs, system documentation, special hardware, product hardware,
related software development, its manuals, formulae, processes, methods,
machines, compositions, ideas, improvements, inventions or other confidential
or proprietary information belonging to Seller or relating to its affairs.
"Contracts" shall have the meaning set forth in Section 3.08.
"Debt Instruments" shall have the meaning set forth in Section 3.15.
"Defino" shall have the meaning set forth in the recitals hereto.
"Disclosure Schedule" shall mean the disclosure schedule dated the date
hereof, as supplemented from time to time to the Closing on the Closing Date
furnished by Vitallo to Buyer and containing all lists, descriptions,
exceptions, and other information and materials as are required to be included
therein pursuant to this Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e) other plan or
practice of Seller , whether formal or informal, written or oral, and whether
or not legally enforceable, providing or which may provide benefits to
employees of Seller in connection with their employment or the termination of
their employment by retirement or otherwise.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Employment Contracts" shall have the meaning set forth in Section 3.10.
"Environmental, Health and Safety Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation
and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970,
each as amended, together with all other laws of federal, state, local, and
<PAGE> 29
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety or employee health and
safety, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or chemical, medical,
industrial, hazardous or toxic materials or wastes into ambient air, surface
water, ground water or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or chemical, medical, industrial,
hazardous or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Equipment" shall have the meaning set forth in Section 3.07(b).
"Equipment Instruments" shall have the meaning set forth in Section 3.07(b).
"Excluded Assets" shall mean the tax deposit receivable due to Seller from the
IRS with respect to Seller's election of its taxable year.
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" shall have the meaning set forth in Section 3.05.
"Indemnified Party" has the meaning set forth in Section 8.05(b) hereof.
"Indemnifying Party" has the meaning set forth in Section 8.05(b) hereof.
"Lease" shall mean the Lease Agreement dated the Closing Date among Vitallo,
Defino and the L.L.C. with respect to the Company facilities.
"Liability," whether or not capitalized, means any liability (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), including any liability for Taxes, but shall not
include any loans payable (including interest due thereon) to Defino.
"Lien" means any mortgage, pledge, encumbrance, charge or other security
interest other than Permitted Liens.
"L.L.C." shall mean Tukaiz Communications, L.L.C., an Illinois limited
liability company.
"Material Adverse Effect" shall mean a material adverse effect on the
business, property, financial condition or results of operations of a
specified Person.
"Membership Interest Agreement" shall have the meaning set forth in the
recitals hereto.
"Multiemployer Plan" means any employee benefit plan which is a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA and to which Seller
has an obligation to contribute.
"PBGC" means the Pension Benefit Guaranty Corporation.
<PAGE> 30
"Permits" shall have the meaning set forth in Section 3.14.
"Permitted Liens" shall mean landlord's, workmen's, warehousemen's,
materialmen's or other statutory liens or easements, covenants and
encumbrances which are not material in character, amount or extent and do not
materially detract from the value or materially interfere with the use of the
properties subject thereto or affected thereby or otherwise materially impair
the business operations being conducted thereon or therewith.
"Person" shall mean any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Price" shall have the meaning set forth in Section 1.02.
"Real Property" shall have the meaning set forth in Section 3.07(a).
"Real Property Instruments" shall have the meaning set forth in Section
3.07(a).
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Seller" shall have the meaning set forth in the preamble hereto.
"Stock Purchase Agreement and General Release" shall mean the Stock Purchase
Agreement and General Release dated as of the Closing Date between Vitallo and
Seller.
"Tax" or "Taxes" means any United States Federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative minimum, estimated or other tax of any kind whatsoever, including
any interest, penalty or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TCS" shall have the meaning set forth in Section 1.05.
"Third-Party Claim" has the meaning set forth in Section 8.05(b) hereof.
"Transaction Documents" shall mean this Agreement, the Stock Purchase
Agreement and General Release and the Lease.
"Vitallo" shall have the meaning set forth in the preamble hereto.
ARTICLE X
Miscellaneous
10.01 Termination.
(a) This Agreement may be terminated at any time prior to the Closing:
<PAGE> 31
(i) by the mutual written agreement of Vitallo, Seller and Buyer;
(ii) by Buyer or Vitallo or Seller after February 15, 1997 if the Closing of
the transactions contemplated hereby has not occurred by that date and if the
party exercising the right of termination provided by this clause (ii) is
not, at the time of such exercise, in breach of its material obligations under
this Agreement;
(iii) by Buyer on the Closing Date if any of the conditions provided in
Section 7.02 or Section 7.03 have not been met and have not been waived;
(iv) by Vitallo or Seller on the Closing Date if any of the conditions
provided in Section 7.02 or Section 7.04 have not been met and have not been
waived; or
(v) by Buyer or Vitallo or Seller if there is an order or decree restraining,
enjoining, prohibiting, invalidating or otherwise preventing to a material
degree the consummation of the transactions contemplated by this Agreement or
the other agreements or documents described herein.
Buyer or Vitallo or Seller, as the case may be, shall exercise a right of
termination provided above by written notice to the other parties hereto.
(b) If this Agreement is terminated by Buyer or Vitallo or Seller as
permitted in Section 10.01(a), such termination shall be without liability of
any party to any other party to this Agreement; provided, however, that if
such termination shall result from (i) the willful failure of any party to
fulfill a condition precedent to the performance of another party or to
perform a material covenant of this Agreement or (ii) a material and willful
breach by any party of this Agreement, then such party shall be fully liable
for any and all damages, costs and expenses (including, but not limited to,
reasonable counsel fees) sustained or incurred by the other party or parties
in connection herewith.
10.02 Further Assurances; Books and Records. From time to time at Buyer's
request (whether at or after the Closing) and without further consideration,
Vitallo and Seller will execute and deliver such further instruments of
conveyance and transfer as Buyer may reasonably request in order to
effectively convey and transfer the Assets.
10.03 Press Releases and Public Announcements. Except as otherwise required
by law, prior to the Closing, neither Buyer nor Vitallo or Seller shall issue
or permit to be issued any press release, make or permit to be made any public
announcement or otherwise disclose or permit to be disclosed any information
for the purpose of publication by any print, broadcast or other public media,
relating to the transactions contemplated by this Agreement, without the prior
written consent of Vitallo (in the case of an announcement or disclosure other
than by Vitallo) or Buyer (in the case of an announcement or disclosure other
than by Buyer); provided however, that the parties acknowledge that press
releases shall be issued upon signing this Agreement and at Closing and agree
to cooperate to issue a mutual press release. In the event that such
disclosure is required by law, the disclosing party shall be required to give
written notice of such requirement to the other party prior to making any such
disclosure.
10.04 Expenses. Vitallo (and not Seller or the L.L.C.) will pay from the
proceeds of sale all costs and expenses attributable to the performance of and
compliance with all agreements and conditions contained in this Agreement to
be performed or complied with by them, including, without limitation, all
accounting and legal fees and expenses of Vitallo. Buyer will pay all costs
and expenses attributable to the performance of and compliance with all
agreements and conditions contained in this Agreement to be performed or
<PAGE>
<PAGE> 32
complied with by them, including, without limitation, all accounting and legal
fees and expenses of Buyer.
10.05 Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania. Buyer and Vitallo and Seller submit to the
jurisdiction of any state or federal court sitting in Pittsburgh,
Pennsylvania or Chicago, Illinois, in any action or proceeding arising out of
or relating to this Agreement and agree that all claims in respect of the
action or proceeding may be heard and determined in any such court. Buyer and
Vitallo and Seller waive any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waive any bond, surety, or other
security that might be required of any other party with respect thereto.
10.06 Entire Agreement; Modification; Waiver. This Agreement, including the
exhibits, schedules and appendices hereto, constitutes the entire Agreement
among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties and there are no warranties,
representations or other agreements, express or implied, made by any party to
any other party in connection with the subject matter hereof except as
specifically set forth herein or in documents delivered pursuant hereto. To
the fullest extent permitted by law, unless otherwise expressly provided for
herein, no supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any provision of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
10.07 Notices. All notices, demands, claims, requests, undertakings,
consents, opinions and other communications which may or are required to be
given hereunder or with respect hereto shall be in writing, shall be given
either by personal delivery or by mail, facsimile transmission (with
confirmation of receipt), telegraph, telex or similar means of communication,
and shall be deemed to have been given or made when delivered, if personally
delivered, and otherwise when received, addressed to the respective parties as
follows:
If to Buyer:
c/o Matthews International Corporation
Two NorthShore Center
Pittsburgh, PA 15212
Attn: President
If to Vitallo or Seller:
c/o Michael Vitallo
4N 840 Old Farm Road
St. Charles Road
St. Charles, IL 60175
with a copy to:
William Diamant, Attorney
119 E. Ogden Avenue, Suite A
Hinsdale, IL 60521
10.08 Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary and convenient, and by the different parties hereto
<PAGE>
<PAGE> 33
on separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument.
10.09 Matters of Construction, Interpretation and the Like.
(a) Construction. Buyer, Seller and Vitallo have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by Buyer, Seller and Vitallo and no presumption or burden of
proof shall arise favoring or disfavoring either Buyer, Seller or Vitallo
because of the authorship of any of the provisions of this Agreement. Any
reference to any United States Federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include
each other gender; (b) words using the singular or plural number also include
the plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "ARTICLE" or "Section" refer to the specified ARTICLE
or Section of this Agreement; (e) the term "or" means "and/or"; (f) the term
"party" means, on the one hand, Buyer, on the other hand, Vitallo and Seller,
(g) the word "including" means "including without limitation"; and (h) all
references to "dollars" or "$" refer to currency of the United States of
America. Each representation, warranty and covenant contained herein shall
have independent significance. If Buyer or Vitallo and Seller materially
breach in any respect any representation, warranty, covenant or other
obligation contained herein or created hereby, the fact that there exists
another representation, warranty, covenant or obligation relating to the same
subject matter (regardless of the relative levels of specificity) which has
not been breached shall not detract from or mitigate the consequences of such
breach. The rights and remedies expressly specified in this Agreement are
cumulative and are not exclusive of any rights or remedies which any party
would otherwise have. The exhibits and schedules specified in this Agreement
are incorporated herein by reference and made a part hereof. The article and
section headings hereof are for convenience only and shall not affect the
meaning or interpretation of this Agreement.
(b) Severability. The invalidity or unenforceability of one or more of the
provisions of this Agreement in any situation in any jurisdiction shall not
affect the validity or enforceability of any other provision hereof or the
validity or enforceability of the offending provision in any other situation
or jurisdiction.
10.10 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than Buyer, Vitallo, Seller and their
respective heirs, legal representatives, successors and permitted assigns.
10.11 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. No party may assign
this Agreement or any of such party's rights, interests or obligations
hereunder without the prior approval of the other parties hereto.
10.12 Noncompetition.
(a) Non-Disclosure of Confidential Information. Vitallo agrees to hold and
safeguard the Confidential Information known or held by Vitallo in trust for
the post-Closing Seller, the L.L.C. and their respective successors and
assigns (together, the "Company") and agrees that it shall not, without the
<PAGE>
<PAGE> 34
prior written consent of the Company, misappropriate or disclose or make
available to anyone for use outside the Company's organization at any time,
any of the Confidential Information.
(b) Restrictions on Competition. Vitallo covenants and agrees that for a
period of six (6) years following the Closing, Vitallo shall not in the United
States of America, or in any other country of the world in which the Company
has done business at any time during the last three (3) years prior to the
Closing, engage, whether as principal or as agent, officer, director,
employee, consultant, shareholder, or otherwise, alone or in association with
any other person, corporation or other entity, in any Competing Business. For
purposes of this Agreement, the term "Competing Business" shall mean any
person, corporation or other entity which sells or attempts to sell any
products or services which are the same as or similar to the products and
services sold by the Company at any time and from time to time during the last
three (3) years prior to the Closing.
(c) Non-Solicitation of Customers and Suppliers. Vitallo agrees that for six
(6) years following the Closing Vitallo shall not solicit the trade of, or
trade with, any customers or suppliers of the Company.
(d) Non-Solicitation of Employees. Vitallo agrees that for six (6) years
following the Closing Vitallo shall not solicit or induce, or attempt to
solicit or induce, any employee of the Company to leave the Company for any
reason whatsoever, or hire any employee of the Company.
(e) Remedies. In the event of a breach by Vitallo of the terms of this
Section 10.12, then Buyer or the Company shall be entitled, if it shall so
elect, to institute legal proceedings to obtain damages for any such breach,
or to enforce the specific performance of this Agreement by Vitallo and to
enjoin Vitallo from any further violation of this Agreement and to exercise
such remedies cumulatively or in conjunction with all other rights and
remedies provided by law. Vitallo acknowledges, however, that the remedies at
law for any breach by it of the provisions of this Agreement may be inadequate
and that the Company shall be entitled to injunctive relief against it in the
event of any breach.
(f) Authorization to Modify Restrictions. It is the intention of the parties
that the provisions of Section 10.12 hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable,
either in whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provision or provisions and to alter
the bounds thereof in order to render it valid and enforceable.
(g) Tolling Period. The noncompetition, nondisclosure and non-solicitation
obligations contained herein shall be extended by the length of time during
which Vitallo shall have been in breach of any of such provisions.
(h) Fees. If either Buyer or the Company prevails in a proceeding for
damages or injunctive relief, Vitallo agrees that Buyer and the Company, in
addition to other relief, shall be entitled to reasonable attorneys' fees,
costs and the expenses of litigation incurred by Buyer and the Company in
securing the relief granted by the court, in such amount as may be ordered by
a court granting such relief.
10.13 Supplemental Health Insurance Payment. At the Closing, Seller shall
pay to Vitallo an amount equal to $8,400 for health insurance coverage for
Vitallo after he reaches the age of 65.
<PAGE>
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement or
have caused this Agreement to be duly executed as of the date first above
written.
TKZ HOLDING CORP.
By David M. Kelly
--------------------------------------
Title: President
-----------------------------------
TUKAIZ LITHO, INC.
By Frank Defino, Sr.
--------------------------------------
Title: President
-----------------------------------
WITNESS:
Carol A. Soltes
------------------------------------
Michael Vitallo
------------------------------------
Michael Vitallo
<PAGE>
<PAGE> 1
EXHIBIT 10.2
TKZ HOLDING CORP.,
TUKAIZ LITHO, INC.
FRANK DEFINO, SR.
AND
TUKAIZ COMMUNICATIONS, L.L.C.
MEMBERSHIP INTEREST AGREEMENT
Dated as of January 31, 1997
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I - PARTIES; CLOSING
1.01 Parties 1
1.02 Closing 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF DEFINO
2.01 Power and Authority of Defino 2
2.02 Enforceability 2
2.03 Absence of Conflicts 3
2.04 Litigation and Claims Against Defino 3
2.05 Brokers' Fees 3
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF DEFINO AND TUKAIZ
3.01 Organization and Authority 3
3.02 Capitalization 3
3.03 Due Authorization 4
3.04 Absence of Conflicts 4
3.05 Financial Information 4
3.06 Absence of Material Changes 5
3.07 Title to Properties; Liens 5
3.08 Contracts and Agreements 6
3.09 Customers and Suppliers 6
3.10 Employment Agreements 6
3.11 Employee Benefit Plans 7
3.12 Patents, Trademarks, Copyrights, Licenses and
Secrecy Agreements 8
3.13 Trade Secrets 9
3.14 Governmental Licenses and Permits 9
3.15 Indebtedness and Commitments 9
3.16 Taxes 9
3.17 Insurance 11
3.18 Litigation and Claims 11
3.19 Compliance with Laws 11
3.20 Environmental and Occupational Safety Matters 11
3.21 Brokers' Fees 12
3.22 Contingencies 12
3.23 Employee Severance Claims 12
3.24 Bank Accounts 12
3.25 Accounts Receivable 12
3.26 Condition of Tangible Assets 12
3.27 Inventory 12
3.28 Hazardous Wastes 13
3.29 Warranty Expense 13
3.30 Powers-of-Attorney 13
<PAGE>
<PAGE> 3
Page
3.31 Books and Records 13
3.32 No Undisclosed Information 13
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF TKZ
4.01 Organization and Authority 13
4.02 Due Authorization 13
4.03 Absence of Conflicts 14
4.04 Litigation and Claims Against TKZ 14
4.05 Brokers' Fees 14
ARTICLE V - COVENANTS OF DEFINO
5.01 Certain Changes and Conduct of Business 15
5.02 Access to Information 16
5.03 Governmental Approvals 16
5.04 Consents and Approvals 16
5.05 All Reasonable Efforts 16
5.06 Exclusivity 16
5.07 Disclosure Schedule 16
5.08 Loans with Tukaiz 16
ARTICLE VI - COVENANTS OF TKZ
6.01 Information Kept Confidential 17
6.02 Governmental Approvals 17
6.03 Consents and Approvals 17
6.04 All Reasonable Efforts 18
ARTICLE VII - CONDITIONS OF CLOSING
7.01 Preamble 18
7.02 Conditions to Obligations All Parties 18
7.03 Conditions to Obligations of TKZ 18
7.04 Conditions to Obligations of Defino 20
ARTICLE VIII - PUT/CALL PROVISIONS
8.01 Certain Put/Call Definitions 20
8.02 Put/Call Rights 21
8.03 Closing of Put/Call Rights 22
8.04 Operation of Business 22
ARTICLE IX - CORPORATE GOVERNANCE; TAX NOTE
9.01 Board of Managers 22
9.02 TKZ Note 22
9.03 Tax Obligations 23
<PAGE>
<PAGE> 4
Page
ARTICLE X - MEMBERSHIP INTEREST TRANSFER RESTRICTIONS
10.01 Restriction on Transfer of Membership Interests 23
10.02 Voluntary Sales 23
10.03 Sale of Membership Interests Upon Death 24
10.04 Payment of Purchase Price 24
10.05 Endorsement of Membership Interest Certificates 24
10.06 Other Members 25
10.07 Term 25
10.08 Specific Covenants of the Company 25
ARTICLE XI - REMEDIES OF BREACHES OF THIS AGREEMENT
11.01 Survival of Representations, Warranties and
Covenants 25
11.02 Indemnification Provisions for Benefit
of TKZ 25
11.03 Indemnification Provisions for Benefit
of Defino 25
11.04 Notice of Claim for Indemnification 25
11.05 Matters Involving Third Parties 26
11.06 Treatment of Indemnification Payments 26
11.07 Other Indemnification Provisions 26
ARTICLE XII - DEFINITIONS 27
ARTICLE XIII - MISCELLANEOUS
13.01 Termination 31
13.02 Further Assurances; Books and Records 31
13.03 Press Releases and Public Announcements 31
13.04 Expenses 32
13.05 Governing Law; Submission to Jurisdiction 32
13.06 Entire Agreement; Modification; Waiver 32
13.07 Notices 32
13.08 Counterparts 33
13.09 Matters of Construction, Interpretation and
the Like 33
13.10 No Third-Party Beneficiaries 33
13.11 Succession and Assignment 33
EXHIBITS
Exhibit A Form of Opinion of Counsel to Defino and the Company
Exhibit B Form of Note
Exhibit C Form of Employment Agreement
Exhibit D Form of Lease
Exhibit E Form of Subordinated Convertible Note
Exhibit F Form of Tax Note
Exhibit G Form of Opinion of Counsel to Matthews
Exhibit H Form of Guaranty
Exhibit I Form of Release
<PAGE>
<PAGE> 5
SCHEDULES
Schedule 2.03 - Third Party Consents for Defino
Schedule 3.01 - Subsidiaries and Investments; Foreign Jurisdictions
Schedule 3.02 - Capitalization
Schedule 3.04 - Third Party Consents for the Company
Schedule 3.05 - Financial Statements
Schedule 3.06 - Changes Since January 31, 1996
Schedule 3.07(a) - Real Property
Schedule 3.07(b) - Buildings and Plants
Schedule 3.07(c) - Other Assets
Schedule 3.08 - Contracts and Agreements
Schedule 3.09 - Customers and Suppliers
Schedule 3.10 - Employment and Collective Bargaining Agreements
Schedule 3.11 - Employee Benefit Plans
Schedule 3.12 - Patents, Trademarks and Copyrights
Schedule 3.13 - Trade Secrets
Schedule 3.14 - Governmental Licenses and Permits
Schedule 3.15 - Indebtedness and Commitments
Schedule 3.16 - Taxes
Schedule 3.17 - Insurance
Schedule 3.18 - Litigation and Claims
Schedule 3.19 - Compliance with Laws
Schedule 3.20 - Environmental and Occupational Safety Matters
Schedule 3.24 - Bank Accounts
Schedule 3.30 - Powers-of-Attorney
<PAGE>
<PAGE> 6 MEMBERSHIP INTEREST AGREEMENT
THIS MEMBERSHIP INTEREST AGREEMENT (this "Agreement") dated as of January 31,
1997, among TKZ HOLDING CORP., a Pennsylvania corporation ("TKZ") and a
wholly-owned subsidiary of Matthews International Corporation, a Pennsylvania
corporation ("Matthews"), TUKAIZ LITHO, INC., an Illinois corporation
("Tukaiz"), FRANK DEFINO, SR., an individual 50% shareholder of Tukaiz
("Defino") and, upon its later signature hereto as set forth in Section 1.01
below, TUKAIZ COMMUNICATIONS, L.L.C., an Illinois limited liability company
(the "Company"). TKZ and Tukaiz are herein sometimes referred to individually
as "Member" and together as the "Members". Capitalized terms used in this
Agreement which are not otherwise defined herein are defined in Article XII
hereof.
WITNESSETH:
WHEREAS, Defino, along with Michael Vitallo ("Vitallo"), own all of the
outstanding capital stock of Tukaiz, which is at present Common Stock, without
par value (the "Common Stock");
WHEREAS, concurrently with the execution of this Agreement, TKZ is entering
into a transaction to purchase a 50% interest in the assets and liabilities of
Tukaiz pursuant to an Asset Purchase Agreement of even date herewith among
TKZ, Tukaiz and Vitallo (the "Asset Purchase Agreement"), the closing of which
shall be held at of the same time as the Closing hereunder;
WHEREAS, at the Closing TKZ and Tukaiz then intend to contribute all the
assets of Tukaiz into the Company in exchange for 50% of the Membership
Interests for each of TKZ and Tukaiz;
WHEREAS, this Agreement is intended to, among other things, (i) set forth the
terms of a put/call arrangement for the purchase by TKZ of Defino's Membership
Interests; (ii) provide for a line of credit to be supplied by the Company to
Defino after the Closing; (iii) provide for an employment agreement to be
entered into by Defino at the Closing; (iv) set forth certain matters of
corporate governance between the Members; (v) set forth certain matters
regarding a Subordinated Convertible Note to be issued by the Company in favor
of Venetian Investment Corporation, a Delaware corporation and a wholly owned
subsidiary of Matthews, in exchange for a cash payment to the Company of
$5,500,000 to be used to prepay all existing non-trade debt of the Company
(other than that owed to Defino or Vitallo) which is prepayable without
penalty, with the remainder to be used as working capital for the Company;
(vi) set forth certain matters concerning the Tax Note to be issued by Defino
in favor of TKZ; and (vii) set forth certain restrictions on the transfer of
Membership Interests; and
WHEREAS, the Members also desire to effectively control the ultimate
management of the Company for their mutual interests and to protect against
the divisive results of outsiders acquiring Membership Interests who may not
prove compatible with the remaining Members by providing for the rights of
first refusal set forth herein;
NOW, THEREFORE, for and in consideration of their mutual covenants herein
contained, and with the intent to be legally bound hereby, the parties agree
as follows:
ARTICLE I
Parties; Closing
1.01 Parties. TKZ, Tukaiz and Defino acknowledge and agree that the Company
has not been organized at the time that such parties are signing this
<PAGE>
<PAGE> 7
Agreement and therefore has not signed this Agreement, but this Agreement
nevertheless is a binding and enforceable agreement among the signing parties
as to their respective rights and obligations hereunder. The Company shall
sign this Agreement at the Closing and thereby become bound by the rights and
obligations hereunder, and at that time this Agreement shall remain in full
force and effect without further action by any other party hereto.
1.02 Closing. Subject to the terms and conditions set forth herein, the
closing of this Agreement and the transactions contemplated hereby (the
"Closing") shall be held at the offices of Reed Smith Shaw & McClay, 435 Sixth
Avenue, Pittsburgh, Pennsylvania at 10:00 a.m., prevailing Pittsburgh time, on
January 31, 1997 or such other date mutually agreeable to the parties which is
following the satisfaction of the conditions contained in Article VII hereof
(the date of the Closing is referred to herein as the "Closing Date"). If the
Closing Date is January 31, 1997, such Closing shall be deemed to be effective
as 12:01 a.m. on February 1, 1997.
ARTICLE II
Representations and Warranties of Defino
Defino represents and warrants to TKZ that the statements contained in this
Article II are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article II), except in each case as set forth in the
Disclosure Schedule.
2.01 Power and Authority of Defino. Defino has the unrestricted right and
power to execute and deliver this Agreement and the other Transaction
Documents to which he is a party and to perform his obligations hereunder and
thereunder.
2.02 Enforceability. This Agreement and each of the other Transaction
Documents to which Defino is a party constitute the legal, valid and binding
obligations of Defino enforceable against Defino in accordance with their
respective terms, subject to bankruptcy, insolvency or other similar laws of
general application affecting creditors' rights and general principles of
equity.
2.03 Absence of Conflicts. Neither the execution and delivery by Defino of
this Agreement or the other Transaction Documents to which Defino is a party,
the compliance by Defino with the terms and conditions hereof and thereof, nor
the consummation by Defino of the transactions contemplated hereby and thereby
will:
(a) violate any provision of, or require any consent, authorization or
approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
decree applicable to, or any governmental permit or license issued to, or
notice to or filing with a governmental body with respect to Defino,
(b) conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, Lien, lease,
agreement or instrument to which Defino is a party or by which Defino is bound
or to which any property of Defino is subject,
(c) result in the creation of any Lien upon any of the assets of Defino, or
(d) give to others any material rights or interests (including rights of
purchase, termination, cancellation or acceleration), under any such
<PAGE> 8
indenture, mortgage, Lien, lease, agreement or instrument,
except that prior to the Closing of the transactions contemplated hereby the
consents, approvals and filings referred to in Schedule 2.03 have to be
obtained or made.
2.04 Litigation and Claims Against Defino. There are no actions, suits or
proceedings pending or threatened against Defino which could reasonably be
expected, if adversely determined, to delay, prevent or hinder the
consummation of the transactions contemplated by this Agreement.
2.05 Brokers' Fees. Defino has not incurred any liability for brokerage
fees, finder's fees,agent's commissions or other similar forms of compensation
in connection with this Agreement or any transaction contemplated hereby.
ARTICLE III
Representations and Warranties of Defino and Tukaiz
Each of Defino and Tukaiz represents and warrants to TKZ that the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article III), except in each case as set forth in
the Disclosure Schedule.
3.01 Organization and Authority. Tukaiz is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois.
Tukaiz (i) has full corporate power and authority to own and lease the
property and assets it now owns and leases and to carry on its business as and
where such property and assets are now owned or leased and such business is
now conducted and (ii) is duly licensed or qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
character of the property and assets now owned or leased by it or the nature
of the business now conducted by it requires it to be so licensed or qualified
and (iii) except as set forth on Schedule 3.01, has not owned and does not now
own directly or indirectly any debt or equity securities issued by any other
corporation, or any interest in any partnership, joint venture or other
business enterprise. Seller is not authorized to do business as a foreign
corporation in any jurisdiction. The copies of the articles of incorporation
and bylaws of the Company, which have previously been delivered to TKZ, are
complete and correct and in either case have not been amended since prior to
June 1, 1996. Tukaiz has the corporate power and authority to execute and
deliver this Agreement and the other Transaction Documents to which it is a
party and to perform its obligations hereunder and thereunder. There are no
dissolution, liquidation or bankruptcy proceedings pending, contemplated by or
threatened against the Company.
3.02 Capitalization. The entire authorized capital stock of Tukaiz, and the
capital stock of Tukaiz which is as of the date of this Agreement issued and
outstanding, is as set forth on Schedule 3.02. All such outstanding shares of
capital stock of Tukaiz as set forth on Schedule 3.02 are validly issued,
fully paid and nonassessable and are owned beneficially and of record by the
persons set forth on such Schedule, free and clear of all Liens. Except as
set forth on Schedule 3.02, there are outstanding no securities,
subscriptions, options, warrants, phantom stock rights, calls or rights of any
kind, or rights with respect to convertible debt, issued or granted by, or
binding upon, Tukaiz or Defino to purchase or otherwise acquire any shares of
capital stock of Tukaiz, or other equity securities or equity interests in
Tukaiz.
<PAGE> 9
3.03 Due Authorization. The execution and delivery by Tukaiz of this
Agreement and the other Transaction Documents to which it is a party, the
performance by it of all the terms and conditions hereof and thereof to be
performed by it and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized and approved by all necessary corporate
proceedings on the part of Tukaiz. This Agreement and each of the other
Transaction Documents to which Tukaiz is a party constitute the legal, valid
and binding obligations of Tukaiz enforceable against Company in accordance
with their respective terms, subject to bankruptcy, insolvency or other
similar laws of general application affecting creditors' rights and general
principles of equity.
3.04 Absence of Conflicts. Neither the execution and delivery by Tukaiz of
this Agreement or the other Transaction Documents to which Company is a party,
the compliance by Company with the terms and conditions hereof and thereof,
nor the consummation by Tukaiz of the transactions contemplated hereby and
thereby will:
(a) conflict with any of the terms, conditions or provisions of the articles
of incorporation or bylaws of Tukaiz,
(b) violate any provision of, or require any consent, authorization or
approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
decree applicable to, or any governmental permit or license issued to, or
notice to or filing with a governmental body with respect to Tukaiz,
(c) conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, Lien, lease,
agreement or instrument to which Tukaiz is a party or by which it is bound or
to which any property of Tukaiz is subject,
(d) result in the creation of any Lien upon any of the assets of Tukaiz, or
(e) give to others any material rights or interests (including rights of
purchase, termination, cancellation or acceleration), under any such
indenture, mortgage, Lien, lease, agreement or instrument,
except that prior to the Closing of the transactions contemplated hereby the
consents, approvals and filings referred to in Schedule 3.04 have to be
obtained or made.
3.05 Financial Information. Defino has heretofore furnished to TKZ the
financial statements and information with respect to Tukaiz described on
Schedule 3.05 (the "Financial Statements"). The Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present:
(a) the consolidated financial position of Tukaiz as at October 31, 1996 and
as of January 31, 1996, 1995 and 1994, and
(b) the consolidated results of operations and changes in financial position
of Tukaiz for the period ending October 31, 1996 and for the years ended
January 31, 1996, 1995 and 1994.
The books and records of Tukaiz from which the Financial Statements were
prepared properly and accurately record the transactions and activities which
they purport to record.<PAGE>
<PAGE> 10
3.06 Absence of Material Changes. Except as set forth in Schedule 3.06 or
the Financial Statements, since January 31, 1996 there has not been:
(a) any Material Adverse Effect with respect to Tukaiz, or any event,
condition or state of facts which could be reasonably expected (i) to have a
Material Adverse Effect on Tukaiz, or (ii) to impair materially the ability of
Tukaiz or Defino to perform its obligations under this Agreement,
(b) any damage, destruction, condemnation or loss, whether covered by
insurance or not, which has had, or could reasonably be expected to have, a
Material Adverse Effect on Tukaiz,
(c) any strikes or work stoppages against the operations of Tukaiz relating
to the conduct of its business or any injunction, order, writ or decree of any
court or other governmental agency or instrumentality against such strikes or
work stoppages, or
(d) any action taken by Tukaiz of the nature referred to in Section 5.01
hereof.
3.07 Title to Properties; Liens.
(a) Real Property. Tukaiz does not own any real property in fee. Schedule
3.07(a) identifies all interests of Tukaiz in leaseholds under leases and
material easements and other material interests in real property owned by
Tukaiz (the "Real Property"). Except for the Real Property, no other real
property is used in the business of Tukaiz. Schedule 3.07(a) identifies, and
Defino has heretofore made available to TKZ true and complete copies of, all
leases or other instruments, in each case as in effect on the date hereof (the
"Real Property Instruments"), which evidence the interests of Tukaiz in the
Real Property. Except as set forth in Schedule 3.07(a), all of such leases
and other instruments are in full force and effect and there is no material
default, nor any event which with notice or the lapse of time or both will
become a material default, under any such leases or other instruments, by
Tukaiz or, to the knowledge of Defino, any other party thereto. To the best
of Defino's and Tukaiz's knowledge, the Real Property includes all material
easements and rights-of-way necessary for present access to and use of the
Real Property. The Real Property conforms to all applicable zoning laws and
regulations and no notice of violation of any such laws or regulations
relating to any of the Real Property has been received by Tukaiz or Defino.
No condemnation proceedings are proposed, threatened or pending which would
materially affect the Real Property.
(b) Buildings and Equipment. Schedule 3.07(b) hereto identifies separately:
(i) all buildings in which Tukaiz has an interest or which are used in the
business of Company,
(ii) all machinery and equipment owned or leased by Tukaiz as lessee or used
in its business having a current replacement cost in excess of $10,000 and the
location thereof (the "Equipment"),
(iii) all leases and other instruments which evidence the interests of Tukaiz
in Equipment and any other equipment leases under which Company is lessee and
which provide for aggregate rental payments after January 1, 1996 in excess of
$10,000 (the "Equipment Instruments") and
(iv) any other equipment used but not owned or leased by Tukaiz.
<PAGE>
<PAGE> 11
Defino has heretofore delivered to TKZ true and complete copies of all
Equipment Instruments, in each case as in effect on the date hereof. Except
as set forth in Schedule 3.07(b), all such Equipment Instruments are in full
force and effect and there is no material default, nor any event which with
notice or the lapse of time or both will become a material default, under any
such Equipment Instruments, by Tukaiz or, to the knowledge of Defino, any
other party thereto. Except as set forth in Schedule 3.07(b), Tukaiz has good
title to the Equipment it owns, free and clear of any and all Liens other than
Permitted Liens. The buildings and plants referred to in clause (i) of this
Section 3.07(b) and the Equipment do not encroach on the property of others.
(c) Other Assets. Except as set forth in Schedule 3.07(c), all other assets
of Tukaiz, including all assets shown on the consolidated balance sheet of
Company as at January 31, 1996 described in Section 3.05 hereof (other than
assets disposed of in the ordinary course of business since such date) are
owned by Tukaiz , as the case may be, free and clear of any and all Liens
other than Permitted Liens.
3.08 Contracts and Agreements. Schedule 3.08 identifies all of the
contracts, commitments and agreements of Tukaiz, not otherwise identified in
any other Schedule, which
(i) individually or in the aggregate involve purchases after the date hereof
of more than $10,000 from any one seller or group of related sellers,
(ii) individually or in the aggregate involve sales or leases after the date
hereof of more than $10,000 to any one buyer or lessee or group of related
buyers or lessees,
(iii) are contracts, commitments or agreements or involve transactions, with
any Affiliate of Tukaiz,
(iv) are contracts, commitments and agreements not in the ordinary course of
business of Tukaiz, or
(v) are contracts, commitments or agreements otherwise material to the
business of Tukaiz.
The contracts, commitments and agreements listed on Schedule 3.08 are
hereinafter called the "Contracts". Defino has heretofore delivered to TKZ
true and complete copies of all Contracts as in effect on the date hereof.
Except as set forth in Schedule 3.08, all Contracts are in full force and
effect (other than those which have been duly performed) and there is no
material default, nor any event which with notice or the lapse of time or both
will become a material default, under any of the Contracts, by Tukaiz or, to
the knowledge of Defino, any other party thereto.
3.09 Customers and Suppliers. Schedule 3.09 identifies each of the customers
and suppliers of Tukaiz whose purchases from or sales to Company constituted 5
percent or more of the combined net revenues or net purchases, respectively,
of Tukaiz taken as a whole during the year ended January 31, 1996, and during
the nine fiscal months ended October 31, 1996, showing, with respect to each,
the name and address, dollar volume and nature of the relationship (including
the principal categories of products leased or sold).
3.10. Employment Agreements. Schedule 3.10 identifies
(a) each management or employment contract or contract for personal services
with any officer, consultant, salesman or other non-union employee or agent of
Tukaiz which is not by its terms terminable at will or on less than 30 days'
notice without penalty,
<PAGE>
<PAGE> 12
(b) each officer, consultant, salesman or other non-union employee or agent
of Tukaiz receiving as at the date hereof compensation (including bonuses and
commissions, if any) at an annual rate of $50,000 or more, specifying the rate
of such compensation (including such bonuses and commissions) and the
positions held by such persons, and
(c) each collective bargaining agreement or other agreement covering
unionized or hourly employees to which Tukaiz is a party or which covers
employees of Tukaiz .
The contracts and agreements identified on Schedule 3.10 are hereinafter
called the "Employment Contracts." Defino has heretofore made available to
TKZ true and complete copies of each of the Employment Contracts as in effect
on the date hereof. Except as listed on Schedule 3.10, there are no material
disputes presently subject to any grievance procedure, arbitration or
litigation under the Employment Contracts nor is there any material default,
or any event which with notice or the lapse of time or both will become a
material default, under the Employment Contracts, by Tukaiz or, to the
knowledge of Defino, any other party thereto. There are no strikes, lockouts
or work stoppages or slowdowns or, to the knowledge of Defino, jurisdictional
disputes or organizing activity occurring or threatened with respect to the
business operations of Tukaiz.
3.11 Employee Benefit Plans.
(a) Schedule 3.11 lists each Employee Benefit Plan that Tukaiz maintains or
to which Tukaiz contributes:
(i) Each such Employee Benefit Plan (and each related trust, insurance
contract or fund) complies in form and operation in all respects with the
applicable requirements of ERISA, the Code and other applicable Laws.
(ii) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Section 4980B have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit Plan, and all
contributions for any period ending on or before the Closing Date which are
not yet due have been or will be paid to each such Employee Pension Benefit
Plan before the Closing Date or within 60 days after the Closing Date. All
premiums or other payments for all periods ending on or before the Closing
Date have been paid, or will be paid before the Closing Date, with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension Benefit
Plan meets the requirements of a "qualified plan" under Code Section 401(a)
and has received a favorable determination letter from the Internal Revenue
Service.
(v) The market value of assets under each such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of all vested and nonvested Liabilities thereunder,
determined in accordance with PBGC methods, factors and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for determination.
<PAGE>
<PAGE> 13
(vi) Defino has delivered to TKZ correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent Form 5500 Annual
Report and all related trust agreements, insurance contracts and other funding
agreements which implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that Tukaiz maintains or ever
has maintained or to which it contributes, ever has contributed or ever has
been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to terminate
any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been instituted or, to the knowledge of any of Defino, threatened.
(ii) There have been no Prohibited Transactions with respect to any such
Employee Benefit Plan. No Fiduciary has any Liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or, to the knowledge
of Defino, threatened, except that the former plan administrator is being
investigated for self dealing practices with all of his clients, with respect
to which Seller is not involved in such investigation as a possible defendant.
Defino has no knowledge of any basis for any such action, suit, proceeding,
hearing or investigation.
(iii) Tukaiz has not incurred, and Defino has no reason to expect that Tukaiz
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or
under the Code with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(c) Tukaiz has not contributed to or been required to contribute to any
Multiemployer Plan, and Tukaiz has no Liability (including withdrawal
Liability) under any Multiemployer Plan.
(d) Tukaiz has not maintained or contributed to or been required to
contribute to any Employee Welfare Benefit Plan providing medical, health or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses or their dependents (other than in
accordance with Code Section 4980B).
3.12 Patents, Trademarks, Copyrights, Licenses and Secrecy Agreements.
Schedule 3.12 identifies all patents, patent applications, trademarks,
trademark applications, trade names and copyrights owned by Tukaiz and all
patent, trademark, copyright, trade name and technology licenses or secrecy
agreements of Tukaiz. All such patents, trademarks, copyrights and
applications have been duly registered in, filed in or issued by the United
States Patent and Trademark Office, the United States Registrar of Copyrights
or the corresponding offices of other countries, and have been properly
maintained and renewed in accordance with applicable laws and regulations.
Except as disclosed in Schedule 3.12, there is no patent, copyright, trade
name or trademark infringement or similar proceeding pending or, to the
knowledge of Defino, threatened against Tukaiz. Defino has no knowledge of
any substantial basis for any contention that
<PAGE>
<PAGE> 14
(a) any of the material patents, trademarks, trade names, copyrights or
applications therefor of Tukaiz are invalid or subject to claim of patent
abuse,
(b) Tukaiz is infringing in any material respect any patents, trademarks,
trade names or copyrights of others,
(c) Tukaiz is violating in any material respect any technology or secrecy
rights of any person, or
(d) any patents, trademarks, trade names, copyrights, technology or secrecy
rights are being used contrary to the provisions of any material licensing or
other agreement.
Schedule 3.12 lists all material licenses and other rights which have been
granted by Tukaiz for the use of any patents, trademarks, trade names,
copyrights, trade secrets and similar rights.
3.13 Trade Secrets. Tukaiz has the right to use, subject to the license and
secrecy agreements listed on Schedule 3.13 hereto, free and clear of any
claims of others (pending or threatened), all trade secrets, customer lists
and technical information being used in the business and operations of Tukaiz
to the extent and on the products on which, or in respect of which, such items
are being used.
3.14 Governmental Licenses and Permits. Schedule 3.14 hereto identifies all
licenses, permits and variances of all United States Federal, state and local
governmental authorities relating to the business and operations of Tukaiz
(the "Permits"). Defino has heretofore delivered to TKZ true and complete
copies of the Permits as in effect on the date hereof. Except as set forth in
Schedule 3.14, all governmental licenses and permits material to or necessary
in the conduct of the business of Tukaiz have been obtained and are in full
force and effect, and Company is not in material violation of any such
licenses or permits, and no proceeding is pending or threatened to revoke or
limit any thereof.
3.15 Indebtedness and Commitments. Schedule 3.15 hereto identifies each
contract or agreement under which Tukaiz has outstanding any indebtedness,
obligation (including without limitation guarantees) or liability for borrowed
money or the deferred purchase price of property or has the right or
obligation to incur any such indebtedness, obligation or liability (the "Debt
Instruments"). Defino has heretofore delivered to TKZ true and complete
copies of each of the Debt Instruments as in effect on the date hereof.
Except as set forth in Schedule 3.15, there is no event of default or
condition or event which, with the giving of notice or the lapse of time or
both, could become an event of default under any of the Debt Instruments.
3.16 Taxes. Except as set forth in Schedule 3.16 hereto:
(a) as of the Closing Date, Tukaiz will have prepared and executed and duly
filed when due all United States Federal, state and other Tax Returns required
to be filed by applicable laws and regulations for all periods to and
including periods ending on such date and all Taxes or installments thereof
that are shown to be due on such Tax Returns will have been duly and timely
paid,
(b) with respect to any period for which Tax Returns have not yet been filed,
or for which Taxes are not yet due or owing, Tukaiz has made due and
sufficient current accruals for such Taxes in its financial statements, and
<PAGE>
<PAGE> 15
Tukaiz has made all required estimated Tax payments sufficient to avoid any
underpayment penalty,
(c) Defino has furnished to TKZ complete and correct copies of all United
States Federal, state and local income Tax Returns relative to the operations
of Tukaiz for the period beginning January 1, 1988 and ending January 31,
1996, together with complete and correct copies of all reports of United
States Federal, state and local Tax authorities relating to examinations of
such returns,
(d) there are no agreements, waivers or arrangements by Tukaiz for the
extension of the time for the assessment of any material amounts of Tax, and
no power of attorney granted by Tukaiz with respect to any Taxes is currently
in effect. No closing agreement under Section 7121 of the Code or any similar
provision of any state, or local law has been entered into by or with respect
to Tukaiz,
(e) all United States Federal, state and local income Tax Returns of Tukaiz
for each year to and including the year ended December 31, 1993 have been
examined by or accepted as filed with the relevant Tax authorities and any
asserted deficiencies settled and paid,
(f) the consolidated balance sheets of Tukaiz as at January 31, 1996 and
October 31, 1996 adequately provide (either in accruals for Taxes, deductions
from refundable Taxes or in other recorded liability or reserve accounts) for
the payment of all Taxes payable by Tukaiz for the period ended on each such
date and for all periods prior thereto,
(g) there have been no deficiencies proposed as a result of the examination
of any United States Federal, state or other Tax Returns filed by Tukaiz. No
audit or other proceeding by any court, governmental or regulatory authority,
or similar person, is pending or threatened with respect to any Taxes due from
or with respect to Tukaiz or any Tax Return filed by or with respect to
Company, and no assessment of Tax is proposed against Company or any of its
respective assets,
(h) Tukaiz has not filed or consented to the filing of any United States
Federal or state consolidated income Tax Return with any other person,
(i) Tukaiz does not have any liability or potential liability with respect to
any consolidated Tax Return filed or to be filed by any person,
(j) Tukaiz has not consented to the application to it of Section 341(f)(2) of
the Code,
(k) there are no Liens with respect to Taxes upon any of the assets of
Tukaiz, other than Liens with respect to Taxes that are not yet due or remain
payable without penalty or are being contested in good faith and by
appropriate proceedings and for which adequate current reserves have been
established in accordance with generally accepted accounting principles, and
(l) Tukaiz has not been nor is it in violation (or with notice or lapse of
time or both, would be in violation) of any applicable law relating to the
payment or withholding of Taxes. Tukaiz has duly and timely withheld from
employee salaries, wages, and other compensation and paid over to the
appropriate Taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
<PAGE>
<PAGE> 16
3.17 Insurance. Schedule 3.17 hereto is a complete and correct list of all
material insurance policies of Tukaiz or by which Tukaiz or any of its
properties or assets is covered, all of which are presently in full force and
effect. Defino has furnished to TKZ complete and correct copies of such
policies as in effect on the date hereof.
3.18 Litigation and Claims. Except as set forth in Schedule 3.18:
(a) there are no actions, suits or proceedings pending or threatened against
Tukaiz which could reasonably be expected, if adversely determined, to have a
Material Adverse Affect on Tukaiz taken as a whole, or to delay, prevent or
hinder the consummation of the transactions contemplated by this Agreement,
(b) Tukaiz has not been charged with violating or threatened with a charge of
violating, nor is it under investigation with respect to a possible violation
of, any provision of any United States Federal, state, local or foreign law or
administrative ruling or regulation, and
(c) Tukaiz has not received any currently effective notice of any default,
nor is in default, under any order, writ, injunction, decree or permit of any
court or of any commission or other administrative or regulatory agency.
To the knowledge of Defino, except as set forth in Schedule 3.18, there is no
investigation of the business or properties of Tukaiz being conducted by any
governmental authority or agency which, individually or in the aggregate,
could reasonably be expected to result in any action which might have a
Material Adverse Effect on Tukaiz.
3.19 Compliance with Laws. Except as set forth in Schedule 3.19, Tukaiz has
complied with all laws, regulations, orders, judgments or decrees of any
United States Federal, state or local court or any governmental authority,
noncompliance with which, in the aggregate, might have a Material Adverse
Effect on Tukaiz.
3.20 Environmental and Occupational Safety Matters. Except as set forth in
Schedule 3.20
(a) To the best of Defino's and Tukaiz's knowledge, Tukaiz has been and is in
compliance with all Environmental, Health and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced against Tukaiz alleging any failure to so
comply. Without limiting the generality of the preceding sentence, Tukaiz has
obtained, and has been and is in compliance with all of the terms and
conditions of, all permits, licenses and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables which are contained in, all Environmental, Health and Safety Laws
applicable to it. No such permits, licenses or other authorizations have
expired, have been administratively extended or will lapse or become void as a
result of the transactions contemplated by this Agreement.
(b) To the best of Defino's and Tukaiz's knowledge, Tukaiz does not have any
liability (and Tukaiz has not handled or disposed of any substance, arranged
for the disposal of any substance, exposed any employee or other individual
to any substance or condition, or owned or operated any property or facility,
in any manner that could form the basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
against Tukaiz giving rise to any liability) for response or remediation
costs, fines or penalties at any site, location or body of water (surface or
subsurface),<PAGE>
<PAGE> 17
for any illness of or personal injury to any employee or other individual, or
for any other reason, under any Environmental, Health or Safety Law.
3.21 Brokers' Fees. Neither Defino nor Tukaiz has incurred any liability for
brokerage fees, finder's fees, agent's commissions or other similar forms of
compensation in connection with this Agreement or any transaction contemplated
hereby for which TKZ or Tukaiz will be responsible.
3.22 Contingencies. Except for:
(a) liabilities which are disclosed and fully provided for in the most recent
balance sheet referred to in Section 3.05, and
(b) liabilities incurred in the usual and ordinary course of business of
Tukaiz subsequent to the date of such balance sheet and on or prior to the
Closing Date,
Tukaiz has no material liabilities or obligations (absolute or contingent,
known or unknown, asserted or unasserted), including without limitation
contingent liability for the performance of any obligation by any other
person.
3.23 Employee Severance Claims. There will be no liability of Tukaiz in
respect of severance or separation pay to persons employed by Company on the
Closing Date as a result of the consummation of this Agreement and the
transactions contemplated hereby.
3.24 Bank Accounts. Schedule 3.24 sets forth a true and complete list of the
names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which Tukaiz maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
3.25 Accounts Receivable. All accounts receivable of Tukaiz represent bona
fide claims against debtors for sales, leases, services performed or other
charges arising on or before the Closing Date. To the best of Defino's and
Tukaiz's knowledge, said accounts receivable are subject to no material
defenses, counterclaims or rights of setoff, other than cash discounts,
returns and allowances and credits for freight granted in the ordinary course
of business and are otherwise fully collectible in the ordinary course of
business.
3.26 Condition of Tangible Assets. Except for ordinary wear and tear, the
tangible assets of Tukaiz are in all material respects (i) structurally sound
with no material defects, (ii) in good operating condition and repair, (iii)
adequate for the uses to which they are presently being put, and (iv) not in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs.
3.27 Inventory. The inventory of Tukaiz is (except to the extent of any
reserves reflected on the most recent balance sheet set forth in Section 3.05
hereof) in all material respects of a quality and quantity usable and salable
in the ordinary course of business and all such inventory is reflected on such
balance sheet, with adequate provisions or adjustments having been made for
excess inventory, slow-moving inventory and inventory obsolescence and
shrinkage, in accordance with generally accepted accounting principles
consistently applied.
<PAGE>
<PAGE> 18
3.28 Hazardous Wastes.
(a) To the best of Defino's and Tukaiz's knowledge, all properties and
equipment used by Tukaiz are and have been free of asbestos, PCB's,
underground storage tanks, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans and Extremely Hazardous
Substances.
(b) No Extremely Hazardous Substances, have been disposed of, discharged,
spilled, placed or applied on or below the surface of any other property by or
on behalf of Tukaiz.
3.29 Warranty Expense. The aggregate expense incurred by Tukaiz to satisfy
uninsured warranty claims has not exceeded in the aggregate $50,000 in any of
the past three fiscal years, and since January 1, 1993 Tukaiz has not incurred
any material increase in such warranty expense or made any material change in
its warranty practices or policies.
3.30 Powers-of-Attorney. Except as set forth on Schedule 3.30, no person has
been authorized to exercise a power-of-attorney, or to act as
attorney-in-fact, with respect to Tukaiz.
3.31 Books and Records. To the best of Defino's and Tukaiz's knowledge, the
minute books and other similar records of Tukaiz contain a true and materially
complete record, in all material respects, of all actions taken at all
meetings and by all written consents in lieu of meetings of Tukaiz's
stockholders, boards of directors, and committees thereof. Such books and
records have been maintained, in all material respects, in accordance with
good business and bookkeeping practices.
3.32 No Undisclosed Information. Except as disclosed herein, Defino does not
have any knowledge of any matter involving Tukaiz which might have a Material
Adverse Effect on Company. Neither this Agreement nor any document,
certificate or statement furnished or to be furnished to TKZ by or on behalf
of Defino in connection with the transactions provided for herein contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained
herein or therein not misleading.
ARTICLE IV
Representations and Warranties of TKZ
TKZ represents and warrants to Defino that the statements contained in this
Article IV are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date was substituted for the date of this Agreement
throughout this Article IV).
4.01 Organization and Authority. TKZ is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. TKZ has the corporate power and authority to execute and
deliver this Agreement and each of the other Transaction Documents to which it
is a party and to perform its obligations hereunder and thereunder.
4.02 Due Authorization. The execution and delivery by TKZ of this Agreement
and each of the other Transaction Documents to which it is a party, the
performance by it of all the terms and conditions hereof and thereof to be
performed by it and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by all necessary corporate
proceedings on the part of TKZ. This Agreement and the other Transaction
Documents to which TKZ is a party constitute the legal, valid and binding
<PAGE> 19
obligations of TKZ enforceable against TKZ in accordance with their respective
terms, subject to bankruptcy, insolvency or other similar laws of general
application affecting creditors' rights and general principles of equity.
4.03 Absence of Conflicts. Neither the execution and delivery by either TKZ
of this Agreement and the other Transaction Documents to which it is a party,
the compliance by TKZ with the terms and conditions hereof or thereof, nor the
consummation by TKZ of the transactions contemplated hereby or thereby will
(a) conflict with any of the terms, conditions or provisions of the articles
of incorporation or bylaws of TKZ,
(b) violate any provision of, or require any consent, authorization or
approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
decree applicable to, or any governmental permit or license issued to, or
notice to or filing with a governmental body with respect to TKZ,
(c) conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, Lien, lease,
agreement or instrument to which TKZ is a party or by which it is bound or to
which any of its property is subject,
(d) result in the creation of any Lien upon any of the assets of TKZ, or
(e) give to others any material rights or interests (including rights of
purchase, termination, cancellation or acceleration) under any such indenture,
mortgage, Lien, lease, agreement or instrument,
which, with respect to the matters specified in clauses (b) through (e) of
this Section 4.03 could reasonably be expected to delay, prevent or hinder in
any material respect the transactions contemplated hereby.
4.04 Litigation and Claims Against TKZ. There are no actions, suits or
proceedings pending or threatened against TKZ which could reasonably be
expected, if adversely determined, to delay, prevent or hinder the
consummation of the transactions contemplated by this Agreement.
4.05. Brokers' Fees. TKZ has not incurred any liability for brokerage fees,
finder's fees, agent's commissions or other similar forms of compensation in
connection with this Agreement or any transactions contemplated hereby for
which Defino will be responsible.
ARTICLE V
Covenants of Defino
Defino covenants and agrees as follows:
5.01 Certain Changes and Conduct of Business.
(a) Negative Covenants. From and after the date of this Agreement and until
the Closing, without the prior written consent of TKZ, Defino will not permit
Tukaiz to:
(i) make any material change in the conduct of its business or operations;
(ii) issue any additional shares of capital stock or equity securities or pay
any dividends or make any distributions with respect to its capital stock;
<PAGE>
<PAGE> 20
(iii) incur any indebtedness for borrowed money, issue any notes, bonds,
debentures or other corporate securities or grant any option, warrant or right
to purchase any thereof, except transactions pursuant to existing contracts or
entered into in the usual and ordinary course of business;
(iv) make any sale, assignment, transfer or other conveyance of any of its
assets or any part thereof, except transactions pursuant to existing contracts
or entered into in the usual and ordinary course of business;
(v) subject any of its assets or any part thereof to any Lien or suffer such
to be imposed;
(vi) enter into any new, or amend any existing, contracts, commitments or
agreements which meet the criteria set forth in any of subparagraphs (i)
through (v) of Section 3.08 of this Agreement, except contracts for the
purchase or sale of inventory, equipment, supplies or raw materials entered
into in the usual and ordinary course of business and the pending purchase of
new machinery already disclosed to Buyer to meet its anticipated contractual
obligations to Woldorf and State Farm Insurance Company;
(vii) enter into any new, or amend in any material respect any existing,
employee benefit plan, policy, agreement, arrangement or understanding, except
as required by law, or grant any material increases in rates of pay to hourly
or salaried employees except as required by law or by any existing collective
bargaining or employment agreement;
(viii) enter into any transaction otherwise than in the usual and ordinary
course of business;
(ix) take or omit to take any action which would cause Defino to be unable to
furnish the certificate called for by Section 7.03(a) hereof; or
(x) commit itself to do any of the foregoing.
(b) Affirmative Covenants. From and after the date of this Agreement and
until the Closing, Defino will cause Tukaiz to:
(i) continue to maintain its properties in accordance with present practice
in a condition suitable for their current use;
(ii) maintain all existing material insurance policies in full force and
effect;
(iii) file when due all required United States Federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted and an adequate bond is posted or other
appropriate action is taken to assure that none of its assets shall be
subjected to any Lien therefor, foreclosed against or taken in payment
thereof;
(iv) continue to conduct its businesses in the ordinary course;
(v) keep its books of account, records and files in the ordinary course in
accordance with their existing practices; and
(vi) continue to maintain existing business relationships with suppliers,
customers and vendors of leased equipment.
<PAGE>
<PAGE> 21
5.02 Access to Information. From and after the date of this Agreement and
until the Closing Date, Defino will, and will cause Tukaiz to, afford to TKZ
and TKZ's authorized representatives reasonable access to the officers,
employees, properties, books and records of Tukaiz and will, and will cause
Tukaiz to, furnish or make available to TKZ such additional financial and
operating data and other information pertaining to Tukaiz as TKZ may
reasonably request. Any furnishing of such information to TKZ or
investigation by TKZ shall not affect the right of TKZ to rely upon the
representations and warranties of Defino in this Agreement.
5.03 Governmental Approvals. Defino shall
(a) in a timely, accurate and complete manner make, or cause Tukaiz to make,
such required filings with and prepare such required applications to any
governmental agency with which such filings or applications are required to be
made or whose approval or consent is required for the consummation by Defino
or Tukaiz of the transactions contemplated by this Agreement, and
(b) provide to TKZ such information as TKZ may require to make such filings
and prepare such applications as may be required for the consummation by TKZ
of the transactions contemplated by this Agreement.
5.04 Consents and Approvals. Defino shall take, and shall cause Tukaiz to
take, all necessary action and use all reasonable efforts to obtain all
consents, approvals, permits and licenses required of any of them to carry out
the transactions contemplated in this Agreement.
5.05 All Reasonable Efforts. Defino shall, and shall cause Tukaiz to, use
all reasonable efforts to cause all the conditions precedent to the
consummation of the transactions contemplated hereby applicable to Defino and
Tukaiz to be met as promptly as practicable.
5.06 Exclusivity. Until the Closing Date, Defino shall not (i) entertain any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities or any of the assets of Tukaiz (including any
acquisition structured as a merger, consolidation or share exchange) or to any
other transaction which could result in control of Tukaiz by any Person other
than TKZ, or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or
seek any of the foregoing. Defino shall notify TKZ immediately if any Person
makes any proposal, offer, inquiry or contact with respect to any such
acquisition or transaction.
5.07 Disclosure Schedule. Defino shall promptly supplement the Disclosure
Schedule if events occur prior to the Closing that would have been required to
be disclosed had they existed at the time of executing this Agreement. The
Disclosure Schedule, as supplemented prior to the Closing, will contain a
true, correct and complete list and description of all items required to be
set forth therein. Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein
unless the Disclosure Schedule identifies such exception with particularity.
<PAGE>
<PAGE> 22
5.08 Loans with Tukaiz. Defino acknowledges and agrees that the loans from
Defino to Tukaiz and from Tukaiz to Defino shall remain with Tukaiz and not be
transferred to the Company.
ARTICLE VI
Covenants of TKZ
TKZ covenants and agrees as follows:
6.01 Information Kept Confidential. Unless and until the transactions
contemplated hereby have been consummated, TKZ and its officers, employees,
agents and representatives will hold in strict confidence, and not use in any
way except in connection with the transactions contemplated by this Agreement,
all data and information obtained in connection with the transactions
contemplated by this Agreement from Defino or Tukaiz or from any officer,
employee, agent or representative of any of them whether pertaining to the
financial condition, results of operations, methods of operations or products
of Tukaiz or otherwise, except any of the same which
(a) was in the public domain prior to being furnished to TKZ,
(b) was known to TKZ prior to its disclosure to TKZ by Defino or Tukaiz,
(c) is required to be disclosed by TKZ or by its officers, agents or
representatives in connection with any court action or any proceeding before a
governmental regulatory or administrative body or in connection with securing
any consent or approval required hereunder or any financing contemplated
hereby,
(d) is disclosed to TKZ by a third party, who did not unlawfully acquire or
receive such information on a confidential basis from Defino or Tukaiz
subsequent to its disclosure to TKZ by Defino or Tukaiz , or
(e) after being furnished to TKZ, entered the public domain through no act or
failure to act on the part of TKZ.
In the event that this Agreement shall be terminated (whether or not as
permitted by Section 13.01), TKZ and its authorized representatives shall
promptly destroy or return to Tukaiz all information furnished by Defino or
Company and any copies or extracts thereof; provided, however, that TKZ may
retain such information until final resolution of any claim made by or against
TKZ pursuant to Section 13.01(b).
6.02 Governmental Approvals. TKZ shall
(a) in a timely, accurate and complete manner make such required filings with
and prepare such required applications to any governmental agency with which
such filings or applications are required to be made or whose approval or
consent is required for the consummation by TKZ of the transactions
contemplated by this Agreement, and
(b) provide to Defino such information concerning TKZ as Defino may require
to make such filings and prepare such applications as may be required for the
consummation by Defino of the transactions contemplated by this Agreement.
6.03 Consents and Approvals. TKZ shall use all reasonable efforts to obtain
all consents, approvals, permits and licenses required of it to carry out the
transactions contemplated in this Agreement.
<PAGE>
<PAGE> 23
6.04 All Reasonable Efforts. TKZ shall use all reasonable efforts to cause
all the conditions precedent to the consummation of the transactions
contemplated hereby applicable to TKZ to be met as promptly as practicable.
ARTICLE VII
Conditions of Closing
7.01 Preamble. The respective obligations set forth herein of Defino, Tukaiz
and TKZ to consummate the agreements and the transactions contemplated hereby
shall be subject to the fulfillment, on or before the Closing, in the case of
the obligations of TKZ, of the conditions set forth in Sections 7.02 and 7.03,
and, in the case of the obligations of Defino and Tukaiz, of the conditions
set forth in Sections 7.02 and 7.04. Any of the following conditions may be
waived in whole or in part by the party or parties whose obligations are
subject to such conditions.
7.02 Conditions to Obligations All Parties.
(a) No Orders. There shall be in force no order or decree restraining,
enjoining, prohibiting, invalidating or otherwise preventing to a material
degree the consummation of the transactions contemplated by this Agreement or
the other agreements or documents described herein.
(b) No Litigation. No governmental department, agency, commission or other
governmental entity shall have notified any party hereto of its intention to
institute any suit, proceeding or investigation, and no such suit, proceeding
or investigation and no suit instituted by any person shall be pending (except
for suits, proceedings or investigations which, in the opinions of counsel for
TKZ and Defino, have no substantial likelihood of success) against any party
hereto to restrain, enjoin, prohibit, invalidate or otherwise prevent to a
material degree the transactions contemplated by this Agreement or the other
agreements or documents described herein, or to obtain substantial damages
from any party hereto in connection with this Agreement or the other
agreements and documents described herein or the consummation of the
transactions contemplated hereby or thereby.
(c) Consents and Approvals. Any and all consents, orders, permits, licenses,
qualifications, authorizations or approvals from governmental authorities
required for the consummation of the transactions contemplated by this
Agreement shall have been obtained.
(d) Vitallo Transaction. The closing with Vitallo and Tukaiz under an Asset
Purchase Agreement acceptable to both Vitallo and TKZ shall occur
simultaneously with the Closing.
(e) Creation of the Company. The Company shall have been formed, the
operating agreement with respect thereto shall have been signed and TKZ and
Tukaiz shall have contributed their assets of Tukaiz to the Company in
exchange for 50% of the Membership Interests of the Company for each of TKZ
and Tukaiz; provided, however, that the assets of Tukaiz contributed to the
Company shall not include the Excluded Assets.
(f) Line of Credit Funding Requirements. The Company shall have entered into
a bank line of credit in order to fund its obligations under the Note.
7.03 Conditions to Obligations of TKZ.
(a) Representations and Warranties of Defino; Performance of Covenants.
Except as otherwise consented to in writing by TKZ, the representations and
warranties in Article II and Article III hereof shall be true and correct in
all material respects when made and at and as of the Closing Date with the
same force and effect as though made at and as of such time. Except as
otherwise consented to in writing by TKZ, Defino shall have complied in all
<PAGE>
<PAGE> 24
material respects with all covenants and conditions contained herein required
to be performed or complied with by it at or before the Closing. At the
Closing TKZ shall have received a certificate of Defino to the foregoing
effects, which certificates shall list or attach copies of any such written
consents by TKZ.
(b) Opinion of Counsel for Defino. TKZ shall have received from William
Diamant, Esquire or other counsel satisfactory to TKZ a favorable written
opinion, dated the Closing Date and in substantially the form attached hereto
as Exhibit A. In rendering the foregoing opinion, such counsel may rely on
the opinions, satisfactory in form and substance to TKZ, of other counsel
satisfactory to TKZ.
(c) Permits, Consents, Etc. Any and all orders, permits, licenses,
qualifications, authorizations or approvals, and any and all consents with
respect to agreements required for the closing of the transactions
contemplated by this Agreement to have been obtained by Defino shall have been
obtained.
(d) TCS Stock. Defino and Vitallo shall have contributed their shares of
capital stock of TCS to Tukaiz prior to Tukaiz contributing its assets
(including such stock) to the Company.
(e) Transaction Documents. The parties thereto shall have entered into the
Note substantially in form of Exhibit B hereto, the Employment Agreement
substantially in the form of Exhibit C hereto, the Lease substantially in the
form of Exhibit D hereto, the Subordinated Convertible Note substantially in
the form of Exhibit E hereto (and the funding thereunder shall have occurred)
and the Tax Note substantially in the form of Exhibit F hereto (and the
funding thereunder shall have occurred). In addition, certain key employees
of Tukaiz shall have entered in employment agreements with the Company, to the
reasonable satisfaction of TKZ.
(f) Proceedings and Incumbency. On the Closing Date there shall have been
delivered to TKZ a certificate in form and substance satisfactory to TKZ,
dated the Closing Date and signed on behalf of Tukaiz by the Secretary or an
Assistant Secretary of Tukaiz, certifying as to (a) true copies of the
articles of incorporation and bylaws of such entity as in effect on such date,
(b) true copies of all corporate action taken by such entity relative to this
Agreement and the other Transaction Documents to which it is a party, and (c)
the names, true signatures and incumbency of the officer or officers of such
entity authorized to execute and deliver this Agreement and the other
Transaction Documents to which it is a party.
(g) Results of "Due Diligence" Inquiry. Any investigation of Tukaiz and
Defino undertaken by TKZ shall not have resulted in the discovery of any
information or matter which TKZ in its sole discretion has determined to be
material and adverse.
(h) Material Adverse Change. Seller shall not have suffered any change in
its condition (financial or otherwise) or in its assets, liabilities (absolute
or contingent) or business, except changes in the lawful and ordinary course
of business, and none of such changes as may have occurred, individually or in
the aggregate, shall have materially and adversely affected its business,
property, assets, condition or prospects.
(i) Legal Matters. All actions, proceedings, instruments and documents
required to carry out this Agreement and to close the transactions
contemplated hereby and all other related legal matters shall be satisfactory
to counsel for TKZ.
<PAGE>
<PAGE> 25
7.04 Conditions to Obligations of Defino.
(a) Representations and Warranties of TKZ; Performance of Covenants. Except
as otherwise consented to in writing by Defino, the representations and
warranties in Article IV hereof shall be true and correct in all material
respects when made and at and as of the Closing Date with the same force and
effect as though made at and as of such time. Except as otherwise consented
to in writing by Defino, TKZ shall have complied in all material respects with
all covenants and conditions contained herein required to be performed or
complied with by it at or before the Closing. At the Closing Defino shall
have received a certificate of TKZ to the foregoing effects, which certificate
shall list or attach copies of any such written consents of Defino.
(b) Opinion of Counsel for TKZ. Defino shall have received from Reed Smith
Shaw & McClay, counsel to TKZ, a favorable opinion, dated the Closing Date and
in substantially the form attached hereto as Exhibit G. In rendering the
foregoing opinion, such counsel may rely on the opinions, satisfactory in form
and substance to Defino, of other counsel satisfactory to Defino.
(c) Permits, Consents, Etc. Any and all orders, permits, licenses,
qualifications, authorizations or approvals, and any and all consents with
respect to agreements required for the closing of the transactions
contemplated by this Agreement to have been obtained by TKZ shall have been
obtained.
(d) Transaction Documents. The parties thereto shall have entered into the
Note substantially in form of Exhibit B hereto, the Employment Agreement
substantially in the form of Exhibit C hereto, the Lease substantially in the
form of Exhibit D hereto, the Subordinated Convertible Note substantially in
the form of Exhibit E hereto (and the funding thereunder shall have occurred),
the Tax Note substantially in the form of Exhibit F hereto (and the funding
thereunder shall have occurred) and the Guaranty substantially in the form of
Exhibit H hereto.
(e) Proceedings and Incumbency. On the Closing Date there shall have been
delivered to Defino a certificate in form and substance satisfactory to
Defino, dated the Closing Date and signed on behalf of TKZ by the Secretary or
an Assistant Secretary of such entity, certifying as to (a) true copies of the
articles of incorporation and bylaws of such entity as in effect on such date,
(b) true copies of all corporate action taken by such entity relative to this
Agreement and the other Transaction Documents to which it is a party, and (c)
the names, true signatures and incumbency of the officer or officers of such
entity authorized to execute and deliver this Agreement and the other
Transaction Documents to which it is a party.
(f) Legal Matters. All actions, proceedings, instruments and documents
required to carry out this Agreement and to close the transactions
contemplated hereby and all other related legal matters shall be satisfactory
to counsel for Defino.
ARTICLE VIII
Put/Call Provisions
8.01 Certain Put/Call Definitions. The following definitions shall apply to
the Put/Call Rights described in this Article VIII:
(a) "Applicable Percentage" shall mean, at any time, the ratio that a
Member's Membership Interests bears to the total Membership Interests then
outstanding (without considering the conversion rights which may be then
outstanding under the Subordinated Convertible Note).<PAGE>
<PAGE> 26
(b) "Calculated Amount" shall mean, at any time, (i) the indebtedness of the
Company (including without limitation amounts outstanding under the
Subordinated Convertible Note) other than trade debt and any amounts
outstanding under the Note, (ii) less the cash balances of the Company,
(iii) plus $137,500.
(c) "EBIT" shall mean Tukaiz's or the Company's, as the case may be, net
earnings prior to goodwill amortization, interest and taxes, and not including
any allocations for overhead costs attributable to Matthews (as opposed to the
Company), as determined in accordance with generally accepted accounting
principles and consistent with past practice by the accountants of Tukaiz or
the Company, as the case may be, in their annual review (including calculating
depreciation on a straight line method).
(d) "Put/Call Purchase Price" shall mean, at any time, the Applicable
Percentage of the Total Equity Value, but subject to Section 8.02(d).
8.02 Put/Call Rights. Commencing 30 days after the fiscal year of the
Company which ends in 2001, and on each anniversary of such date thereafter,
for a period of 45 days from each such date (the "Exercise Period"), the
following put/call rights shall apply to TKZ and Tukaiz (the "Put/Call
Rights"):
(a) Tukaiz shall have a put right enabling it (or its successor or
representative, as the case may be) to require TKZ to purchase all, but not
less than all, of its Membership Interests at a purchase price equal to the
Put/Call Purchase Price. The put rights shall be exercisable by Tukaiz (or
its successor or representative, as the case may be) during the Exercise
Period by written notice to TKZ.
(b) TKZ shall have a call right enabling TKZ to require Tukaiz (or its
successor or representative, as the case may be) to sell all, but not less
than all, of its Membership Interests at a purchase price equal to the
Put/Call Purchase Price. The call rights shall be exercisable by TKZ during
the Exercise Period by written notice to Tukaiz.
(c) "Total Equity Value" shall be determined by the following formula:
TEV = ((EBIT 1 + EBIT 2) / 2 x 8) less the Calculated Amount
where TEV = Total Equity Value
EBIT 1 = EBIT for the full fiscal year immediately preceding
the date of calculation of Total Equity Value
EBIT 2 = EBIT for the second full fiscal year preceding the
date of calculation of Total Equity Value
(d) Notwithstanding the foregoing or any other provisions of this Agreement,
the Put/Call Purchase Price shall be no less than $2,000,000 or greater than
$6,000,000.
(e) Notwithstanding the foregoing (i) the Put/Call Rights shall be deemed to
be exercised upon the death or disability (as determined under Defino's
Employment Agreement) of Defino and (ii) the year "2001" set forth in the
introduction paragraph to this Section 8.02(e) shall be deemed to be "1999"
if, but only if, Matthews is merged into another entity.
<PAGE>
<PAGE> 27
8.03 Closing of Put/Call Rights.
(a) Any purchase by TKZ of any Membership Interests as a result of the
occurrence of the exercise of a Put/Call Right shall take place at the
principal office of the Company no later than the 45 days (the "Scheduled
Put/Call Closing Date") following the date the applicable Put/Call Rights are
exercised, with a cash payment by TKZ to Tukaiz on such date.
(b) On the Scheduled Put/Call Closing Date, TKZ shall make the cash payment
to Tukaiz referred to in Section 8.03(a) above, but shall offset (i) any
amount due to the Company under the Note, and shall pay such amounts that are
offset directly to the Company on behalf of Defino to settle and cancel such
Note in full and (ii) any amount due to Venetian under the Tax Note, and shall
pay such amounts that are offset directly to Venetian on behalf of Defino to
settle and cancel such Note in full.
(c) On the Scheduled Put/Call Closing Date, the Company shall use its
reasonable efforts to cause Defino to be released from any and all pre-closing
third party obligations with respect to the Company, including any guarantees
on third-party debt of the Company, and shall indemnify Defino against any
such obligations which are not so released. Tukaiz, Defino and the Company
shall execute and deliver a Release (the "Release") substantially in the form
of Exhibit I attached hereto.
8.04 Operation of Business. Defino shall cause the Company to be operated in
the ordinary course of business prior to any calculation of Total Equity Value
and not in a manner which would materially affect such calculation.
ARTICLE IX
Corporate Governance; Tax Note
9.01 Board of Managers.
(a) At the Closing, Tukaiz and TKZ shall elect a Board of Managers of the
Company, to consist of Defino and Geoffrey Barefoot of Matthews.
(b) If EBIT is less than $1,250,000 for the two consecutive twelve month
fiscal years ending January 31, 1998 and January 31, 1999 (or if the fiscal
year end of the Company is changed to September 30, September 30, 1998 and
September 30, 1999), or any two consecutive twelve month fiscal years
thereafter, TKZ shall have the right to immediately appoint an additional
manager to provide it with a majority of the managers on the Board, and Tukaiz
shall vote its Membership Interests to elect such manager. Such right of TKZ
to elect a majority of the managers on the Board shall thereafter continue.
(c) Notwithstanding the foregoing, if Venetian converts its Subordinated
Convertible Note into Membership Interests (pursuant to the terms of such
Subordinated Convertible Note or this Agreement) and Matthews (through one or
more of its subsidiaries) thereby becomes the owner of a majority of
Membership Interests of the Company, Matthews shall have the rights provided
to a majority owner under the certificate of organization and operating
agreement of the Company, including the right to elect such managers as it so
chooses from time to time.
9.02 Tax Note. TKZ and Tukaiz shall cause the Company to distribute to
Tukaiz at or prior to the end of each calendar quarter an amount of cash
necessary for Defino to pay his interest obligations under the Tax Note and to
distribute a like amount of cash to TKZ.
<PAGE>
<PAGE> 28
9.03 Tax Obligations. TKZ and Tukaiz shall cause the Company to distribute
quarterly to Tukaiz and TKZ an equal amount of cash sufficient to pay the
greater of the tax obligations of TKZ or Defino.
ARTICLE X
Membership Interest Transfer Restrictions
10.01 Restriction on Transfer of Membership Interests. During the term of
this Agreement, no Member shall sell, give, pledge, assign or otherwise
dispose of any or all of his Membership Interests to any other person or
entity except in accordance with the terms hereof.
10.02 Voluntary Sales.
(a) If a Member has received a bona fide written offer stated in terms of
cash or cash equivalents from a prospective purchaser of any or all of his
Membership Interests (herein referred to as the "Offered Membership
Interests"), before accepting such offer, such Member (herein referred to as
the "Offering Member") shall offer such Membership Interests in writing to the
Company at the price and on the other terms and conditions contained in such
offer; provided, however, that the Company shall not be required to meet any
non-monetary terms of the offer, including without limitation delivery of
other securities in exchange for the Offered Membership Interests. The notice
given by the Offering Member shall contain a complete copy of the offer
received by him from the bona fide offeror.
(b) The Company shall have the right, within thirty (30) days after receipt
of such notice, to notify the Offering Member of its election to purchase,
specifying the number of interests it desires to purchase. In such notice,
the Company shall also fix a closing date not more than thirty (30) days after
the date of its notice of election to purchase.
(c) Should the Company not desire to purchase the Membership Interests
offered, the Company shall promptly communicate the offer for the remaining
interests to the other Members who shall have thirty (30) days from the date
of such notice within which to notify the Offering Member and the Company of
their respective elections to purchase. The other Members shall have the
option of purchasing the Membership Interests at the same price and terms as
the Company. The closing date of any purchase hereunder by such other Members
shall be not more than thirty (30) days after the date of their notice of
election to purchase. Any Membership Interests purchased by the other Members
shall be purchased in proportion to their holdings. That is, the number of
Offered Membership Interests that each other Member shall be entitled to
purchase hereunder shall be determined by multiplying the total Offered
Membership Interests by a fraction, the numerator of which shall be the number
of Membership Interests then owned by the purchasing Member (or which the
purchasing Member shall have the right to acquire by reason of a then pending
offer to purchase) and the denominator of which shall be the number of
Membership Interests then owned by all purchasing Members then participating
in such offer.
(d) Unless the Company and the other Members agree to purchase the Offered
Membership Interests pursuant to the terms hereof, their right to purchase
said interests shall terminate and the Offering Member shall be free for a
period of ninety (90) days to sell the Offered Membership Interests to the
third person at the same price and on the same terms set forth in the Offering
Member's notice of intended sale. Any person who acquires such Membership
Interests shall automatically be bound by the terms of this Agreement
(including the Put/Call provisions set forth herein) and shall be required to
join in and execute and deliver a copy of this Agreement as an additional
Member party. If the Membership Interests are not sold by the Offering Member
within the ninety (90) day period, all rights to transfer the Membership
Interests free of the foregoing restrictions shall terminate.<PAGE>
<PAGE> 29
10.03 Sale of Membership Interests Upon Death.
(a) Following the death of a Member, the Company and the remaining Members
shall have the option to purchase all of the Membership Interests held by the
deceased Member on the date of his death, and the estate of the deceased
Member shall be obligated to sell all of its said interests all on terms
herein provided if the Company or the remaining Members exercise their
respective options hereunder.
(b) The Company shall have the right, within thirty days after receipt of
notice of the death of a Member, to notify the estate of such Member of its
election to purchase. In such notice, the Company shall also fix a Closing
Date not more than thirty days (30) after the date of its notice of election
to purchase.
(c) Should the Company not desire to purchase the Membership Interests of the
deceased Member, the Company shall promptly communicate the same to the other
Members who shall have thirty (30) days from the date of such notice within
which to notify the estate of the deceased Member and the Company of their
respective elections to purchase all of such interests. The other Members
shall have the option of purchasing interests at the same price and terms as
the Company. The closing date of any purchase hereunder by such other Members
shall not be more than thirty (30) days after the date of their notice of
election to purchase. Any Membership Interests purchased by the other Members
shall be purchased in proportion to their holdings, calculated in the manner
set forth in Section 10.02(c) hereof.
(d) Subject to Section 8.02(e) hereof, which shall govern with respect to the
death of Defino, the price to be paid for the purchased Membership Interest
under this Paragraph shall be the Applicable Percentage of Total Equity Value
(as such terms are used and defined in Article VIII hereof), and the terms of
purchase shall be the Agreement Terms as described in Section 10.04 hereof.
The representative of the estate of a deceased Member shall cooperate with the
Company and the remaining Members to effectuate the purposes of this
Agreement.
10.04 Payment of Purchase Price.
(a) The purchase price for any interests purchased pursuant to this Agreement
shall be paid in cash on the closing date.
(b) Upon payment for the Membership Interest purchased hereunder the selling
Member or his estate shall deliver the certificates therefor to the purchaser
or purchasers, with appropriately executed assignments and endorsements, with
all required federal and state tax stamps attached.
(c) The terms of purchase for the Membership Interest determined in
accordance with the foregoing shall be the "Agreement Terms" as that term is
used herein.
10.05 Endorsement of Membership Interest Certificates. All certificates for
Membership Interest subject to this Agreement shall bear the following legend:
"The transfer of these interests is restricted by the terms of a Membership
Interest Agreement dated January 3, 1997 which grants certain option rights in
the Membership Interests to the Company and to certain other Members and which
must be executed by all parties to whom such interests may be transferred. A
copy of said Agreement is on file at the offices of the Company."
<PAGE>
<PAGE> 30
10.06 Other Members. Upon the issuance by the Company of its Membership
Interest to other parties, unless all of the Members otherwise agree, the
Company shall require as a condition precedent to such issuance that such
issuee execute and agree to be bound by all of the terms and conditions of
this Agreement, whereupon the issuee shall be considered a "Member" as that
term is defined and used herein.
10.07 Term. This Article X shall terminate upon the voluntary agreement of
all Members who are then bound by the terms hereof.
10.08 Specific Covenants of the Company. In addition to agreeing to comply
with all provisions of this Agreement, the Company specifically covenants:
(a) To register no change of ownership of a Membership Interest certificate
on the books of the Company until all the requirements of this Agreement have
been satisfied.
(b) To promptly notify the Members in writing of its intention to waive any
option rights given by this Agreement once a corporate decision has been
reached to so waive any rights.
ARTICLE XI
Remedies for Breaches of this Agreement
11.01 Survival of Representations, Warranties and Covenants. All of the
representations, warranties and covenants of the parties contained in this
Agreement shall survive the Closing (even if the damaged party knew or had
reason to know of any misrepresentation or breach of warranty at the time of
the Closing) and shall continue in full force and effect thereafter until any
claim with respect thereto is barred by the applicable statute of limitations.
11.02 Indemnification Provisions for Benefit of TKZ. If there is any breach
of any of the representations, warranties or covenants of Defino and/or Tukaiz
contained herein, or if any third party alleges facts that, if true, would
mean that such a breach existed, and provided that TKZ deliver to Defino,
pursuant to Section 11.04 hereof, a claim for indemnification with respect to
such alleged breach, then Defino shall indemnify TKZ for any breach of a
representation or warranty or a covenant of Defino and/or Tukaiz contained
herein by Defino and/or Tukaiz from and against all Adverse Consequences that
TKZ has suffered or may suffer caused by, resulting from, arising out of or
relating to such breach through and after the date of such claim.
11.03 Indemnification Provisions for Benefit of Defino. If there is any
material breach of any of the representations, warranties or covenants of TKZ
contained herein, or if any third party alleges facts that, if true, would
mean that such a breach existed, and provided that Defino deliver to TKZ
pursuant to Section 11.04 hereof a claim for indemnification with respect to
such alleged breach, then TKZ shall indemnify Defino from and against all
Adverse Consequences that Defino has suffered or may suffer caused by,
resulting from, arising out of or relating to such breach through and after
the date of such claim.
11.04. Notice of Claim for Indemnification. No claim for indemnification
hereunder shall be valid unless notice of such claim is delivered to TKZ (in
the case of a claim by Defino) or to Defino (in the case of a claim by TKZ).
Any such notice shall set forth in reasonable detail, to the extent known by
the person giving such notice, the facts on which such claim is based and the
estimated amount of Adverse Consequences resulting therefrom.
<PAGE> 31
11.05. Matters Involving Third Parties.
(a) If TKZ or Defino receives notice or acquires knowledge of any matter
which may give rise to a claim by another person and which may then result in
a claim for indemnification under this Article XI, then (i) if such notice or
knowledge is received or acquired by TKZ, TKZ shall promptly notify Defino
thereof, and (ii) if such notice or knowledge is received or acquired by
Defino, he shall promptly notify TKZ thereof; provided, however, that no delay
in giving such notice shall diminish any obligation under this Article XI to
provide indemnification unless (and then solely to the extent that) the party
from whom such indemnification is sought is prejudiced.
(b) Any party from whom such indemnification is sought (the "Indemnifying
Party") shall have the right to defend the party seeking such indemnification
(the "Indemnified Party") against such claim by another person (the "Third
Party Claim") with counsel of the Indemnifying Party's choice reasonably
satisfactory to the Indemnified Party so long as (i) within fifteen days after
the Indemnified Party has given notice of the Third Party Claim to the
Indemnifying Party, the Indemnifying Party notifies the Indemnified Party that
the Indemnifying Party will indemnify the Indemnified Party from and against
all Adverse Consequences the Indemnified Party may suffer caused by, resulting
from, arising out of or relating to such Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
satisfactory to the Indemnified Party that the Indemnifying Party has the
financial resources necessary to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (iii) the Third Party Claim
seeks only money damages and not an injunction or other equitable relief,
(iv) settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Party conducts
the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the Third
Party Claim in accordance with Section 11.05(b) hereof, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior consent of
the Indemnifying Party, and (iii) the Indemnifying Party shall not consent to
the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior consent of the Indemnified Party.
(d) If any of the conditions specified in Section 11.05(b) hereof is or
becomes unsatisfied, however, (i) the Indemnified Party, upon prior written
notice to the Indemnifying Party, may defend against, and consent to the entry
of any judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it may deem advisable (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in connection
therewith), (ii) the Indemnifying Parties shall reimburse the Indemnified
Party promptly and periodically for the costs of defending against the Third
Party Claim (including reasonable attorneys' and accountants' fees and
disbursements and amounts paid in settlement), and (iii) the Indemnifying
Party shall remain responsible for any Adverse Consequences the Indemnified
Party may suffer caused by, resulting from, arising out of or relating to such
Third Party Claim to the fullest extent provided in this Article XI.
11.06. Treatment of Indemnification Payments. All indemnification payments
made by Defino or TKZ under this Article XI shall be deemed adjustments to the
Purchase Price.
11.07. Other Indemnification Provisions. The indemnification provisions in
<PAGE> 32
this Article XI are in addition to, and not in derogation of, any statutory,
equitable or common law remedy any party may have for breach of
representation, warranty or covenant.
ARTICLE XII
Definitions
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, Liens, losses, expenses and
fees, including court costs and attorneys' and accountants' fees and
disbursements.
"Affiliate" shall mean a person who, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, the person specified.
"Agreement" shall have the meaning provided in the preamble hereto.
"Agreement Terms" shall have the meaning set forth in Section 10.04 hereof.
"Applicable Percentage" shall have the meaning set forth in Section 8.01.
"Asset Purchase Agreement" shall have the meaning set forth in the recitals
hereto.
"Book Value" shall have the meaning set forth in Section 10.03 hereof.
"Calculated Amount" shall have the meaning set forth in Section 8.01.
"Closing" shall have the meaning set forth in Section 1.02.
"Closing Date" shall have the meaning set forth in Section 1.02.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals hereto.
"Company" shall have the meaning set forth in the preamble hereto.
"Confidential Information" includes information concerning Tukaiz's sales,
sales volume, sales methods, sales proposals, customers and prospective
customers, identity of customers and prospective customers, identity of key
purchasing personnel in the employ of customers and prospective customers,
amount or kind of customer's purchases from Tukaiz, its sources of supply, its
computer programs, system documentation, special hardware, product hardware,
related software development, its manuals, formulae, processes, methods,
machines, compositions, ideas, improvements, inventions or other confidential
or proprietary information belonging to Tukaiz or relating to its affairs.
"Contracts" shall have the meaning set forth in Section 3.08.
"Debt Instruments" shall have the meaning set forth in Section 3.15.
"Defino" shall have the meaning set forth in the preamble hereto.
"Disclosure Schedule" shall mean the disclosure schedule dated the date
hereof, as supplemented from time to time to the Closing on the Closing Date
<PAGE> 33
furnished by Defino to TKZ and containing all lists, descriptions, exceptions,
and other information and materials as are required to be included therein
pursuant to this Agreement.
"EBIT" shall have the meaning set forth in Section 8.01.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e) other plan or
practice of Tukaiz, whether formal or informal, written or oral, and whether
or not legally enforceable, providing or which may provide benefits to
employees of Tukaiz in connection with their employment or the termination of
their employment by retirement or otherwise.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Employment Agreement" shall mean the Employment Agreement dated as of the
Closing Date between Defino and the Company.
"Employment Contracts" shall have the meaning set forth in Section 3.10.
"Environmental, Health and Safety Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation
and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970,
each as amended, together with all other laws of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety or employee health and
safety, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or chemical, medical,
industrial, hazardous or toxic materials or wastes into ambient air, surface
water, ground water or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or chemical, medical, industrial,
hazardous or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Equipment" shall have the meaning set forth in Section 3.07(b).
"Equipment Instruments" shall have the meaning set forth in Section 3.07(b).
"Excluded Assets" shall mean the tax deposit receivable due to Tukaiz from the
IRS with respect to Tukaiz's election of its taxable year.
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Exercise Period" shall have the meaning set forth in Section 8.01.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
<PAGE> 34
"Financial Statements" shall have the meaning set forth in Section 3.05.
"Guaranty" shall mean the Guaranty Agreement of even date herewith of Matthews
in favor of Defino.
"Indemnified Party" has the meaning set forth in Section 11.05(b) hereof.
"Indemnifying Party" has the meaning set forth in Section 11.05(b) hereof.
"Lease" shall mean the Lease Agreement dated the Closing Date among Vitallo,
Defino and the Company with respect to the Company facilities.
"Lien" means any mortgage, pledge, encumbrance, charge or other security
interest other than Permitted Liens.
"Material Adverse Effect" shall mean a material adverse effect on the
business, property, financial condition or results of operations of a
specified Person.
"Matthews" shall have the meaning set forth in the preamble hereto.
"Member" and "Members" shall have the meanings set forth in the preamble
hereto.
"Membership Interests" shall mean the membership interests in the Company.
"Multiemployer Plan" means any employee benefit plan which is a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA and to which Tukaiz
has an obligation to contribute.
"Note" shall mean the Revolving Credit Note dated the Closing Date in the
principal amount of $500,000 made by Defino in favor of the Company,
representing a line of credit for Defino.
"Offered Membership Interests" shall have the meaning set forth in Section
10.02(a) hereof.
"Offering Member" shall have the meaning set forth in Section 10.02(a) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" shall have the meaning set forth in Section 3.14.
"Permitted Liens" shall mean landlord's, workmen's, warehousemen's,
materialmen's or other statutory liens or easements, covenants and
encumbrances which are not material in character, amount or extent and do not
materially detract from the value or materially interfere with the use of the
properties subject thereto or affected thereby or otherwise materially impair
the business operations being conducted thereon or therewith.
"Person" shall mean any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Put/Call Purchase Price" shall have the meaning set forth in Section 8.01.
<PAGE> 35
"Put/Call Rights" shall have the meaning set forth in Section 8.01.
"Real Property" shall have the meaning set forth in Section 3.07(a).
"Real Property Instruments" shall have the meaning set forth in Section
3.07(a).
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Release" shall have the meaning set forth in Section 8.03(d).
"Scheduled Put/Call Closing Date" shall have the meaning set forth in Section
8.01.
"Stock Purchase Agreement and General Release" shall mean the Stock Purchase
and General Release dated as of the Closing Date between Vitallo and Tukaiz.
"Subordinated Convertible Note" shall mean the $5,500,000 Subordinated
Convertible Note dated the Closing Date from the Company in favor of Venetian.
"Tax" or "Taxes" means any United States Federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative minimum, estimated or other tax of any kind whatsoever, including
any interest, penalty or addition thereto, whether disputed or not.
"Tax Note" shall mean the Promissory Note dated the Closing Date from Defino
in favor of TKZ, in an amount equal to Defino's tax liability with respect to
the sale of Tukaiz's assets to TKZ under the Asset Purchase Agreement.
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TCS" shall mean Tukaiz Creative Services, Inc., an Illinois corporation.
"TKZ" shall have the meaning set forth in the preamble hereto.
"Third-Party Claim" has the meaning set forth in Section 11.05(b) hereof.
"Total Equity Value" shall have the meaning set forth in Section 8.01.
"Tukaiz" shall have the meaning set forth in the preamble hereto.
"Transaction Documents" shall mean this Agreement, the Employment Agreement,
the Note, the Subordinated Convertible Note, the Tax Note and the Lease.
"Venetian" shall have the meaning provided in the recitals hereto.
"Vitallo" shall have the meaning provided in the recitals hereto.
<PAGE>
<PAGE> 36
ARTICLE XIII
Miscellaneous
13.01 Termination.
(a) This Agreement may be terminated at any time prior to the Closing:
(i) by the mutual written agreement of Defino, Tukaiz and TKZ;
(ii) by TKZ or Defino or Tukaiz after February 15, 1997 if the Closing of the
transactions contemplated hereby has not occurred by that date and if the
party exercising the right of termination provided by this clause (ii) is not,
at the time of such exercise, in breach of its material obligations under this
Agreement;
(iii) by TKZ on the Closing Date if any of the conditions provided in Section
7.02 or Section 7.03 have not been met and have not been waived;
(iv) by Defino or Tukaiz on the Closing Date if any of the conditions
provided in Section 7.02 or Section 7.04 have not been met and have not been
waived; or
(v) by TKZ or Defino or Tukaiz if there is an order or decree restraining,
enjoining, prohibiting, invalidating or otherwise preventing to a material
degree the consummation of the transactions contemplated by this Agreement or
the other agreements or documents described herein.
TKZ or Defino or Tukaiz, as the case may be, shall exercise a right of
termination provided above by written notice to the other parties hereto.
(b) If this Agreement is terminated by TKZ or Defino or Tukaiz as permitted
in Section 13.01(a), such termination shall be without liability of any party
to any other party to this Agreement; provided, however, that if such
termination shall result from (i) the willful failure of any party to fulfill
a condition precedent to the performance of another party or to perform a
material covenant of this Agreement or (ii) a material and willful breach by
any party of this Agreement, then such party shall be fully liable for any and
all damages, costs and expenses (including, but not limited to, reasonable
counsel fees) sustained or incurred by the other party or parties in
connection herewith.
13.02 Further Assurances; Books and Records. From time to time at TKZ's
request (whether at or after the Closing) and without further consideration,
Defino will execute and deliver such further instruments of conveyance and
transfer as TKZ may reasonably request in order to effectively convey and
transfer the Membership Interests.
13.03 Press Releases and Public Announcements. Except as otherwise required
by law, prior to the Closing, neither TKZ, Tukaiz nor Defino shall issue or
permit to be issued any press release, make or permit to be made any public
announcement or otherwise disclose or permit to be disclosed any information
for the purpose of publication by any print, broadcast or other public media,
relating to the transactions contemplated by this Agreement, without the prior
written consent of Defino (in the case of an announcement or disclosure other
than by Defino) or TKZ (in the case of an announcement or disclosure other
than by TKZ); provided, however, that the parties acknowledge that press
releases shall be issued upon signing this Agreement and at Closing and agree
to cooperate to issue a mutual press release. In the event that such
disclosure is required by law, the disclosing party shall be required to give
written notice of such requirement to the other party prior to making any such
disclosure.<PAGE>
<PAGE> 37
13.04 Expenses. Defino (and not Tukaiz or the Company) will pay all costs
and expenses attributable to the performance of and compliance with all
agreements and conditions contained in this Agreement to be performed or
complied with by them, including, without limitation, all accounting and legal
fees and expenses of Defino. TKZ will pay all costs and expenses attributable
to the performance of and compliance with all agreements and conditions
contained in this Agreement to be performed or complied with by them,
including, without limitation, all accounting and legal fees and expenses of
TKZ.
13.05 Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania. TKZ, Tukaiz and Defino submit to the
jurisdiction of any state or federal court sitting in Pittsburgh, Pennsylvania
or Chicago, Illinois, in any action or proceeding arising out of or relating
to this Agreement and agree that all claims in respect of the action or
proceeding may be heard and determined in any such court. TKZ, Tukaiz and
Defino waive any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waive any bond, surety, or other security
that might be required of any other party with respect thereto.
13.06 Entire Agreement; Modification; Waiver. This Agreement, including the
exhibits, schedules and appendices hereto, constitutes the entire Agreement
among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties and there are no warranties,
representations or other agreements, express or implied, made by any party to
any other party in connection with the subject matter hereof except as
specifically set forth herein or in documents delivered pursuant hereto. To
the fullest extent permitted by law, unless otherwise expressly provided for
herein, no supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any provision of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
13.07 Notices. All notices, demands, claims, requests, undertakings,
consents, opinions and other communications which may or are required to be
given hereunder or with respect hereto shall be in writing, shall be given
either by personal delivery or by mail, facsimile transmission (with
confirmation of receipt), telegraph, telex or similar means of communication,
and shall be deemed to have been given or made when delivered, if personally
delivered, and otherwise when received, addressed to the respective parties as
follows:
If to TKZ:
c/o Matthews International corporation
Two NorthShore Center
Pittsburgh, PA 15212
Attn: President
If to Defino or Tukaiz:
c/o Frank Defino, Sr.
2917 N. Latoria Lane
Franklin Park, IL 60131
<PAGE>
<PAGE> 38
with a copy to:
William Diamant, Attorney
119 E. Ogden Avenue, Suite A
Hinsdale, IL 60521
13.08 Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary and convenient, and by the different parties hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument.
13.09 Matters of Construction, Interpretation and the Like.
(a) Construction. TKZ, Tukaiz and Defino have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by TKZ, Tukaiz and Defino and no presumption or burden of
proof shall arise favoring or disfavoring either TKZ, Tukaiz or Defino because
of the authorship of any of the provisions of this Agreement. Any reference
to any United States Federal, state, local or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. Unless the context of this Agreement
otherwise requires, (a) words of any gender are deemed to include each other
gender; (b) words using the singular or plural number also include the plural
or singular number, respectively; (c) the terms "hereof," "herein," "hereby,"
"hereto," and derivative or similar words refer to this entire Agreement;
(d) the terms "ARTICLE" or "Section" refer to the specified ARTICLE or Section
of this Agreement; (e) the term "or" means "and/or"; (f) the term "party"
means, on the one hand, TKZ, on the other hand, Defino and Tukaiz, (g) the
word "including" means "including without limitation"; and (h) all references
to "dollars" or "$" refer to currency of the United States of America. Each
representation, warranty and covenant contained herein shall have independent
significance. If TKZ or Defino and Tukaiz materially breach in any respect
any representation, warranty, covenant or other obligation contained herein or
created hereby, the fact that there exists another representation, warranty,
covenant or obligation relating to the same subject matter (regardless of the
relative levels of specificity) which has not been breached shall not detract
from or mitigate the consequences of such breach. The rights and remedies
expressly specified in this Agreement are cumulative and are not exclusive of
any rights or remedies which any party would otherwise have. The exhibits and
schedules specified in this Agreement are incorporated herein by reference and
made a part hereof. The article and section headings hereof are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
(b) Severability. The invalidity or unenforceability of one or more of the
provisions of this Agreement in any situation in any jurisdiction shall not
affect the validity or enforceability of any other provision hereof or the
validity or enforceability of the offending provision in any other situation
or jurisdiction.
13.10 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than Matthews, TKZ, Defino, Tukaiz,
the Company and their respective heirs, legal representatives, successors and
permitted assigns.
<PAGE>
<PAGE> 39
13.11 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. No party may assign
this Agreement or any of such party's rights, interests or obligations
hereunder without the prior approval of the other parties hereto, except that
TKZ can assign its Put/Call Rights to another entity controlled by Matthews if
sole member limited liability companies are not permitted by Illinois law at
the time of the Put/Call Exercise.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement or
have caused this Agreement to be duly executed as of the date first above
written.
TKZ HOLDING CORP.
By David M. Kelly
---------------------------------
Title: President
------------------------------
TUKAIZ LITHO, INC.
By Frank Defino Sr.
---------------------------------
Title: President
------------------------------
WITNESS: Carol A. Soltes
----------------------------
Frank Defino Sr.
----------------------------
Frank Defino, Sr.
To be signed at Closing:
TUKAIZ COMMUNICATIONS, L.L.C.
By Geoffrey D. Barefoot
---------------------------------
Title: Secretary and Treasurer
------------------------------
<PAGE>
<PAGE> 1
EXHIBIT 10.3
The obligations evidenced hereby are subordinate in all respects to any other
debt of the Company, except for debt of the Company to other affiliates of the
Company.
TUKAIZ COMMUNICATIONS, L.L.C.
Subordinated Convertible Note
$5,500,000 Franklin Park, Illinois
January 31, 1997
FOR VALUE RECEIVED, the undersigned, TUKAIZ COMMUNICATIONS, L.L.C., an
Illinois limited liability company (the "Company"), promises to pay to the
order of VENETIAN INVESTMENT CORPORATION, a Delaware corporation (the
"Payee"), the aggregate principal sum of FIVE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($5,500,000), on demand by the Payee at any time after January 31,
2001.
The Company further promises to pay to the order of the Payee interest on the
unpaid principal amount hereof from time to time outstanding at the rate of 6%
per annum, quarterly on the first day of each April, July, October and January
after the date hereof, commencing April 1, 1997, and upon the final payment of
principal hereunder.
The holder of this Note shall have conversion rights as follows (the
"Conversion Rights"):
(a) Conversion Rights and Automatic Conversion.
(i) This Note shall be convertible, at the option of the holder thereof, at
any time after January 31, 2001, at the office of the Company, into 7.3826
fully paid and nonassessable Membership Interests, multiplied by a factor to
be determined by dividing $745,000 (the "Original Conversion Price") by the
Conversion Price at the time in effect for such conversion. The initial
Conversion Price shall be the Original Conversion Price; provided, however,
that the Conversion Price for the Note (the "Conversion Price") shall be
subject to adjustment as set forth in subsection (c).
(ii) Upon conversion of the Note, unless payment is then made on account of
any interest accrued but unpaid on the Note, an adjustment shall be made to
issue that additional number of Membership Interests to the holder of the Note
as is determined by dividing the Conversion Price into the amount of such
accumulated interest.
(b) Mechanics of Conversion. Before any holder of the Note shall be entitled
to convert the same into Membership Interests, it shall surrender the Note
marked cancelled, at the office of the Company, and shall give written notice
<PAGE>
<PAGE> 2
by mail, postage prepaid, to the Company at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for Membership Interests are to be
issued. The Company shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of the Note, or to the nominee or
nominees or such holder, a certificate or certificates for the number of
Membership Interests to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the Note to be converted,
and the person or persons entitled to receive the Membership Interests
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Membership Interests as of such date.
(c) Conversion Price Adjustments of the Note. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) If the Company shall issue any Additional Membership Interests (as defined
below) for a consideration per share less than the Conversion Price in effect
immediately prior to the issuance of such Additional Membership Interests, the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be decreased in an amount which shall cause there to be no dilution
to the value of the Note and the conversion rights attached thereto.
(ii) "Additional Membership Interests" shall mean any Membership Interests
issued by the Company after January 31, 1997 (the "Purchase Date"), other than
Membership Interests issued or issuable upon conversion of the Note.
(d) Other Distributions. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights, then, in each such case for the purpose of this subsection
(d), the holder of the Note shall be entitled to a proportionate share of any
such distribution as though it was the holder of the number of Membership
Interests of the Company into which its Membership Interests are convertible
as of the record date fixed for the determination of the holders of Membership
Interests of the Company entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there shall be a
recapitalization of the Membership Interests (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere
herein) provision shall be made so that the holder of the Note shall
thereafter be entitled to receive upon conversion of the Note the number of
interests, stock or other securities or property of the Company or otherwise,
to which a holder of Membership Interests deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Note
with respect to the rights of the holder of the Note after the
recapitalization to the end that the provisions of this Note (including
adjustment of the Conversion Price then in effect and the number of Membership
Interests obtained upon conversion of the Note) shall be applicable after that
event as nearly equivalent as may be practicable.
<PAGE>
<PAGE> 3
(f) No Impairment. The Company will not, by amendment of its Certificate of
Organization or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of all the
provisions of this Note and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holder of the Note against impairment.
(g) Fractional Membership Interests; Certificate as to Adjustments.
(i) Fractional Membership Interests shall be issued upon conversion of the
Note, with the number of Membership Interests to be issued to be rounded to
the nearest one ten-thousandth of an interest. Whether or not fractional
interests are issuable upon such conversion shall be determined on the basis
of the total amount of the Note the holder is at the time converting into
Membership Interests and the number of Membership Interests issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion
Price of the Note pursuant hereto, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to the holder of the Note a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon the written
request at any time of the holder of the Note, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of Membership Interests and the amount, if any, of other property which
at the time would be received upon the conversion of the Note.
(h) Notices of Record Date. In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any interests or any class of any other
securities or property, or to receive any other right, the Company shall mail
to the holder of the Note, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
<PAGE>
<PAGE> 4
(i) Reservation of Membership Interests Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized
but unissued Membership Interests solely for the purpose of effecting the
conversion of the Note such number of its Membership Interests as shall from
time to time be sufficient to effect the conversion of the Note; and if at any
time the number of authorized but unissued Membership Interests shall not be
sufficient to effect the conversion of all then the Note, in addition to such
other remedies as shall be available to the holder of the Note, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued Membership Interests to such
number of shares as shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions hereof to be given to the
holder of the Note shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to the holder of record at its address
appearing on the books of the Company.
This Note is the "Subordinated Convertible Note" as referred to in the
Membership Interest Agreement dated as of January 31, 1997 (the "Agreement")
among the Company, TKZ Holding Corp., Frank Defino and Tukaiz Litho, Inc.
Capitalized terms used herein and not defined herein shall have the meaning
given to those terms in the Agreement. The Company shall have no right to
prepay this Note.
In the event that this Note shall not be promptly paid when due, the Company
shall pay all costs of enforcement and collection of this Note, including
reasonable attorneys' fees.
Neither the failure nor any delay on the part of the Payee to exercise any
right, power or privilege under this Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege
under this Note preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege.
This Note may not be changed or terminated orally, nor may any of its
provisions be waived, except by an agreement in writing signed by the parties
against whom enforcement of such change or termination is sought.
<PAGE>
<PAGE> 5
The Company hereby expressly waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and an action for amounts due
hereunder or thereunder shall immediately accrue.
This Note is not assignable. This Note shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to principles of choice of law.
TUKAIZ COMMUNICATIONS, L.L.C.
By Frank Defino, Sr.
------------------------------
Title: President
Accepted and Agreed to:
VENETIAN INVESTMENT CORPORATION
By Edward J. Boyle
------------------------------
Title: Secretary & Treasurer
---------------------------
<PAGE>
<PAGE> 1
EXHIBIT 10.4
TUKAIZ COMMUNICATIONS, L.L.C.
OPERATING AGREEMENT
January 31, 1997
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II FORMATION OF COMPANY; MEMBERSHIP INTERESTS 4
2.1 Formation 4
2.2 Name 4
2.3 Principal Place of Business 4
2.4 Registered Office and Registered Agent 4
2.5 Term 5
2.6 Certificates of Membership Interests 5
2.7 Certificates 5
2.8 Transfer of Certificates 5
2.9 Lost, Stolen, Destroyed or Mutilated Certificates 5
2.10 Regulations Relating to Shares 6
2.11 Transfer of Certificates 6
ARTICLE III BUSINESS OF COMPANY 6
3.1 Permitted Businesses 6
ARTICLE IV NAMES AND ADDRESSES OF MEMBERS 6
ARTICLE V RIGHTS AND DUTIES OF BOARD OF MANAGERS 7
5.1 Management 7
5.2 Number, Election, Tenure and Qualifications 7
5.3 Manner of Acting 8
5.4 Certain Powers of Managers 8
5.5 Managers Have No Exclusive Duty to Company 10
5.6 Bank Accounts 10
<PAGE>
<PAGE> 3
Page
5.7 Resignation 10
5.8 Removal 10
5.9 Vacancies 10
ARTICLE VI OFFICERS 11
6.1 Officers of Company 11
6.2 Election and Term of Office 11
6.3 Removal 11
6.4 Vacancies 11
6.5 Chairman 11
6.6 President 12
6.7 The Vice Presidents 13
6.8 The Treasurer 13
6.9 The Secretary 13
6.10 Assistant Treasurers and Assistant Secretaries 14
6.11 Salaries 14
ARTICLE VII MEETINGS OF MEMBERS 14
7.1 Meetings 14
7.2 Place of Meetings 14
7.3 Notice of Meeting 15
7.5 Record Date 15
7.6 Quorum 15
7.7 Manner of Acting 15
7.8 Proxies 16
7.9 Action by Members Without a Meeting 16
7.10 Waiver of Notice 16
<PAGE>
<PAGE> 4
Page
ARTICLE VIII STANDARD OF CARE AND INDEMNIFICATION OF MANAGERS,
OFFICERS AND EMPLOYEES 16
8.1 Standard of Care 16
8.2 Indemnification of Managers. Officers and Employees 17
ARTICLE IX RIGHTS AND OBLIGATIONS OF MEMBERS 17
9.1 Limitation of Liability 17
9.2 List of Members 17
9.3 Company Books 17
9.4 Priority and Return of Capital 18
ARTICLE X CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS 18
10.1 Initial Capital Contributions 18
10.2 Additional Capital Contributions 18
10.3 Capital Accounts 18
ARTICLE XI ALLOCATIONS. INCOME TAX. ELECTIONS AND REPORTS 20
11.1 Allocations of Net Profits and Net Losses 20
11.2 Special Allocations to Capital Accounts 20
11.3 Distributions 23
11.4 Accounting Principles 24
11.5 Interest on and Return of Capital Contributions 24
11.6 Loans to Company 24
11.7 Accounting Period 24
11.8 Records and Reports 24
11.9 Returns and Other Elections 24
11.10 Tax Matters Partner 25
ARTICLE XII RESTRICTIONS ON TRANSFERABILITY 25
12.01 Restriction on Transfer of Membership Interests 25
<PAGE>
<PAGE> 5
Page
12.02 Voluntary Sales 25
12.04 Sale of Membership Interests Upon Death 27
12.5 Effectiveness of Transfer 28
ARTICLE XIII ADDITIONAL MEMBERS 28
13.1 Admission of New Members 28
13.2 Allocations to New Members 28
ARTICLE XIV DISSOLUTION AND TERMINATION 28
14.1 Dissolution 28
14.2 Winding Up 29
14.3 Distribution of Assets Upon Winding Up 29
14.4 Articles of Dissolution 29
ARTICLE XV MISCELLANEOUS PROVISIONS 30
15.1 Notices 30
15.2 Application of Illinois Law 30
15.3 Waiver of Action for Partition 30
15.4 Amendment 30
15.5 Execution of Additional Instruments 30
15.6 Construction 30
15.7 Headings 31
15.8 Waivers 31
15.9 Rights and Remedies Cumulative 31
15.10 Severability 31
15.11 Heirs, Successors and Assigns 31
15.12 Creditors 31
15.13 Counterparts 31
15.14 Investment Representations 33
<PAGE>
<PAGE> 6
OPERATING AGREEMENT
THIS OPERATING AGREEMENT is made and entered into this 31st day of January,
1997, among TKZ HOLDING CORP. ("TKZ") and TUKAIZ LITHO, INC. ("Tukaiz")
(together, the "Members").
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this Operating Agreement shall have the following
meanings (unless otherwise expressly provided herein):
(a) The Articles shall mean the Articles of Organization of the Company as
filed by the organizer of the Company with the Illinois Secretary of State, as
the same may be amended from time to time.
(b) "Board of Managers" has the meaning set out in Section 5.1.
(c) "Capital Account" as of any given date shall mean the Capital
Contributions to the Company by a Member as adjusted up to the date in
question pursuant to Article X.
(d) "Capital Contribution" shall mean any contribution to the capital of the
Company in cash or property by a Member whenever made. "Initial Capital
Contribution" shall mean the initial contribution to the capital of the
Company pursuant to this Operating Agreement.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent superseding federal revenue laws.
(f) "Company" shall refer to Tukaiz Communications, L.L.C.
(g) "Deficit Capital Account" shall mean with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the debit to such Capital Account for the
items described in Treasury Regulations 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
This definition of Deficit Capital Account is intended to comply with the
provision of Treasury Regulations 1.704-1(b)(2)(ii)(d), and will be
interpreted consistently with those provisions.
<PAGE>
<PAGE> 7
(h) "Illinois Act" shall mean the Illinois Limited Liability Company Act at
805 Ill. Comp. Stat. 180/1-1, et seq. as the same may be amended from time to
time.
(i) "Distributable Cash" shall mean all cash, revenues and funds received by
the Company from Company operations, less the sum of the following to the
extent paid or set aside by the Company: (i) all principal and interest
payments on indebtedness of the Company and all other sums paid to lenders;
(ii) all cash expenditures incurred in the normal operation of the Company's
business; and (iii) such reserves as the Managers or their designees deem
reasonably necessary for the proper operation of the Company's business.
(j) "Entity" shall mean any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative, association, foreign trust or foreign business organization.
(k) "Fiscal Year" shall mean the Company's fiscal year, which shall end on
September 30 each year.
(l) "Majority Interest" shall mean the affirmative vote of Members holding
more than fifty percent (50%) of the aggregate Percentage Interests in the
Company.
(m) "Manager" shall mean one or more members of the Board of Managers of the
Company. References to the Managers in the singular or as him, her, it,
itself or other like references shall also, where the context so requires, be
deemed to include the plural or the masculine or feminine reference, as the
case may be.
(n) "Member" shall mean, in connection with the formation of the Company,
each of the parties who executes a counterpart of this Operating Agreement as
a Member and, after the formation of the Company, each of the parties who may
be admitted as a Member in accordance with Section 13.1 of this Operating
Agreement.
(o) "Membership Interest" shall mean a Member's entire interest in the
Company, including the right to participate in the management of the business
and affairs of the Company, including the right to vote on, consent to, or
otherwise participate in any decision or action of or by the Members granted
pursuant to this Operating Agreement and the Illinois Act.
<PAGE>
<PAGE> 8
(p) "Membership Interest Agreement" shall mean the Membership Interest
Agreement dated as of January 22, 1997 among TKZ, Tukaiz, Frank Defino, Sr.
and the Company, as the same may be amended from time to time.
(q) "Net Losses" shall mean, for each Fiscal Year, the losses and deductions
of the Company determined in accordance with accounting principles
consistently applied from year to year employed under the accrual method of
accounting and as reported, separately or in the aggregate, as appropriate, on
the Company's information tax return filed for federal income tax purposes,
plus any expenditures described in Section 705(a)(2)(B) of the Code.
(r) "Net Profits" shall mean, for each Fiscal Year, the income and gains of
the Company determined in accordance with accounting principles consistently
applied from year to year employed under the accrual method of accounting and
as reported, separately or in the aggregate, as appropriate, on the Company's
information tax return filed for federal income tax purposes, plus any income
described in Section 705(a)(l)(B) of the Code.
(s) "Reserves" shall mean funds set aside or amounts allocated to reserves
which shall be maintained in amounts deemed sufficient by the Managers for
working capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's business.
(t) "Offered Membership Interests" has the meaning set forth in Section
12.2(a).
(u) "Offering Member" has the meaning set forth in Section 12.2(a).
(v) "Resignation" has the meaning set out in Section 9.5(a).
(w) "Operating Agreement" shall mean this Operating Agreement as originally
executed and as amended from time to time.
(x) "Percentage Interest" shall mean for any Member, the percentage of
Membership Interest in the Company as set forth on Exhibit A, as the same may
be changed from time to time upon the acquisition or disposition of Membership
Interests, the redemption of Membership Interests, or the addition on deletion
of Members.
(y) "Person" shall mean any individual or entity, and their heirs, executors,
administrators, legal representatives, successors and assigns where the
context so permits.
<PAGE>
<PAGE> 9
(z) " Transferring Member" shall mean (i) any Member who sells, assigns,
pledges, hypothecates, transfers, exchanges or otherwise transfers for
consideration all or any portion of his Membership Interest or (ii) any Member
who gifts, bequeaths or otherwise transfers for no consideration (by operation
of law or otherwise, except with respect to bankruptcy) all or any part of his
Membership Interest.
(aa) "Treasury Regulations" shall include proposed, temporary and final
regulations promulgated under the Code in effect as of the date of filing the
Certificate and the corresponding sections of any regulations subsequently
issued that amend or supersede such regulations.
Capitalized terms used herein and not defined herein shall have the respective
meanings given to those terms in the Membership Interest Agreement.
ARTICLE II
FORMATION OF COMPANY; MEMBERSHIP INTERESTS
2.1 Formation. Tukaiz Communications, L.L.C. has been organized as an
Illinois limited liability company by executing and delivering the Articles to
the Illinois Secretary of State in accordance with and pursuant to the
Illinois Act.
2.2 Name. The name of the Company is Tukaiz Communications, L.L.C.
2.3 Principal Place of Business. The principal place of business of the
Company shall be 2917 N. Latoria Lane, Franklin Park, Illinois, 60131. The
Company may locate its place of business at any other place or places as the
Board of Managers may deem advisable.
2.4 Registered Office and Registered Agent. The company's initial registered
office shall be 2917 N. Latoria Lane, Franklin Park, Illinois, 60131 and the
name of its initial registered agent shall be Frank Defino, Sr..
2.5 Term. The term of the Company shall be fifty (50) years from and after
the date of the formation of the Company in accordance with and pursuant to
the Illinois Act, unless the Company is earlier dissolved in accordance with
either the provisions of this Operating Agreement or the Illinois Act.
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2.6 Certificates of Membership Interests. The Board of Managers of the
Company may make such rules and regulations as they may deem appropriate
concerning the issuance and registration of Membership Interests in the
Company. The Board of Managers may authorize the issuance of any Membership
Interest without certificates. Such authorization shall not affect Membership
Interests already represented by certificates until they are surrendered to
the Company.
2.7 Certificates. If the Board of Managers authorizes the issuance of
certificates, such certificate or certificates shall be in such form as the
Board of Managers may from time to time prescribe, and signed (in facsimile or
otherwise as permitted by law) by the President or a Vice President and the
Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer, which shall represent the number of Membership Interests owned by
such holder. The Board may authorize the issuance of certificates for
fractional shares or, in lieu thereof, scrip or other evidence of ownership,
which may (or may not) as determined by the Board entitle the holder thereof
to voting, dividends or other rights of Members.
2.8 Transfer of Certificates. If the Board of Managers authorizes the
issuance of certificates, transfers of Membership Interests of the Company
shall be made on the books of the Company only upon surrender to the Company
of the certificate or certificates for such Membership Interests properly
endorsed by the holder or by his assignee, agent or legal representative, who
shall furnish proper evidence of assignment, authority or legal succession, or
by the agent of one of the foregoing thereunto duly authorized by an
instrument duly executed and filed with the Company, in accordance with
regular commercial practice.
2.9 Lost, Stolen, Destroyed or Mutilated Certificates. New certificates for
Membership Interests may be issued to replace certificates lost, stolen,
destroyed or mutilated upon such conditions as the Board of Managers may from
time to time determine.
2.10 Regulations Relating to Membership Interests. The Board of Managers
shall have power and authority to make all such rules and regulations not
inconsistent with the Operating Agreement as it may deem expedient concerning
the issue, transfer and registration of certificates representing Membership
Interests of the Company.
2.11 Holders of Record. The Company shall be entitled to treat the holder of
record of any Membership Interests of the Company as the holder and owner in
fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Membership Interests on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise expressly provided by law.
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ARTICLE III
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be to:
(a) engage in the business of digital prepress serving premedia, including
multimedia, digital photography, web site service and on-demand digital
printing; and
(b) to carry on any other lawful business or activity in connection with the
foregoing or otherwise, and to have and exercise all of the powers, rights and
privileges which a limited liability company organized pursuant to the
Illinois Act may have and exercise.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the initial Members are as follows:
NAME ADDRESS
TKZ Holding Corp. c/o Matthews International
Corporation
Two NorthShore Center
Pittsburgh, PA 15212
Attn.: President
Tukaiz Litho, Inc. c/o Frank Defino, Sr.
2917 N. Latoria Lane
Franklin Park, IL 60131
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ARTICLE V
RIGHTS AND DUTIES OF BOARD OF MANAGERS
5.1 Management. The business and affairs of the Company shall be managed by
its "Board of Managers". The Board of Managers shall have full and complete
authority, power and discretion to manage and control the business, affairs
and properties of the Company, to make all decisions regarding those matters
and to perform any and all other acts or activities customary or incident to
the management of the Company's business and objectives. No one Manager may
take or effect any action on behalf of the Company or otherwise bind the
Company in the absence of a formal delegation of authority by the Board of
Managers to such Manager. Unless authorized to do so by this Operating
Agreement or by the Managers of the Company, no Member, officer, employee,
attorney-in fact or other agent shall have any power or authority to bind the
Company.
5.2 Number, Election, Tenure and Qualifications. The number of Managers
which shall constitute the first Board of Managers shall be two (2).
Thereafter, the number of Managers of the Company shall be fixed from time to
time by the Members owning a Majority Interest, or as otherwise provided in
the Membership Interest Agreement. In no instance shall there be less than
one (1) Manager. Managers shall be elected by the vote of a Majority Interest
of the Members. Each Manager shall hold office until his successor shall have
been elected and qualified. Managers need not be Members of the Company.
5.3 Regular Meetings; Notice. Regular meetings of the Board of Managers
shall be held at such time and place as shall be designated by the Board of
Managers from time to time. Notice of such regular meetings shall not be
required, except as otherwise expressly required herein or by law, and except
that whenever the time or place of regular meetings shall be initially fixed
and then changed, notice of such action shall be given promptly by telephone
or otherwise to each Manager not participating in such action. Any business
may be transacted at any regular meeting.
5.4 Special Meetings; Notice. Special meetings of the Board of Managers may
be called at any time by the Board itself, or by the chairman or the
president, or by at least one-fourth of the Managers, to be held at such place
and day and hour as shall be specified by the person or persons calling the
meeting. Notice of every special meeting of the Board of Managers shall be
given by the Secretary to each Manager at least two days before the meeting.
Any business may be transacted at any special meeting regardless of whether
the notice calling such meeting contains a reference thereto, except as
otherwise required by law.
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5.5 Manner of Acting. The Board of Managers shall meet at least once each
calendar year. The Managers may designate any place, either within or outside
the State of Illinois, as the place of meeting for any meeting of Managers.
If no designation is made, the place of meeting shall be the principal place
of business of the Company. A majority of the Board of Managers shall
constitute a quorum at meetings of the Board of Managers. If a quorum is
present, the affirmative vote of a majority of those in attendance shall
constitute the act of the Board of Managers, unless the vote of Members is
otherwise required by this Operating Agreement, the Illinois Act or the
Articles. Any Manager may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in the
meeting by means of such equipment shall constitute presence in person at such
meeting. Action may be taken without a meeting if the action is evidenced by
one or more written consents signed by each Manager.
5.6 Presumption of Assent. Minutes of each meeting of the Board shall be
made available to each Manager at or before the next succeeding meeting. Each
Manager shall be presumed to have assented to such minutes unless his
objection thereto shall be made to the Secretary at or within two days after
such succeeding meeting.
5.7 Certain Powers of Managers. Without limiting the generality of Section
5.1, the Board of Managers (as a whole) shall have power and authority (and no
individual Manager shall alone have such power and authority; provided that
this shall not prevent a person who is both a Manager and an officer from
acting as an officer hereunder), after due action, on behalf of the Company:
(a) to acquire property from any Person as the Managers may determine,
whether or not such Person is directly or indirectly affiliated or connected
with any Manager or Member;
(b) to borrow money for the Company on such terms as the Managers deem
appropriate, and in connection therewith, to hypothecate, encumber and grant
security interests in the assets of the Company to secure repayment of the
borrowed sums. No debt shall be contracted or liability incurred by or on
behalf of the Company except by the Managers, or to the extent permitted
herein, by agents or employees of the Company expressly authorized to contract
such debt or incur such liability by the Managers;
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(c) to purchase liability and other insurance to protect the Company's
property and business;
(d) to hold and own Company real and personal properties in the name of the
Company;
(e) to invest Company funds;
(f) to execute on behalf of the Company all instruments and documents,
including, without limitation, checks; drafts; notes and other negotiable
instruments; mortgages or deeds of trust; security agreements; financing
statements; documents providing for the acquisition, mortgage or disposition
of the Company's property; assignments, bills of sale; leases; and any other
instruments or documents necessary to the business of the Company;
(g) to employ accountants, legal counsel, agents or other experts to perform
services for the Company;
(h) to enter into any and all other agreements on behalf of the Company, in
such forms as the Managers may approve;
(i) to appoint such agents, officers and delegees as may be necessary or
appropriate to the conduct of the business; and
(j) to do and perform all other acts as may be necessary or appropriate to
the conduct of the Company's business.
5.8 Managers Have No Exclusive Duty to Company. A Manager shall not be
required to manage the Company as his or her sole and exclusive function and
he or she may have other business interests and may engage in other activities
in addition to those relating to the Company. Neither the Company, a Member
nor any other Manager shall have any right, by virtue of this Operating
Agreement, to share or participate in such other investments or activities of
the Manager or in the income or proceeds derived therefrom.
5.9 Bank Accounts. The Board of Managers may from time to time authorize the
opening of bank accounts in the name and on behalf of the Company and the
Managers shall determine who shall have the signatory power over such
accounts.
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5.10 Resignation. Any Manager of the Company may resign at any time by
giving written notice to the Members of the Company and the other Managers of
the Company. The resignation of any Manager shall take effect upon receipt of
notice thereof or at such later date specified in such notice; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The resignation of a Manager who is also a
Member shall not affect the Manager's rights as a Member and shall not
constitute a withdrawal of a Member.
5.11 Removal. All or any lesser number of Managers may be removed at any
time, with or without cause, by the Members owning a Majority Interest. The
removal of a Manager who is also a Member shall not affect the Manager's
rights as a Member and shall not constitute a withdrawal of a Member.
5.12 Vacancies. Any vacancy occurring for any reason in the number of
Managers of the Company may be filled by the Members owning a Majority
Interest. Any Manager's position to be filled by reason of an increase in the
number of Managers shall be filled by the Members at a meeting of Members
called for that purpose or by the Members' unanimous written consent. A
Manager elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office and shall hold office until the expiration of such
term and until his successor shall be elected and qualified or until his
earlier death, resignation or removal. A Manager chosen to fill a position
resulting from an increase in the number of the Board of Managers shall hold
office until his successor shall be elected and qualified, or until his
earlier death, resignation or removal.
ARTICLE VI
OFFICERS
6.1 Officers of the Company. The Company shall have officers consisting of
a chairman, a president, a treasurer and a secretary, and such vice
presidents, assistant vice presidents, assistant treasurers, assistant
secretaries or other officers or agents as may be elected and appointed by the
Board of Managers. Any two or more offices may be held by the same person.
The officers shall act in the name of the Company and shall supervise its
operation under the direction and management of the Board of Managers, as
further described below.
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6.2 Election and Term of Office. The officers of the Company shall be
elected annually by the Board of Managers. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Managers. Each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified or until his or her death or until he or she
shall resign or shall have been removed in the manner hereinafter provided.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Removal. Any officer or agent may be removed by the Board of Managers
whenever in their judgment the best interests of the Company would be served
thereby, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed.
6.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Managers
for the unexpired portion of the term.
6.5 Chairman. If there shall be a chairman, he or she shall be elected from
among the Managers, shall preside at all meetings of the Members and of the
Board or provided herein, and shall have such other powers and duties as from
time to time may be prescribed by the Board.
6.6 President. The president shall be the chief executive officer of the
Company and shall be in general and active charge of the entire business and
all the affairs of the Company and shall have the powers and perform the
duties incident to that position, including the power to bind the Company in
accordance with this Section 6.6. He or she shall have such other powers and
perform such duties as are specified in this Operating Agreement, including
those items set forth in Section 5.7 hereof, and as may from time to time be
assigned to him or her by the Board of Managers of the Company.
The president shall have general and active management of the business of the
Company and shall see that all orders and resolutions of the Board of Managers
of the Company are carried into effect. The president may execute bonds,
mortgages and other contracts (whenever requiring a seal, under the seal of
the Company), except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Managers of the Company to some other
officer or agent of the Company. The president shall have general powers of
supervision and shall be the final arbiter of all differences between officers
of the Company, and such decision as to any matter affecting the Company shall
be final and binding as between the officers of the Company subject only to
the Board of Managers of the Company.
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Notwithstanding the foregoing or the provisions of Section 5.7 hereof, without
the prior consent and authorization of the Board of Managers, neither the
president nor any other officer of the Company have the power or authority to,
and none of them shall, enter into any of the following transactions:
(i) the sale, purchase or lease of any capital assets for an aggregate amount
in excess of $100,000;
(ii) the sale or purchase of any fixed assets, business or product line for
an aggregate amount in excess of $100,000;
(iii) any other contract, including a sales contract, supply contract or
employment agreement, for an aggregate amount in excess of $100,000; and
(iv) the incurrence of indebtedness for borrowed money by the Company or the
pledging or permitting of any liens on the assets of the Company in connection
therewith, for an amount in excess of $100,000.
6.7 The Vice Presidents. In the absence of (or at the request of) the
chairman, president or in the event of his or her inability or refusal to act,
a vice president (or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. Any vice president shall perform
such other duties as from time to time may be assigned to him by the chairman,
president or by the Board of Managers of the Company.
6.8 The Treasurer. The treasurer may be the chief financial officer of the
Company. The treasurer shall not be required to give a bond for the faithful
discharge of his or her duties. He or she shall: (i) have charge and custody
of and be responsible for all funds and securities of the Company; (ii) be
charged with primary responsibility for dealing with National Securities
Exchanges or other exchanges in which the Company may hold a membership or on
which the Company may trade; (iii) receive and give receipts for moneys due
and payable to the Company from any source whatsoever, and deposit all such
moneys in the name of the Company in such banks, trust companies or other
depositories as shall be selected by the Board of Managers of the Company; and
(iv) in general perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the president
or by the Board of Managers of the Company.
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6.9 The Secretary. The secretary shall: (a) keep the minutes of the Board of
Managers' meetings in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of this
Operating Agreement or as required by law; (c) be custodian of Company
records; (d) keep a register of the post office address of each Member which
shall be furnished to the secretary by such Member; (e) sign with the
chairman, the president or a vice president (as designated by the chairman),
any certificates for Membership Interests, the issue of which shall have been
authorized by resolution of the Board of Managers; (f) certify the resolutions
of the Board of Managers and other documents to the Company as true and
correct thereof; and (g) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the chairman, president, a vice president (as designated by the chairman)
or by the Members of the Company.
6.10 Assistant Treasurers and Assistant Secretaries. The assistant
treasurers shall respectively, if required by the Board of Managers of the
Company, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Managers of the Company shall
determine. The assistant treasurers and assistant secretaries, in general,
shall perform such duties as shall be assigned to them by the treasurer or the
secretary, respectively, or by the chairman, the president or the Board of
Managers of the Company. Each officer of the Company by virtue of his or her
office shall be an Assistant Secretary.
6.11 Salaries. The salaries and other compensation of the officers and other
employees of the Company shall be fixed from time to time by the Board of
Managers, and no officer or employee shall be prevented from receiving such
salary by reason of the fact that he is also a Manager or Member of the
Company.
6.12 Delegation of Duties. The Board of Managers may in its discretion
delegate for the time being the powers and duties, or any of them, of any
officer to any other person whom it may select.
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ARTICLE VII
MEETINGS OF MEMBERS
7.1 Meetings. Meetings of the Members, for any purpose or purposes, may be
called by any Member or Members owning at least twenty-five percent (25%) of
the aggregate Percentage Interests in the Company or by any Manager.
7.2 Place of Meetings. The Members may designate any place, either within or
outside the State of Illinois, as the place of meeting for any meeting of the
Members. If no designation is made, the place of meeting shall be the
principal place of business of the Company.
7.3 Notice of Meeting. Except as provided in Section 7.4, written notice
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called shall be delivered not less than five (5) nor more
than thirty (30) days before the date of the meeting, either personally or by
mail, by or at the direction of the Managers or Member or Members calling the
meeting, to each Member entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered two (2) calendar days after being
deposited in the United States mail, addressed to the Member at his address as
it appears on the books of the Company, with postage thereon prepaid.
7.4 Record Date. For the purpose of determining Members entitled to notice of
or to vote at any meeting of Members or any adjournment thereof, or Members
entitled to receive payment of any distribution, or in order to make a
determination of Members for any other Purpose, the date on which notice of
the meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
7.5 Quorum. Members owning a Majority Interest, represented in person or by
proxy, shall constitute a quorum at any meeting of Members. In the absence of
a quorum at any such meeting, a majority of the Percentage Interests so
represented may adjourn the meeting from time to time for a period not to
exceed sixty (60) days without further notice. However, if the adjournment is
for more than sixty (60) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each Member of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The Members present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal during such meeting of that number of Percentage Interests whose
absence would cause less than a quorum.
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7.6 Manner of Acting. If a quorum is present, the affirmative vote of
Members owning a Majority Interest present in person or represented by proxy
shall be the act of the Members, unless the vote of a greater or lesser
proportion or number is otherwise required by the Illinois Act, by the
Articles or by this Operating Agreement.
7.7 Proxies. At all meetings of Members, a Member may vote in person or by
proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Managers of the Company
before or at the time of the meeting. No proxy shall be valid after eleven
(11) months from the date of its execution, unless otherwise provided in the
proxy.
7.8 Action by Members Without a Meeting. Action required or permitted to be
taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written consents describing the action taken, signed
by each Member entitled to vote and delivered to the Managers of the Company
for inclusion in the minutes or for filing with the Company records. Action
taken under this Section is effective when all Members entitled to vote have
signed the consent, unless the consent specifies a different effective date.
7.9 Waiver of Notice. When any notice is required to be given to any Member,
a waiver thereof in writing signed by the person entitled to such notice,
whether before, at or after the time stated therein, shall be equivalent to
the giving of such notice.
ARTICLE VIII
STANDARD OF CARE AND
INDEMNIFICATION OF MANAGERS, OFFICERS AND EMPLOYEES
8.1 Standard of Care. No Manager or officer shall be liable to any Member or
to the Company by reason of the actions of such person in the conduct of the
business of the Company except for fraud, gross negligence or willful
misconduct, and if the person acted in good faith and in a manner the person
reasonably believed to be in, or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful.
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8.2 Indemnification of Managers, Officers and Employees. The Company shall,
to the fullest extent to which it is empowered to do so by the Illinois Act or
any other applicable law, indemnify and make advances for expenses to any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or
she is or was a Manager, officer or employee of the Company, against losses,
damages, expenses (including attorneys' fees), judgments, fines and amounts
reasonably incurred by him in connection with such action, suit or proceeding.
ARTICLE IX
RIGHTS AND OBLIGATIONS OF MEMBERS
9.1 Limitation of Liability.
A Member will not be personally liable to creditors of the Company for any
debts, obligations, liabilities or losses of the Company, whether arising in
contract, tort or otherwise, beyond such Member's Capital Contributions.
9.2 List of Members. Upon written request of any Member, the Managers shall
provide a list showing the names, addresses and Membership Interests of all
Members.
9.3 Company Books. In accordance with Section 11.8 herein, the Board of
Managers shall maintain and preserve, during the term of the Company, all
accounts, books and other relevant Company documents. Upon reasonable written
request, each Member and his duly authorized representative shall have the
right, during ordinary business hours as reasonably determined by the Board of
Managers, to inspect and copy such Company documents (at the requesting
Member's expense) which the Managers, in their discretion, deem appropriate
for any purpose reasonably related to the requesting Member's Membership
Interest.
9.4 Priority and Return of Capital. Except as may be expressly provided in
Article XI, no Member shall have priority over any other Member, either as to
the return of Capital Contributions or as to Net Profits, Net Losses or
distributions; provided that this Section shall not apply to the repayment by
the Company of loans (as distinguished from Capital Contributions) which a
Member has made to the Company.
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9.5 Resignation. No Member shall have the right to voluntarily resign as a
Member of the Company prior to the dissolution and winding up of the Company,
except in connection with the Put/Call Exercise under the Membership Interest
Agreement, and any resignation other than in such connection (a "Resignation")
by a Member shall constitute a breach of this Operating Agreement and subject
the Member submitting such Resignation to damages for breach of this Operating
Agreement by such Member.
ARTICLE X
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
10.1 Initial Capital Contributions. Each Member shall contribute such amount
set forth on Exhibit A as its Initial Capital Contribution.
10.2 Additional Capital Contributions. No Member shall be required to make
any additional Capital Contributions. To the extent approved by Members
owning a Majority Interest, the Members may be permitted to make additional
Capital Contributions if and to the extent they so desire.
10.3 Capital Accounts.
(a) A separate Capital Account will be maintained for each Member. Each
Member's Capital Account will be increased by (l) the amount of money
contributed by the Member to the Company; (2) the fair market value of
property contributed by the Member to the Company (net of liabilities secured
by such contributed property that the Company is considered to assume or take
subject to under Section 752 of the Code); (3) allocations of Net Profits and
Net Losses; and (4) allocations to such Member of income described in Section
705(a)( 1)(B) of the Code. Each Member's Capital Account will be decreased by
(1) the amount of money distributed to the Member by the Company; (2) the fair
market value of property distributed to the Member by the Company (net of
liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code); (3)
allocations to such Member of expenditures described in Section 705(a)(2)(b)
of the Code; and (4) allocations to the account of such Member losses and
deductions as set forth in such Treasury Regulations, taking into account
adjustments to reflect book value.
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(b) In the event of a permitted sale or exchange of a Membership Interest in
the Company pursuant to Article XII hereof, the Capital Account of the
Transferring Member shall become the Capital Account of the transferee to the
extent it relates to the transferred Membership Interest in accordance with
Treasury Regulations l.704-1(b)(2)(iv).
(c) The manner in which Capital Accounts are to be maintained pursuant to
this Section 10.3 is intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder. If the
Company determines that the manner in which Capital Accounts are to be
maintained pursuant to the preceding provisions of this Section 10.3 should be
modified in order to comply with Section 704(b) of the Code and the Treasury
Regulations, then notwithstanding anything to the contrary contained in the
preceding provisions of this Section 10.3, the method in which Capital
Accounts are maintained shall be so modified; provided, however, that any
change in the manner of maintaining Capital Accounts shall not materially
alter the economic agreement between or among the Members as set forth in this
Operating Agreement.
(d) Except as otherwise required in the Illinois Act (and subject to Sections
10.1 and 10.2), no Member shall have any liability to restore all or any
deficit balance in such Member's Capital Account.
ARTICLE XI
ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS
11.1 Allocations of Net Profits and Net Losses. The Net Profits and Net
Losses of the Company shall be allocated as follows:
(a) Net Profit. The Net Profits for a fiscal year or other period of the
Company shall be allocated to the Members in Accordance with their respective
Membership Interests.
(b) Net Losses. The Net Losses, if any, for a fiscal year or other period of
the Company shall be allocated in the Members in accordance with their
respective Membership Interests.
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11.2 Special Allocations to Capital Accounts. Notwithstanding Section 11.1
hereof:
(a) No allocations of loss, deduction and/or expenditures described in
Section 705(a)(2)(B) of the Code shall be charged to the Capital Account of
any Member if such allocation would cause such Member to have a Deficit
Capital Account. The amount of the loss, deduction and/or Section 705(a)(2)(B)
of the Code expenditure which would have caused a Member to have a Deficit
Capital Account shall instead be charged to the Capital Account of any Members
which would not have a Deficit Capital Account as a result of the allocation,
in proportion to their respective Capital Contributions, or, if no such
Members exist, then to the Members in accordance with their interests in
Company Net Profits pursuant to Section 11.1.
(b) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations 1.704-1
(b)(2)(ii) (d) (4), (5) or (6) which create or increase a Deficit Capital
Account of such Member, then items of Company income and gain (consisting of a
pro rata portion of each item of Company income, including gross income, and
gain for such year and, if necessary, for subsequent years) shall be specially
credited to the Capital Account of such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations,
the Deficit Capital Account so created as quickly as possible. It is the
intent that this Section 11.2(b) be interpreted to comply with the alternate
test for economic effect set forth in Treasury Regulations 1.704-1
(b)(2)(ii)(d).
(c) In the event any Member would have a Deficit Capital Account at the end
of any Company taxable year which is in excess of the sum of any amount that
such Member is obligated to restore to the Company under Treasury Regulations
1.704-1(b)(2)(ii)(c) and such Member's share of minimum gain as defined in
Treasury Regulations l.704-2(g)(l) (which is also treated as an obligation to
restore in accordance with Treasury Regulations l.704-1(b)(2)(ii)(d)), the
Capital Account of such Member shall be specially credited with items of
Membership income (including gross income) and gain in the amount of such
excess as quickly as possible.
(d) Notwithstanding any other provision of this Section 11.2, if there is a
net decrease in the Company's minimum gain as defined in Treasury Regulations
1.704-2(d) during a taxable year of the Company, then, the Capital Account of
each Member shall be allocated items of income (including gross income) and
gain for such year (and if necessary for subsequent years) equal to that
Member's share of the net decrease in Company minimum gain. This Section
11.2(d) is intended to comply with the minimum gain chargeback requirement of
Treasury Regulations 1.704-2 and shall be interpreted consistently therewith.
<PAGE>
<PAGE> 25
(e) Items of Company loss, deduction and expenditures described in Section
705(a)(2)(B) of the Code which are attributable to any nonrecourse debt of the
Company and are characterized as partner nonrecourse deductions under Treasury
Regulations l.704-2(i) shall be allocated to the Members' Capital Accounts in
accordance with Treasury Regulations l.704-2(i).
(f) Beginning in the first taxable year in which there are allocations of
"nonrecourse deductions" (as described in Treasury Regulations 1.704-2(b)),
such deductions shall be allocated to the Members in accordance with, and as
part of, the allocations of Company profit or loss for such period.
(g) In accordance with Section 704(c) of the Code, if a Member contributes
property with a fair market value that differs from its adjusted basis at the
time of contribution, income, gain, loss and deductions with respect to the
property shall, solely for federal income tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis of
such property to the Company and its fair market value at the time of
contribution.
(h) Pursuant to Section 704(c)(1)(B) of the Code, if any contributed property
is distributed by the Company other than to the contributing Member within
five (5) years of being contributed, then, except as provided in Section
704(c)(2) of the Code, the contributing Member shall be treated as recognizing
gain or loss from the sale of such property in an amount equal to the gain or
loss that would have been allocated to such Member under Section 704(c)(1)(A)
of the Code if the property had been sold at its fair market value at the time
of the distribution.
(i) In connection with a Capital Contribution of money or other property
(other than a de minimis amount) by a new or existing Member, or in connection
with the liquidation of the Company, the Capital Accounts of the Members shall
be adjusted to reflect a revaluation of Company property (including intangible
assets) in accordance with Treasury Regulations 1.704-1(b)(2)(iv)(f). If,
under Treasury Regulations 1.704-1(b)(2)(iv)(f), Company property that has
been revalued is properly reflected in the Capital Accounts and on the books
of the Company at a book value that differs from the adjusted tax basis of
such property, then depreciation, depletion, amortization and gain or loss
with respect to such property shall be shared among the Members' in a manner
that takes account of the variation between the adjusted tax basis of such
property and its book value, in the same manner as variations between the
adjusted tax basis and fair market value of property contributed to the
Company are taken into account in determining the Members' shares of tax items
under Section 704(c) of the Code.
<PAGE>
<PAGE> 26
(j) Any credit or charge to the Capital Accounts of the Members pursuant to
Sections 11.1(b), (c), and/or (d) hereof shall be taken into account in
computing subsequent allocations of profits and losses pursuant to
Section 11.1, so that the net amount of any items charged or credited to
Capital Accounts pursuant to Sections 11.1 and 11.2 shall to the extent
possible, be equal to the net amount that would have been allocated to the
Capital Account of each Member pursuant to the provisions of this Article XI
if the special allocations required by Sections 11.2(b), (c) and/or (d) had
not occurred.
(k) All expenses of the Company in respect of interest paid on the
Subordinated Convertible Note dated January 31, 1997 in the principal amount
of $5,500,000 from the Company to Venetian Investment Company shall be
allocated as a deduction to TKZ.
11.3 Distributions. Interim distributions and liquidating distributions
shall be made as follows:
(a) Subject to Section 25-25 of the Illinois Act, the Board of Managers may
cause the Company to make interim distributions of Distributable Cash or other
property at such time and for such amounts as determined by the Managers. All
interim distributions of Distributable Cash or other property shall be made in
proportion to the Members' respective Membership Interests.
(b) Upon liquidation of the Company, after settling accounts of creditors in
the order described in Section 14.3, liquidating distributions will be made in
accordance with the Members' positive Capital Account balances after taking
into account all Capital Account adjustments of the Company's taxable year
during which the liquidation occurs. Liquidation proceeds will be paid within
60 days of the end of the taxable year of liquidation (or, if later, within
ninety (90) days after the date of the liquidation).
(c) If a Member resigns under Section 9.5, the Company shall, subject to
Section 11.3(d), pay to the withdrawing Member any positive balance in the
withdrawing Member's Capital Account within ninety (90) days from the date of
the Resignation. The remaining Members shall have the right in their sole
discretion at any time within sixty (60) days of the Resignation to determine
all Net Profits and Net Losses of the Company as of the date of such
determination and to make appropriate credits and debits to the Members'
Capital Accounts. The Capital Account of the withdrawing Member as of the date
of determination shall be conclusively deemed to be the fair value of all his
Membership Interest and the payment provided for in this Section 11.3(c) shall
be the full and only consideration for the redemption of the withdrawing
Member's Membership Interest.
<PAGE>
<PAGE> 27
(d) The Company may offset damages for breach of this Operating Agreement by
a Member whose interest is liquidated (either upon the Resignation of the
Member or the liquidation of the Company but not in the case of a Put/Call
Exercise under the Membership Interest Agreement) against the amount otherwise
distributable to such Member pursuant to this Section in addition to any
remedies otherwise available under applicable law.
(e) A Member has no right to demand and receive any distribution in a form
other than cash.
11.4 Accounting Principles. The Company's financial statements shall be
prepared and its profits and losses shall be determined in accordance with
generally accepted accounting principles applied on a consistent basis under
the accrual method of accounting.
11.5 Interest on and Return of Capital Contributions. No Member shall be
entitled to interest on his Capital Contribution or a return of his Capital
Contribution.
11.6 Loans to Company. Nothing in this Operating Agreement shall prevent any
Member from making secured or unsecured loans to the Company by agreement with
the Company.
11.7 Accounting Period. The Company's accounting period shall be the Fiscal
Year.
11.8 Records and Reports. At the expense of the Company, the Managers shall
maintain records and accounts of all operations and expenditures of the
Company. At a minimum, the Company shall keep at its principal place of
business the following records:
(a) A current list of the full name and last known business residence, or
mailing address of each Member;
<PAGE>
<PAGE> 28
(b) A copy of the Articles and all amendments thereto, together with executed
copies of any powers of attorney pursuant to which any amendment has been
executed;
(c) Copies of the Company's financial statements and income tax returns and
reports, if any, for the three most recent years; and
(d) Copies of the Company's currently effective written Operating Agreement.
11.9 Returns and Other Elections. The Managers shall cause the preparation
and timely filing of all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required
in each jurisdiction in which the Company does business. Copies of such
returns or pertinent information therefrom, shall be furnished to the Members
within a reasonable time after the end of the Company's fiscal year.
All elections permitted to be made by the Company under federal or state laws
shall be made by the Managers in their sole discretion.
In recognition of the fact that the Company expects to be treated as a
partnership for federal income tax purposes, the Members agree to treat their
Membership Interests as partnership interests for U.S. federal and state
income tax reporting purposes.
11.10 Tax Matters Partner. TKZ shall be designated the "Tax Matters Partner"
(as defined in Section 6231 of the Code), and is authorized and required to
represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including, without
limitation, administrative and judicial proceedings, and to expend Company
funds for professional services and costs associated therewith. The Members
agree to cooperate with each other and to do or refrain from doing any and all
things reasonably required to conduct such proceedings.
ARTICLE XII
RESTRICTIONS ON TRANSFERABILITY
12.1 Restriction on Transfer of Membership Interests. During the term of
this Agreement, no Member shall sell, give, pledge, assign or otherwise
dispose of any or all of his Membership Interests to any other person or
entity except in accordance with the terms hereof.
<PAGE>
<PAGE> 29
12.2 Voluntary Sales.
(a) If a Member has received a bona fide written offer stated in terms of
cash or cash equivalents from a prospective purchaser of any or all of his
Membership Interests (herein referred to as the "Offered Membership
Interests"), before accepting such offer, such Member (herein referred to as
the "Offering Member") shall offer such Membership Interests in writing to the
Company at the price and on the other terms and conditions contained in such
offer; provided, however, that the Company shall not be required to meet any
non-monetary terms of the offer, including without limitation delivery of
other securities in exchange for the Offered Membership Interests. The notice
given by the Offering Member shall contain a complete copy of the offer
received by him from the bona fide offeror.
(b) The Company shall have the right, within thirty (30) days after receipt
of such notice, to notify the Offering Member of its election to purchase. In
such notice, the Company shall also fix a closing date not more than thirty
(30) days after the date of its notice of election to purchase.
(c) Should the Company not desire to purchase the Membership Interests
offered, the Company shall promptly communicate the offer for the remaining
interests to the other Members who shall have thirty (30) days from the date
of such notice within which to notify the Offering Member and the Company of
their respective elections to purchase. The other Members shall have the
option of purchasing the Membership Interests at the same price and terms as
the Company. The closing date of any purchase hereunder by such other Members
shall be not more than thirty (30) days after the date of their notice of
election to purchase. Any Membership Interests purchased by the other Members
shall be purchased in proportion to their holdings. That is, the number of
Offered Membership Interests that each other Member shall be entitled to
purchase hereunder shall be determined by multiplying the total Offered
Membership Interests by a fraction, the numerator of which shall be the number
of Membership Interests then owned by the purchasing Member (or which the
purchasing Member shall have the right to acquire by reason of a then pending
offer to purchase) and the denominator of which shall be the number of
Membership Interests then owned by all purchasing Members then participating
in such offer.
<PAGE>
<PAGE> 30
(d) Unless the Company and the other Members agree to purchase the Offered
Membership Interests pursuant to the terms hereof, their right to purchase
said interests shall terminate and the Offering Member shall be free for a
period of ninety (90) days to sell the Offered Membership Interests to the
third person at the same price and on the same terms set forth in the Offering
Member's notice of intended sale. Any person who acquires such Membership
Interests shall automatically be bound by the terms of this Agreement
(including the Put/Call provisions set forth in the Membership Interest
Agreement) and shall be required to join in and execute and deliver a copy of
this Agreement as an additional Member party. If the Membership Interests are
not sold by the Offering Member within the ninety (90) day period, all rights
to transfer the Membership Interests free of the foregoing restrictions shall
terminate.
12.3 Sale of Membership Interests Upon Death.
(a) Following the death of a Member, the Company and the remaining Members
shall have the option to purchase all of the Membership Interests held by the
deceased Member on the date of his death, and the estate of the deceased
Member shall be obligated to sell all of its said interests all on terms
herein provided if the Company or the remaining Members exercise their
respective options hereunder.
(b) The Company shall have the right, within thirty days after receipt of
notice of the death of a Member, to notify the estate of such Member of its
election to purchase. In such notice, the Company shall also fix a Closing
Date not more than thirty days (30) after the date of its notice of election
to purchase.
(c) Should the Company not desire to purchase the Membership Interests of the
deceased Member, the Company shall promptly communicate the same to the other
Members who shall have thirty (30) days from the date of such notice within
which to notify the estate of the deceased Member and the Company of their
respective elections to purchase all of such interests. The other Members
shall have the option of purchasing interests at the same price and terms as
the Company. The closing date of any purchase hereunder by such other Members
shall not be more than thirty (30) days after the date of their notice of
election to purchase. Any Membership Interests purchased by the other Members
shall be purchased in proportion to their holdings, calculated in the manner
set forth in Section 12.2(c) hereof.
<PAGE>
<PAGE> 31
(d) The price to be paid for the purchased Membership Interest under this
Paragraph shall be the Applicable Percentage of Total Equity Value (as defined
in the Membership Interests Agreement). The representative of the estate of a
deceased Member shall cooperate with the Company and the remaining Members to
effectuate the purposes of this Agreement.
12.4 Effectiveness of Transfer. Any sale or gift of any of a Member's
Membership Interest in the Company will take effect on the first day following
receipt by the Members of written notice that all of the requirements of the
above Sections have been met.
ARTICLE XIII
ADDITIONAL MEMBERS
13.1 Admission of New Members. From the date of the formation of the
Company, any Person or Entity acceptable to the Members by their unanimous
vote thereof may become a Member in the Company by the issuance by the Company
of a Membership Interest for such consideration as the members by their
unanimous vote shall determine, or by being a permitted transferee of an
existing Membership Interest in accordance with Article XII.
13.2 Allocations to New Members. No new Members shall be entitled to any
retroactive allocation of any item of income, gain, loss, deduction or credit
of the Company. The Managers may, at their option, at the time a Member is
admitted, close the Company books (as though the Company's tax year had ended)
or make pro rata allocations of items of income, gain, loss, deduction or
credit to a new Member for that portion of the Company's tax year in which a
new Member was admitted in accordance with the provisions of Section 706(d) of
the Code and the Treasury Regulations promulgated thereunder.
ARTICLE XIV
DISSOLUTION AND TERMINATION
14.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence of any of the
following events, and only such events:
<PAGE>
<PAGE> 32
(i) when the period fixed for the duration of the Company shall expire
pursuant to Section 2.5 hereof;
(ii) by the unanimous written agreement of all Members;
(iii) the entry of a decree of judicial dissolution under Section 35-5 of the
Illinois Act; or
(iv) administrative dissolution under Section 35-25 of the Illinois Act.
(b) Dissolution of the Company shall be effective on the day on which an
event described above occurs, but the Company shall not terminate until
Articles of Dissolution shall be filed with the Secretary of State of the
State of Illinois and the assets of the Company are distributed as provided in
Section 14.4 below. Notwithstanding the dissolution of the Company, prior to
the termination of the Company, the business of the Company and the affairs of
the Members shall continue to be governed by this Operating Agreement.
14.2 Winding Up. The Members who have not wrongfully dissolved the Company
may wind up the Company's affairs, but a Court, upon cause shown, may wind up
the Company's affairs upon application of any Member or his legal
representative, and in connection therewith, may appoint a liquidating
trustee.
14.3 Distribution of Assets Upon Winding Up. The assets of the Company shall
be distributed as follows:
(a) to creditors, in the order of priority as provided by law, including all
Members who are creditors to the extent otherwise permitted by law, in
satisfaction of liabilities of the Company (whether by payment or the making
of reasonable provisions for payment thereof); and
(b) to Members and former Members in accordance with the positive balances in
their Capital Accounts.
14.4 Articles of Dissolution. When all debts, liabilities and obligations
have been paid and discharged or adequate provisions have been made therefor
and all of the remaining property and assets have been distributed to the
Members, articles of dissolution shall be executed by one or more authorized
persons, which articles of dissolution shall set forth the information
required by the Illinois Act. Articles of dissolution shall be filed with the
Illinois Secretary of State to accomplish the cancellation of the Articles of
the Company upon the dissolution and completion of the winding up of the
Company.
<PAGE>
<PAGE> 33
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 Notices. Any notice, demand or communication required or permitted to
be given by any provision of this Operating Agreement shall be in writing and
shall be deemed to have been given when actually received. Any such notice,
demand or communication may be given by mail, express package service, telex
or telefax and shall be addressed to Member at the addresses shown in Article
IV, and/or to the Company at its principal office or to such other address as
a party may from time to time designate by notice to the other parties.
15.2 Application of Illinois Law. This Operating Agreement, and the
application of interpretation hereof, shall be subject to and is governed
exclusively by its terms and by the laws of the State of Illinois, and
specifically the Illinois Act.
15.3 Waiver of Action for Partition. Each Member irrevocably waives during
the term of the Company any right that he or she may have to maintain any
action for partition with respect to the property of the Company.
15.4 Amendment. This Operating Agreement may be amended at any time in
writing by the Members owning a Majority Interest.
15.5 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply
with any laws, rules or regulations.
15.6 Construction. Whenever the singular number is used in this Operating
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and neuter
genders and vice versa.
15.7 Headings. The headings in this Operating Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent or intent of this Operating Agreement or any provision
hereof.
<PAGE>
<PAGE> 34
15.8 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from registered effect of an original
violation.
15.9 Rights and Remedies Cumulative. The rights and remedies provided by
this Operating Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights
the parties may have by law, statute, ordinance or otherwise.
15.10 Severability. If any provision of this Operating Agreement or the
application thereof to any person or circumstance shall be invalid, illegal or
unenforceable to any extent, the remainder of this Operating Agreement and the
application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
15.11 Heirs, Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, successors
and assigns.
15.12 No Third Party Beneficiaries. None of the provisions of this Operating
Agreement shall be for the benefit of or enforceable by any third party who is
not a party to this Operating Agreement.
15.13 Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
15.14 Dispute Resolution
(a) General. Any disputes arising under this Agreement between the Company
and any Member or between any Members shall be resolved through the procedures
specified in this Section 15.14. The resolution of any disputes under this
Section 15.14 (whether through the negotiation, mediation or arbitration
procedures specified herein) shall be final and binding upon the parties to
such dispute, and specifically enforceable under applicable law by a court of
competent jurisdiction. The procedures set forth in this Section 15.14 shall
be initiated by the delivery of a written notice by the Company or a Member to
the other party or parties to the dispute stating that the claiming party has
a claim against the other party or parties, describing in reasonable detail
the nature and amount of such claim and the basis thereof.
<PAGE>
<PAGE> 35
(b) Negotiation. Prior to the submission of any dispute to the mediation or
arbitration procedures specified in subsections (c) or (d) of Section 15.14,
the parties to the dispute shall make every effort in good faith to resolve
such dispute by mutual agreement within thirty (30) days following the
initiation of the procedures set forth in Section 15.14 (the date on which
such thirty days expires, or any extension of such period as the parties to
the dispute may mutually agree to in writing, is hereby called the "Claim
Resolution Deadline Date").
(c) Mediation Procedures. If the parties to the dispute have not resolved
such dispute pursuant to the procedures set forth in subsection (b) of the
Section 15.14 by the Claim Resolution Deadline Date, then the mediation
procedures provided in this subsection (c) shall apply. Within thirty (30)
days after the Claim Resolution Deadline Date, the parties to the dispute
shall jointly appoint an independent and impartial mediator ("Mediator"). The
Mediator shall establish the procedures designed to facilitate the mediation
of such dispute, shall meet the representatives of the parties to the dispute
and take other appropriate actions to facilitate a negotiated or other
voluntary resolution of such dispute. If the parties have not resolved the
dispute within thirty (30) days after the appointment of the Mediator or such
later date as to which they mutually agree in writing (the "Mediation Deadline
Date"), then the arbitration procedures specified in subsection (d) shall
apply.
(d) Arbitration. If the parties to the dispute have not resolved the dispute
by the Mediation Deadline Date, the parties to the dispute shall jointly
select an independent and impartial arbitrator (the "Arbitrator"). The
Arbitrator shall have such expertise as the parties to the dispute agree is
relevant. The Arbitrator may be removed only by unanimous action of the
parties to the dispute. If the parties to the dispute are unable to agree
upon the selection of the Arbitrator within thirty (30) days after the
Mediation Deadline Date or such later date as to which they mutually agree in
writing, application shall be made to the American Arbitration Association in
Chicago, Illinois ("AAA"), for the selection and appointment of the
Arbitrator. The arbitration proceeding shall be conducted in accordance with
the then-current rules of the AAA for arbitration of business disputes, to the
extent that such rules are not inconsistent with Section 15.14. The
Arbitrator may modify the procedures set forth in such rules from time to
time with the prior approval of the parties to the dispute. The place of such
arbitration shall be Chicago, Illinois, or such other location agreed to by
the parties to the dispute. The arbitration proceedings shall be concluded
within one hundred eighty (180) days of the appointment of the Arbitrator or
such later date as the parties to the dispute mutually agree in writing.
Within thirty (30) days of the conclusion of the arbitration proceedings, the
Arbitrator shall present to the parties to the dispute a written statement of
the determination regarding the dispute. Failure to submit a position by any
party to the dispute shall be deemed an acceptance by such party of the other
party's position, and shall constitute a final, binding and specifically
enforceable decision against such party.
<PAGE>
<PAGE> 36
(e) Costs and Expenses. The fees and expenses of the Mediator and/or
Arbitrator shall be shared equally by each party to the dispute. Except as
otherwise provided in the proceeding sentence, each party to the dispute shall
bear all costs and expenses incurred by it in connection with the conduct of
the procedures described in Section 15.14.
(f) Confidentiality. Any dispute resolution proceeding (including without
limitation any mediation proceeding) held pursuant to Section 15.14 shall not
be public. In addition, except as may be required by law, each party to the
dispute, their respective representatives, the Mediator and the Arbitrator
shall strictly maintain the confidentiality of all issues, disputes,
arguments, positions, interpretations, awards, determinations, enclosures,
exhibits, summaries, compilations, studies, analyses, notes, documents,
statements, schedules and other similar items associated therewith.
15.15 Investment Representations. The undersigned Members understand
(i) that the Membership Interests issued pursuant to this Operating Agreement
have not been registered under the Securities Act of 1933 or any state
securities laws (the "Securities Acts") because the Company is issuing these
Membership Interests in reliance upon the exemptions from the registrations
requirements of the Securities Acts providing for issuance of securities not
involving a public offering, (ii) that the Company has relied upon the fact
that the Membership Interests are to be held by each Member for investment,
and (iii) that exemption from registrations under the Securities Acts would
not be available if the Membership Interests were acquired by a Member with a
view to distribution.
Accordingly, each Member hereby confirms to the Company that such Member is
acquiring a Membership Interest for such own Member's account, for investment
and not with a view to the resale or distribution thereof without complying
with an exemption for registrations under the Securities Acts. Each Member
agrees not to transfer, sell or offer or sale any of portion of the Membership
Interest unless there is an effective registration or other qualification
relating thereto under the Securities Acts or unless the holder of the
Membership Interest delivers to the Company an opinion of counsel,
satisfactory to the Company, that such registration or other qualification
under such Securities Acts is not required in connection with such transfer,
offer or sale. Each Member understands that the Company is under no
obligation to register the Membership Interests or to assist such Member in
complying with any exemption from registration under the Securities Acts if
such Member should at a later date wish to dispose of the Membership Interest.
Furthermore, each Member realizes that the Membership Interests are unlikely
to qualify for disposition under Rule 144 of the Securities and Exchange
Commission.
<PAGE>
<PAGE> 37
Prior to acquiring a Membership Interest, each Member has made an
investigation of the Company and its business and the Company has made
available to each such Member all information with respect thereto which such
Member needed to make an informed decision to acquire a Membership Interest.
Each Member considers himself to be a person possessing experience and
sophistication as an investor which are adequate for the evaluation of the
merits and risks of such Member's investment in a Membership Interest.
15.16 Execution of Notes, Checks, Contracts and Other Instruments. Subject
to Section 6.6 hereof, all notes, bonds, drafts, acceptances, checks,
endorsements (other than for deposit), guarantees and all evidences of
indebtedness of the Company whatsoever, and all deeds, mortgages, contracts
and other instruments requiring execution by the Company, may be signed by the
President, any Vice President or the Treasurer, and authority to sign any of
the foregoing, which may be general or confined to specific instances, may be
conferred by the Board of Managers upon any other person or persons. Any
person having authority to sign on behalf of the Company may delegate, from
time to time, by instrument in writing, all or any part of such authority may
be general or confined to specific instances. Facsimile signatures on checks
may be used if authorized by the Board of Managers.
<PAGE>
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused their signatures, or have
caused the signatures of their duly authorized representatives, to be set
forth below on the day and year first above written.
TKZ HOLDING CORP.
By: David M. Kelly
---------------------------------
Its: President
--------------------------------
TUKAIZ LITHO, INC.
By: Frank Defino, Sr.
---------------------------------
Frank Defino, President
<PAGE>
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
----------
1996 1995
---- ----
1. Net income $ 4,304,408 $ 4,245,989
2. Weighted average number of
common shares outstanding
during the period 8,748,654 8,850,350
3. Shares issuable upon exercise
of dilutive stock options
outstanding during period,
based on higher of average
or period-end values 194,481 60,714
4. Weighted average number of
common shares outstanding
during the period, assuming
full dilution (2 + 3) 8,943,135 8,911,064
5. Primary earnings per share
(1 divided by 2) $ .49 $ .48
6. Fully diluted earnings per share
(1 divided by 4) $ .48 $ .48
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> $ 15,153,496
<SECURITIES> 3,061,761
<RECEIVABLES> 24,360,600
<ALLOWANCES> 0
<INVENTORY> 11,679,938
<CURRENT-ASSETS> 56,117,521
<PP&E> 64,346,545
<DEPRECIATION> 26,943,587
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0
0
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</TABLE>
