<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 June 30, 1998
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 July 31, 1998
Class A - $1.00 par value 13,084,225 shares
Class B - $1.00 par value 2,954,667 shares
<PAGE>
<PAGE> 2 PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,492,675 $ 19,958,712
Short-term investments 5,003,341 3,090,507
Accounts receivable 31,771,847 30,054,396
Inventories:
Materials and finished goods $10,938,130 $10,482,503
Labor and overhead in process 1,230,508 803,815
Supplies 334,864 479,887
---------- ----------
12,503,502 11,766,205
Other current assets 1,837,958 2,219,631
---------- ----------
Total current assets 71,609,323 67,089,451
Investments 21,755,624 30,771,594
Property, plant and equipment: Cost 77,988,044 72,231,128
Less accumulated depreciation (33,099,690) (29,747,385)
---------- ----------
44,888,354 42,483,743
Deferred income taxes and other assets 13,161,062 12,316,481
Goodwill 21,055,984 16,543,121
----------- -----------
Total assets $172,470,347 $169,204,390
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 784,874 850,533
Accounts payable 5,984,962 5,854,582
Accrued compensation 12,720,626 11,244,999
Accrued income taxes 4,803,526 2,999,511
Customer prepayments 7,626,660 8,892,467
Other current liabilities 7,686,969 6,204,991
---------- ----------
Total current liabilities 39,607,617 36,047,083
Long-term debt 1,637,991 2,151,413
Estimated finishing costs 3,576,924 3,309,098
Postretirement benefits 20,355,446 20,676,282
Other liabilities 7,637,416 2,854,439
Shareholders' equity:
Common stock: Class A, par value $1.00 14,381,634 13,769,718
Class B, par value $1.00 3,785,362 4,397,278
Other shareholders' equity 81,487,957 85,999,079
---------- ----------
99,654,953 104,166,075
----------- -----------
Total liabilities and shareholders' equity $172,470,347 $169,204,390
=========== ===========
/TABLE
<PAGE>
<PAGE> 3
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 55,217,977 $ 51,736,477 $156,221,775 $139,746,680
Cost of sales 30,157,581 28,893,420 86,895,061 77,803,006
---------- ---------- ----------- ----------
Gross Profit 25,060,396 22,843,057 69,326,714 61,943,674
Selling and
administrative expenses 14,727,369 14,045,115 42,490,771 38,646,767
---------- ---------- ----------- ----------
Operating profit 10,333,027 8,797,942 26,835,943 23,296,907
Investment income 584,965 542,119 1,879,684 1,773,478
Interest expense (110,621) (182,546) (288,523) (208,910)
Other income
(deductions), net (285,843) (187,557) (181,869) (468,758)
Minority interest (3,717) (71,480) (482,392) (152,849)
---------- ---------- ----------- ----------
Income before income taxes 10,517,811 8,898,478 27,762,843 24,239,868
Income taxes 4,135,929 3,413,870 10,878,876 9,437,859
---------- ---------- ----------- ----------
Net income $ 6,381,882 $ 5,484,608 $ 16,883,967 $ 14,802,009
========== ========== =========== ==========
Basic earnings per share $ .39 $ .32 $ 1.03 $ .86
===== ===== ===== =====
Diluted earnings per share $ .38 $ .31 $ 1.00 $ .83
===== ===== ===== =====
Dividends per share $.0425 $ .04 $.1275 $ .12
===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE> 4
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $16,883,967 $14,802,009
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,850,195 4,307,582
Deferred taxes (851,349) 727,775
Net increase in working capital items 3,071,812 5,444,482
Decrease in other noncurrent assets 158,769 1,830,515
Increase in estimated finishing costs 267,826 181,173
Increase in other liabilities 782,007 526,167
Decrease in postretirement benefits (320,836) (499,703)
(Gain) loss on sales of property, plant and equipment (16,613) 83,238
Net loss on investments 41,869 55,106
Effect of exchange rate changes on operations 226,444 (457,405)
---------- ----------
Net cash provided by operating activities 26,094,091 27,000,939
---------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (5,057,529) (4,185,153)
Proceeds from disposals of property,
plant and equipment 388,755 15,295
Acquisitions, net of cash acquired (6,127,183) (6,004,320)
Investments (1,271,543) (1,414,305)
Proceeds from disposition of investments 8,559,636 7,226,741
Collections on loans to officers and employees 346,596 392,955
---------- ----------
Net cash used in investing activities (3,161,268) (3,968,787)
---------- ----------
Cash flows from financing activities:
Payments on long-term debt (1,001,011) (4,139,209)
Proceeds from the sale of treasury stock 2,374,348 815,163
Purchases of treasury stock (20,581,458) (8,855,411)
Dividends paid (2,604,629) (2,063,991)
---------- ----------
Net cash used in financing activities (21,812,750) (14,243,448)
---------- ----------
Effect of exchange rate changes on cash (586,110) (404,131)
---------- ----------
Net decrease in cash and cash equivalents $ 533,963 $ 8,384,573
========== ==========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 288,523 $ 208,910
Income Taxes 9,845,724 7,459,132
</TABLE>
<PAGE>
<PAGE> 5
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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 printing plates, pre-press services and imaging systems for 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
and containers. The Company has sales and manufacturing facilities in the
United States, Australia, Canada, Sweden 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 and nine-month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 1998. 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, 1997.
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 39.2% 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
JUNE 30, 1998
Note 4. Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 6,381,882 $ 5,484,608 $16,883,967 $14,802,009
========= ========= ========== ==========
Denominator:
Weighted average common
shares outstanding 16,219,037 17,068,503 16,430,678 17,300,496
Dilutive securities,
primarily stock options 412,878 514,086 440,103 514,086
---------- ---------- ---------- ----------
Diluted weighted average
common shares outstanding 16,631,915 17,582,589 16,870,781 17,814,582
========== ========== ========== ==========
Basic earnings per share $ .39 $ .32 $1.03 $ .86
=== === ==== ====
Diluted earnings per share $ .38 .31 $1.00 $ .83
=== === ==== ====
</TABLE>
Note 5. Stock Split
On May 5, 1998, the Board of Directors declared a two-for-one stock split on
the Company's Class A and Class B common stock in the form of a 100% stock
distribution. The stock distribution was issued June 2, 1998 to shareholders
of record on May 15, 1998. Shareholders' equity has been adjusted for all
periods presented to give retroactive recognition to the stock split by
reclassifying from additional paid-in capital and retained earnings to common
stock the par value of the additional shares arising from the split. All per
share amounts and numbers of shares have been adjusted in this report to
reflect the stock split.
Note 6. Supplemental Cash Flow Information
Non-cash transactions for the period included contributions of property, plant
and equipment valued at $715,000 and assumed liabilities, principally long-term
debt and capital lease obligations, of $413,000 in the formation of Mavrick
Cutting Dies, Inc., a 60%-owned subsidiary, on October 1, 1997.
<PAGE>
<PAGE> 7
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
JUNE 30, 1998
Note 7. Acquisitions
On October 1, 1997, the Company acquired for $480,000 cash the assets of
Western Plasti-Type Co. ("Western"). On November 4, 1997, the Company acquired
the common stock of Allied Reprographics, Inc. ("Allied") for $700,000 cash.
Both Western and Allied are printing plate manufacturers located in Denver,
Colorado. On November 3, 1997, the Company acquired for $1,400,000 cash the
assets of Palomar Packaging, Inc. ("Palomar"), a manufacturer of printing
plates and steel-rule cutting dies, located near San Diego, California. An
additional amount up to $880,000 may be payable for Palomar during the
five-year period from the acquisition date contingent on the attainment of
certain operating performance levels. On February 20, 1998, the Company
acquired for $1,600,000 cash certain assets of S&N Graphics, Inc., a St. Louis,
Missouri manufacturer of printing plates and other marking devices.
On May 22, 1998, Matthews acquired fifty percent of O.N.E. Color
Communications, Inc. ("O.N.E."), a digital graphics service company. The other
fifty percent will continue to be owned by its current shareholders. O.N.E.,
with annual sales of approximately $10 million, is headquartered in Oakland,
California. The transaction was structured as an asset purchase with the
purchase price consisting of $2,000,000 cash and the assumption of a 50%
interest in certain of O.N.E.'s liabilities. The parties have each contributed
their respective 50% interests into a newly-formed California limited liability
company, O.N.E. Color Communications, L.L.C. An additional amount is payable
by Matthews three years from the acquisition date contingent on the attainment
of certain operating performance levels of the new company, with such payout
to be not less than $400,000.
In addition, the purchase agreement requires Matthews to purchase the remaining
fifty percent interest in O.N.E. Color Communications, L.L.C. no later than
May 2004. The purchase price for the remaining interest is contingent on the
attainment of certain operating performance levels of the new company with such
payment to be not less than $4.5 million. The accounts of O.N.E. have been
included in the consolidated financial statements of Matthews and a liability
has been recorded for the present value of the minimum future payouts.
The Company has accounted for these acquisitions using the purchase method and,
accordingly, recorded the acquired assets and liabilities at their estimated
fair values at the acquisition dates. The excess of the purchase price over
the fair value of the net assets has been recorded as goodwill to be amortized
on a straight-line basis over 25 years.
<PAGE>
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement:
The following discussion should be read in conjunction with the consolidated
financial statements and footnotes thereto included in this Quarterly Report
on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended
September 30, 1997. Any forward-looking statements contained herein are
included pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks and uncertainties that may cause the Company's actual results
in future periods to be materially different from management's expectations.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove correct. Factors that could cause the Company's
results to differ materially from the results discussed in such forward-looking
statements principally include economic, competitive and technological factors
beyond the Company's control.
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.
Nine months ended Years ended
June 30, September 30,
----------------- --------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 44.4 44.3 44.1 44.6 44.8
Operating profit 17.2 16.7 16.3 15.6 14.7
Income before income taxes 17.8 17.3 17.1 19.5 15.0
Net income 10.8 10.6 10.4 11.8 9.3
Sales for the nine months ended June 30, 1998 were $156.2 million and were
$16.5 million, or 11.8%, higher than sales of $139.7 million for the first nine
months of fiscal 1997. The sales increase for the first nine months of fiscal
1998 resulted from higher sales in the Company's Graphic Systems and Bronze
segments. Sales for the Graphic Systems segment were up 37% from the first
nine months of fiscal 1997 primarily reflecting acquisitions. In fiscal 1997,
the Company's acquisitions included the purchase of Carolina Repro-Graphic
(May 1997) and a 50% interest in Tukaiz Communications L.L.C. (January 1997).
Sales for the segment also reflected several acquisitions completed during the
current fiscal year (See "Acquisitions"). Bronze segment sales for the first
nine months of fiscal 1998 increased 8% from the same period a year ago as a
result of higher unit volume. The higher level of sales for the current period
reflected an increase in sales of bronze and granite memorial products and
cremation equipment. Marking Products segment sales for the nine months ended
June 30, 1998 decreased 16% from the same period a year ago. The decline,
which was expected, resulted from the sale of the segment's distribution
operations in Australia (August 1997) and France (February 1998), both of which
had historically produced marginal results for the Company. Sales for the
segment's North American operations increased 3% compared to the same period
last year.
<PAGE> 9
Results of Operations, continued
Gross profit for the nine months ended June 30, 1998 was $69.3 million, or
44.4% of sales, compared to $61.9 million, or 44.3% of sales, for the first
nine months of fiscal 1997. The increase in gross profit of $7.4 million, or
11.9%, resulted from higher sales in the Graphic Systems and Bronze segments.
Marking Products gross profit for the nine months ended June 30, 1998 declined
from the prior period primarily as a result of the sale of the segment's
distribution operations in Australia and France. Consolidated gross profit as
a percent of sales for the first nine months of fiscal 1998 was relatively
consistent with the same period a year ago. Gross profit as a percent of sales
for the Bronze segment increased for the period reflecting improvements in
operating efficiencies. For the Graphic Systems segment, the gross profit
percentage was slightly lower for the period due to changes in product mix.
Selling and administrative expenses for the nine months ended June 30, 1998
were $42.5 million, representing an increase of $3.9 million, or 10.0%, over
$38.6 million for the first nine months of fiscal 1997. The increase in
selling and administrative expenses from the prior period principally resulted
from acquisitions by the Graphic Systems segment during the past 18 months.
Partially offsetting this increase was a reduction in Marking Products selling
and administrative costs with the sale of the segment's distribution operations
in Australia and France. Consolidated selling and administrative expenses were
27.2% of sales for the first nine months of fiscal 1998 compared to 27.7% for
the same period last year.
Operating profit for the nine months ended June 30, 1998 was $26.8 million and
was $3.5 million, or 15.2%, higher than the first nine months of fiscal 1997.
The growth in the Company's operating profit for the current period reflected
increases in all three of the Company's business segments. Operating profit
for the Graphic Systems segment increased significantly over the prior period
as a result of the Company's acquisitions. Bronze segment operating profit for
the nine months ended June 30, 1998 also increased over the same period a year
ago reflecting higher sales and margins. In addition, operating profit for the
Marking Products segment improved over the same period last year despite the
sale of the segment's distribution operations in Australia and France. The
improvement resulted from higher sales combined with lower selling and
administrative costs in the segment's North American operations.
Investment income for the nine months ended June 30, 1998 was $1.9 million,
compared to $1.8 million for the first nine months of fiscal 1997. The
increase reflected a higher rate of return on investments during the current
period.
Interest expense for the nine months ended June 30, 1998 was $289,000, compared
to $209,000 for the same period a year ago. Interest expense principally
related to the Company's capital lease obligations. Other income (deductions),
net for the first nine months of fiscal 1998 represented a net reduction in
pre-tax income of $182,000 compared to a net reduction of $469,000 for the
first nine months of fiscal 1997. The current period includes gains on the
sale of various fixed assets.
Minority interest for the nine months ended June 30, 1998 related to the
Company's 50%-owned affiliate, Tukaiz Communications L.L.C., which was acquired
in January 1997.
<PAGE>
<PAGE> 10
Results of Operations, continued
The Company's effective tax rate for the nine months ended June 30, 1998 was
39.2%, consistent with the effective rate of 39.2% for the year ended
September 30, 1997. 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.
Liquidity and Capital Resources
Net cash provided by operating activities was $26.1 million for the nine months
ended June 30, 1998, compared to $27.0 million for the first nine months of
fiscal 1997. Operating cash flow for both periods primarily reflected net
income adjusted for depreciation and amortization and changes in various
working capital items.
Cash used in investing activities was approximately $3.2 million for the nine
months ended June 30, 1998 compared to $4.0 million for the same period a year
ago. Investing activities for the current period included the acquisitions of
Western Plasti-Type Co. ($480,000), Allied Reprographics, Inc. ($700,000),
Palomar Packaging, Inc. ($1.4 million), S&N Graphics, Inc. ($1.6 million), and
O.N.E. Color Communications, L.L.C. ($2.0 million). See "Acquisitions" for
further discussion. In addition, investing activities for the nine months
ended June 30, 1998 included capital expenditures of $5.1 million and proceeds
from the net disposition of investments of $7.3 million. Investing activities
for the first nine months of fiscal 1997 primarily included capital
expenditures of $4.2 million, the acquisitions of Carolina Repro-Graphic and
a 50% interest in Tukaiz Communications L.L.C. and the net disposition of
investments during the period of $5.8 million. Capital spending for property,
plant and equipment has averaged approximately $5.8 million for the last three
fiscal years. The capital budget of the Company for fiscal 1998 is
$10.9 million. The Company expects to generate sufficient cash from operations
to fund all anticipated capital spending projects.
Cash used in financing activities for the nine months ended June 30, 1998 was
$21.8 million consisting of net treasury stock purchases of $18.2 million, the
Company's dividends of $.0425 per share for each of the first three quarters,
which totaled $2.6 million, and repayments under the Company's capital lease
agreements of $1.0 million. Cash used in financing activities for the nine
months ended June 30, 1997 was $14.2 million consisting of net treasury stock
purchases ($8.0 million), dividends of $.04 per share for each of the first
three quarters ($2.1 million) and long-term debt repayments ($4.1 million).
The Company currently has available lines of credit of approximately
$13 million. There were no outstanding borrowings on any of the Company's
lines of credit at June 30, 1998.
On April 29, 1998, the Company announced the continuation of its stock
repurchase program. Previously, the Company's Board of Directors had approved
repurchasing a total of 2,000,000 (adjusted for the stock split), which has
been substantially completed. The current authorization allows the Company to
purchase up to an additional 1,000,000 shares of Matthews Class A and Class B
common stock. The buy-back program is designed to increase shareholder value,
enlarge the Company's holdings of its Class A and Class B common stock, and add
to earnings per share. Repurchased shares may be retained in treasury,
utilized for acquisitions or reissued to employees or other purchasers.
<PAGE>
<PAGE> 11
Liquidity and Capital Resources, continued
At June 30, 1998 and September 30, 1997 and 1996, the Company's current ratio
was 1.8, 1.9 and 2.2, respectively. The Company had cash and cash equivalents
at June 30, 1998 and September 30, 1997 of $20.5 million and $20.0 million,
respectively. Net working capital at June 30, 1998 was $32.0 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.
Stock Split
On May 5, 1998, the Board of Directors declared a two-for-one stock split on
the Company's Class A and Class B common stock in the form of a 100% stock
distribution. The stock distribution was issued June 2, 1998 to shareholders
of record on May 15, 1998. Shareholders' equity has been adjusted for all
periods presented to give retroactive recognition to the stock split by
reclassifying from additional paid-in capital and retained earnings to common
stock the par value of the additional shares arising from the split. All per
share amounts and numbers of shares have been adjusted in this report to
reflect the stock split.
Acquisitions
On October 1, 1997, the Company acquired for $480,000 cash the assets of
Western Plasti-Type Co. ("Western"). On November 4, 1997, the Company acquired
the common stock of Allied Reprographics, Inc. ("Allied") for $700,000 cash.
Both Western and Allied are printing plate manufacturers located in Denver,
Colorado. On November 3, 1997, the Company acquired for $1.4 million cash the
assets of Palomar Packaging, Inc. ("Palomar"), a manufacturer of printing
plates and steel-rule cutting dies, located near San Diego, California. An
additional amount up to $880,000 may be payable for Palomar during the
five-year period from the acquisition date contingent on the attainment of
certain operating performance levels. On February 20, 1998, the Company
acquired for $1,600,000 cash certain assets of S&N Graphics, Inc., a St. Louis,
Missouri manufacturer of printing plates and other marking devices.
The acquisitions of Western and Allied are designed to provide Matthews with
a presence in the Colorado and surrounding markets which were not previously
served by the Company. The acquisition of Palomar is designed to increase
Matthews' presence in the growing marketplace for packaged products in southern
California and northern Mexico. The acquisition of S&N Graphics, Inc. is
designed to increase Matthews' share of the St. Louis marketplace for prepress
and printing plates in the flexible and corrugated packaging industries.
On May 22, 1998, Matthews acquired fifty percent of O.N.E. Color
Communications, Inc. ("O.N.E."), a digital graphics service company. The other
fifty percent will continue to be owned by its current shareholders. The
transaction was structured as an asset purchase with the purchase price
consisting of $2,000,000 cash and the assumption of a 50% interest in certain
of O.N.E.'s liabilities. The parties have each contributed their respective
50% interests into a newly-formed California limited liability company, O.N.E.
Color Communications, L.L.C. An additional amount is payable by Matthews three
years from the acquisition date contingent on the attainment of certain
operating performance levels of the new company, with such payout to be not
less than $400,000.
<PAGE>
<PAGE> 12
Acquisitions, continued
In addition, the purchase agreement requires Matthews to purchase the remaining
fifty percent interest in O.N.E. Color Communications, L.L.C. no later than
May 2004. The purchase price for the remaining interest is contingent on the
attainment of certain operating performance levels of the new company with such
payment to be not less than $4.5 million. The accounts of O.N.E. have been
included in the consolidated financial statements of Matthews and a liability
has been recorded for the present value of the minimum future payouts.
O.N.E., with annual sales of approximately $10 million, is headquartered in
Oakland, California and was formed 83 years ago. O.N.E. provides digital
graphic services to advertising agencies and packaging markets. The
combination of Matthews and O.N.E. is an integral part of Matthews' strategy
to become a worldwide leader in advanced applications of digital graphics.
The Company has accounted for these acquisitions using the purchase method and,
accordingly, recorded the acquired assets and liabilities at their estimated
fair values at the acquisition dates. The excess of the purchase price over
the fair value of the net assets has been recorded as goodwill to be amortized
on a straight-line basis over 25 years.
<PAGE>
<PAGE> 13
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 and Membership Interest Agreement among
Mattone Holding Corp., O.N.E. Color Communications, Inc.,
O.N.E. Color Communications, L.L.C., Stephen Kozel, Kim
Fogarty, Thomas Kozel and Peter Kozel
10.2 O.N.E. Color Communications, L.L.C., Operating Agreement
27 Financial Data Schedule (via EDGAR)
(b) Reports on Form 8-K
A Form 8-K current report was filed by the Company on May 27, 1998 reporting
under "Item 5 - Other Events" the following:
On May 22, 1998, Matthews International Corporation ("Matthews") acquired fifty
percent of O.N.E. Color Communications, Inc. ("O.N.E."), a digital graphics
service company. The other fifty percent of O.N.E. will continue to be owned
by its current shareholders. The combination of Matthews and O.N.E. is an
integral part of the Matthews strategy to become a worldwide leader in advanced
applications of digital graphics.
O.N.E., with annual sales of approximately $10 million, is headquartered in
Oakland, California and was formed 83 years ago. O.N.E. provides digital
graphic services to advertising agencies and packaging markets.
<PAGE>
<PAGE> 14
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 8/13/98 D.M. Kelly
------------- -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 8/13/98 E.J. Boyle
------------- -----------------------------------------
E. J. Boyle, Vice President, Accounting &
Finance, Treasurer and Secretary
<PAGE>
<PAGE>
<PAGE> 1
EXHIBIT 10.1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
MATTONE HOLDING CORP.,
O.N.E. COLOR COMMUNICATIONS, INC.,
O.N.E. COLOR COMMUNICATIONS, LLC,
STEPHEN KOZEL,
KIM FOGARTY,
THOMAS KOZEL
AND
PETER KOZEL
ASSET PURCHASE AND MEMBERSHIP INTEREST AGREEMENT
Dated as of February 24, 1998
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - AGREEMENT TO SELL ASSETS; PURCHASE PRICE FOR ASSETS;
CLOSING 1
1.01 Agreement to Sell Assets 1
1.02 Purchase Price for Assets; Assumption of Liabilities 2
1.03 Closing 2
1.04 Allocation of Consideration 2
1.05 Parties 2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS 3
2.01 Power and Authority of the Shareholders 3
2.02 Enforceability 3
2.03 Absence of Conflicts 3
2.04 Litigation and Claims Against the Shareholders 3
2.05 Brokers' Fees 4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
AND SELLER 4
3.01 Organization and Authority 4
3.02 Capitalization 4
3.03 Due Authorization 4
3.04 Absence of Conflicts 4
3.05 Financial Information 5
3.06 Absence of Material Changes 5
3.07 Title to Properties; Liens 6
3.08 Contracts and Agreements 7
3.09 Customers and Suppliers 7
3.10 Employment Agreements 7
3.11 Employee Benefit Plans 8
3.12 Patents, Trademarks, Copyrights, Licenses and
Secrecy Agreements 9
3.13 Trade Secrets 10
3.14 Governmental Licenses and Permits 10
3.15 Indebtedness and Commitments 10
3.16 Taxes 10
3.17 Insurance 11
3.18 Litigation and Claims 11
3.19 Compliance with Laws 12
3.20 Environmental and Occupational Safety Matters 12
3.21 Brokers' Fees 12
3.22 Contingencies 12
3.23 Employee Severance Claims 13
3.24 Bank Accounts 13
3.25 Accounts Receivable 13
3.26 Condition of Tangible Assets 13
3.27 Inventory 13
3.28 Hazardous Wastes 13
3.29 Warranty Expense 13
3.30 Powers-of-Attorney 13
3.31 Books and Records 13
3.32 Peter Kozel 14
<PAGE>
<PAGE> 3
TABLE OF CONTENTS
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Page
----
3.33 No Undisclosed Information 14
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER 14
4.01 Organization and Authority 14
4.02 Due Authorization 14
4.03 Absence of Conflicts 14
4.04 Litigation and Claims Against Buyer 15
4.05 Brokers' Fees 15
4.06 SEC Filings; Financial Statements 15
ARTICLE V - COVENANTS OF THE SHAREHOLDERS 15
5.01 Certain Changes and Conduct of Business 15
5.02 Access to Information 17
5.03 Governmental Approvals 17
5.04 Consents and Approvals 17
5.05 All Reasonable Efforts 17
5.06 Exclusivity 18
5.07 Disclosure Schedule 18
ARTICLE VI - COVENANTS OF BUYER 18
6.01 Information Kept Confidential 18
6.02 Governmental Approvals 19
6.03 Consents and Approvals 19
6.04 All Reasonable Efforts 19
ARTICLE VII - CONDITIONS OF CLOSING 19
7.01 Preamble 19
7.02 Conditions to Obligations All Parties 19
7.03 Conditions to Obligations of Buyer 20
7.04 Conditions to Obligations of The Shareholders 21
7.05 Frustration of Closing Conditions 22
ARTICLE VIII - INDEMNITY 22
8.01 Survival of Representations, Warranties and Covenants 22
8.02 Indemnification Provisions for Benefit of Buyer 22
8.03 Indemnification Provisions for Benefit of Lender
of the Shareholders 22
8.04 Event of Breach 22
8.05 Notice of Claim for Indemnification 22
8.06 Matters Involving Third Parties 23
8.07 Treatment of Indemnification Payments 23
8.08 Other Indemnification Provisions 23
ARTICLE IX - CALL PROVISIONS 24
9.01 Certain Definitions 24
9.02 Call Rights 24
9.03 Closing of Call 25
9.04 Operation of Business 26
ARTICLE X - CORPORATE GOVERNANCE 26
10.01 Membership Interest 26
10.02 Board of Managers 26
<PAGE>
<PAGE> 4
TABLE OF CONTENTS
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Page
----
ARTICLE XI - MEMBERSHIP INTEREST TRANSFER RESTRICTIONS 27
11.01 Restriction on Transfer of Membership Interests 27
11.02 Voluntary Sales 27
11.03 Transfers by Operations of Law 28
11.04 Sale of Membership Interest Upon Death 28
11.05 Payment of Purchase Price 29
11.06 Endorsement of Membership Interest Certificates 29
11.07 Other Members 29
11.08 Term 29
11.09 Specific Covenants of the Company 29
ARTICLE XII - DEFINITIONS 29
ARTICLE XIII - MISCELLANEOUS 33
13.01 Termination 33
13.02 Further Assurances; Books and Records 34
13.03 Press Releases and Public Announcements 34
13.04 Expenses; Taxes 34
13.05 Governing Law; Submission to Jurisdiction 34
13.06 Entire Agreement; Modification; Waiver 34
13.07 Notices 35
13.08 Counterparts 35
13.09 Matters of Construction, Interpretation and the Like 35
13.10 No Third-Party Beneficiaries 36
13.11 Succession and Assignment 36
13.12 Time of the Essence 36
13.13 Attorneys' Fees 36
EXHIBITS
--------
Exhibit A - Form of Opinion of Counsel to Seller and the Shareholders
Exhibit B - Form of Bill of Sale
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D1 - Form of Stephen Kozel Employment Agreement
Exhibit D2 - Form of Kim Fogarty Employment Agreement
Exhibit D3 - Form of Thomas Kozel Employment Agreement
Exhibit E - Form of Lease
Exhibit F - Form of Operating Agreement
Exhibit G - Form of Opinion of Counsel to Buyer
Exhibit H - Form of Matthews Guaranty
Exhibit I - Form of Release
SCHEDULES
---------
Schedule 1.01 - Assets to be Sold
Schedule 1.02 - Liabilities Assumed
Schedule 1.04 - Tax Allocation
Schedule 2.03 - Third Party Consents for Seller
<PAGE> 5
TABLE OF CONTENTS
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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 December 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 3.22 - Contingencies
Schedule 3.24 - Bank Accounts
Schedule 3.28 - Hazardous Wastes
Schedule 3.30 - Powers-of-Attorney
<PAGE>
<PAGE> 6
ASSET PURCHASE AND MEMBERSHIP INTEREST AGREEMENT
THIS ASSET PURCHASE AND MEMBERSHIP INTEREST AGREEMENT (the "Agreement") dated
as of February 24, 1998, among MATTONE HOLDING CORP., a Pennsylvania
corporation ("Buyer"), and a wholly-owned subsidiary of Matthews International
Corporation ("Matthews"), O.N.E. COLOR COMMUNICATIONS, INC., a California
corporation ("Seller"), O.N.E. COLOR COMMUNICATIONS, LLC, a California limited
liability company (the "Company") and Stephen Kozel, Kim Fogarty, Thomas Kozel
and Peter Kozel, each individual shareholders of Seller (each a "Shareholder",
and collectively, the "Shareholders"). Capitalized terms used in this
Agreement which are not otherwise defined herein are defined in Article XII
hereof.
WITNESSETH:
WHEREAS, Seller has one class of capital stock, that being Common Stock, par
value $10.00 per share (the "Common Stock"), issued and outstanding at this
time;
WHEREAS, the Shareholders own all of the issued and outstanding shares of
Common Stock;
WHEREAS, Seller desires to sell, and Buyer desires to purchase, certain of the
assets and liabilities of Seller;
WHEREAS, following such sale and at the Closing Seller and Buyer intend to
contribute certain of their respective assets and certain liabilities to the
Company, a newly-formed California limited liability company, in exchange for
a percentage of the Membership Interests for each of Seller and Buyer;
WHEREAS, this Agreement is intended to, among other things, (i) provide for
the sale and purchase of the Assets, (ii) set forth the terms of a voluntary
and a required call arrangement for the purchase by Buyer of Seller's
Membership Interests through a tax-deferred reorganization under Section 368
of the Code of Seller into Mattone or otherwise; (iii) provide for employment
agreements to be entered into by certain Shareholders at the Closing; (iv) set
forth certain matters of corporate governance between the Members; and (v) 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, 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, certain assets of Seller (the "Assets") which are listed
on Schedule 1.01 hereto.
<PAGE>
<PAGE> 7
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 the following to Seller (the "Purchase
Price"):
(i) at the Closing, $2,000,000; and
(ii) on the date which is sixty days after the third anniversary of the
Closing Date, a payment based upon the following schedule, with the payment
amount to be based upon the Cumulative EBIT from the Closing Date until the
third anniversary of the Closing Date:
Cumulative EBIT Payment Amount
- --------------- --------------
$3,000,000 or less $400,000
$3,000,001 to $3,375,000 $607,500
$3,375,000 to $3,750,000 $850,000
$3,750,001 to $3,937,000 $1,063,000
$3,937,000 to $4,125,000 $1,292,775
$4,125,001 to $4,250,000 $1,454,775
$4,250,001 to $4,375,000 $1,623,562
$4,375,001 to $4,500,000 $1,800,000
$4,500,001 to $4,687,000 $1,964,321
$4,687,001 to $4,875,000 $2,135,737
$4,875,001 to $5,062,000 $2,314,346
$5,062,001 to $5,250,000 $2,500,000
$5,250,001 to $6,000,000 $2,750,000
$6,000,001 to $6,750,000 $2,925,000
over $6,750,000 $3,350,000
(b) Buyer shall, pursuant to the Assignment and Assumption Agreement
described in Section 2.01 hereof, assume certain contracts and Liabilities
related to such contracts of the Seller which are described in Schedule 1.02
hereto.
(c) Seller shall distribute all cash in excess of $400,000 immediately prior
to the Closing as a cash dividend to the Shareholders. Said dividend shall
be paid immediately prior to the Closing.
(d) All cash to be delivered pursuant to Section 1.02(a) hereof shall be
represented by a 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 Harris & Harris, One Kaiser Plaza,
Suite 1010, Oakland, California at 10:00 a.m., Pacific time on March 31, 1998
unless said date or place is changed by mutual agreement of the parties (the
date of the Closing is referred to herein as the "Closing Date").
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 and set forth on Schedule 1.04 attached hereto. Such allocation shall
be made in accordance with Section 1060 of the Code.
<PAGE>
<PAGE> 8
1.05 Parties. The other parties hereto acknowledge and agree that the
Company has not been organized at the time that such parties are signing this
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.
ARTICLE II
Representations and Warranties of the Shareholders
Each of the Shareholders represents and warrants to Buyer that the statements
contained in this Article II are as to such Shareholder 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 the Shareholders. Each of the Shareholders 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 each of the Shareholders is a party constitutes the legal,
valid and binding obligations of such Shareholder enforceable against such
Shareholder 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 each of the
Shareholders of this Agreement or the other Transaction Documents to which
such Shareholder is a party, the compliance by such Shareholder with the terms
and conditions hereof and thereof, nor the consummation by such Shareholder 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 such Shareholder,
(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 such Shareholder is a party or by which such
Shareholder is bound or to which any property of such Shareholder is subject,
(c) result in the creation of any Lien upon any of the assets of such
Shareholder, 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.
<PAGE>
<PAGE> 9
2.04 Litigation and Claims Against the Shareholders. There are no actions,
suits or proceedings pending or threatened against any Shareholder 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. No Shareholder 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.
ARTICLE III
Representations and Warranties of the Shareholders and Seller
Each of the Shareholders 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
California. 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. Schedule 3.01 sets forth a true and complete list
of each jurisdiction in which Seller is qualified to do business as a foreign
corporation. 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 the date of delivery of
the same by Seller to Buyer. 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.
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 the Shareholders to purchase or otherwise acquire any
shares of capital stock of Seller, or other equity securities or equity
interests in Seller. Except as set forth on Schedule 3.02, there are no
shareholder or similar agreements with respect to Seller.
<PAGE>
<PAGE> 10
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. The Shareholders have 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 prepared in accordance with generally accepted accounting
principles consistently applied and fairly present:
(a) the consolidated financial position of Seller as at October 31, 1997 and
as of December 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, 1997 and for the years ended
December 31, 1996, 1995 and 1994.
<PAGE>
<PAGE> 11
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 December 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 the Shareholders to perform their respective obligations under this
Agreement, including any change in the relationship between Seller and
Safeway, Inc.,
(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. Schedule 3.07(a) identifies all interests of Seller in
fee and 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 the Shareholders have 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 are assignable by Seller to Buyer
or to the Company, subject to consent by Sellers' lessor, 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 any of the Shareholders, any other party
thereto. 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 any of the Shareholders, except as set
forth in Schedule 3.07(a). 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> 12
(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, 1997 in excess of
$10,000 (the "Equipment Instruments") and
(iv) any other equipment used but not owned or leased by Seller.
The Shareholders have 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 are assignable by Seller to Buyer or to the Company
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 any of the Shareholders, 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 October 31, 1997 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". The Shareholders have heretofore
delivered to Buyer true and complete copies of all Contracts as in effect on
the date hereof. To the best of knowledge of Seller and each of the
Shareholders, 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 any of the Shareholders, any other party thereto.
<PAGE>
<PAGE> 13
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 years ended December 31, 1995 and
December 31, 1996, and during the ten fiscal months ended October 31, 1997,
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
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." The Shareholders have heretofore made
available to Buyer true and complete copies of each of the Employment
Contracts as in effect on the date hereof. To the best of knowledge of Seller
and each of the Shareholders, 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 any of the Shareholders, any other party thereto. There are no
strikes, lockouts or work stoppages or slowdowns or, to the knowledge of any
of the Shareholders, 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. To the best knowledge of Seller and each of the
Shareholders:
(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.
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(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. 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.
(vi) The Shareholders have 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) To the best of knowledge of Seller and each of the Shareholders, 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 any of the Shareholders,
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 any of the Shareholders, threatened. No Shareholder has knowledge of any
basis for any such action, suit, proceeding, hearing or investigation.
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(iii) Seller has not incurred, and no Shareholder has 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 no Liability under any Multiemployer Plan.
(d) To the best knowledge of Seller and each of the Shareholders, 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
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 any of the Shareholders, threatened against Seller. No
Shareholder has 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.
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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"). The Shareholders have heretofore delivered to Buyer true and
complete copies of the Permits as in effect on the date hereof. To the best
knowledge of Seller and each of the Shareholders, and 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"). The Shareholders have 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 will have duly and timely paid all
Taxes or installments thereof that are due with respect to such Tax Returns,
(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) The Shareholders have 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, 1989 and ending
December 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, 1996 have been
filed with the relevant Tax authorities and any asserted deficiencies settled
and paid,
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<PAGE> 17
(f) the consolidated balance sheets of Seller as at December 31, 1996 and
October 31, 1997 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
(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. The Shareholders have 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
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<PAGE> 18
(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 any of the Shareholders, 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. To the best knowledge of Seller and each of the
Shareholders, and 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. To the best of knowledge
of Seller and each of the Shareholders, except as set forth in Schedule 3.20
(a) 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.
(b) 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. No Shareholder 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,
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<PAGE> 19
(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, and
(c) liabilities disclosed in Schedule 3.22 to this Agreement,
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. 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
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. To the best of knowledge of Seller and each of the
Shareholders, and except as disclosed in Schedule 3.28:
(a) All Real Property 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, and
(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.
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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, 1994 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. The minute books and other similar records of Seller
contain a true and 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 Peter Kozel. Peter Kozel is not and has not since July, 1996, been
employed by or involved with the operations of the business of Seller, except
in his capacity as a Shareholder and Director.
3.33 No Undisclosed Information. Except as disclosed herein, no Shareholder
has any actual knowledge of any matter involving Seller which might have a
Material Adverse Effect on Seller. To the best knowledge of the Shareholders,
neither this Agreement nor any document, certificate or statement furnished or
to be furnished to Buyer by or on behalf of the Shareholders 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 Seller and the Shareholders 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.
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.
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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 Seller or the Shareholders will be responsible.
4.06. SEC Filings; Financial Statements. Matthews has filed all forms,
reports and documents required to be filed by it with the SEC since January 1,
1997 and has heretofore made available to Seller, in the form filed with the
SEC, all such forms, reports and documents (collectively the "SEC Reports").
The SEC Reports and any forms, reports and other documents filed by Matthews
with the SEC after the date of this Agreement and prior to Closing (i) were or
will be prepared in accordance with the requirements of the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended, as the case may
be, and (ii) did not at the time there were filed and, except as amended prior
the date hereof, at any time since filing or will not at the time they are
filed, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.
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<PAGE> 22
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the SEC Reports (i) was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto), (ii) fairly represents the consolidated financial position, results
of operations and cash flows of Matthews) as at the respective dates thereof
and for the respective periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which were
not and are not expected, individually or in the aggregate, to be material in
amount) and (iii) complies as to form, as of its respective date of filing
with the SEC, with all applicable accounting requirements and SEC rules and
regulations. Since December 31, 1996, there has been no change in any of the
significant accounting (including tax accounting) policies, practices or
procedures of Buyer or Matthews.
(c) Except as set forth in the SEC Reports, Buyer and Matthews do not have
any liability or obligation of any nature (whether accrued, absolute,
contingent, or otherwise) other than liabilities and obligations incurred in
the ordinary course of business and which could not reasonably be expected to,
individually or in the aggregate, have a material adverse effect on Seller.
ARTICLE V
Covenants of the Shareholders
Each of the Shareholders 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, the Shareholders will
not permit Seller 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;
provided, however, that immediately prior to Closing Seller shall be permitted
to dividend to the Shareholders any actual cash balances of Seller which
exceed $400,000;
(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;
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<PAGE> 23
(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 the Shareholders 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.
Notwithstanding the foregoing covenants, Seller and the Shareholders shall be
permitted to consummate the following transactions prior to Closing:
1) renegotiate Seller's existing lease as designated in Schedule 3.07(a), with
the written approval of Buyer; 2) terminate, distribute to the Shareholders,
or retain in Seller the existing split-dollar agreement between Seller and the
Kozel 1993 Irrevocable Trust without compensation to the Seller or Buyer; and
3) renegotiate the existing Stock Restriction and Transfer Agreement among the
Shareholders; provided that such agreement as revised shall not permit the
purchase by a Shareholder of another Shareholder's stock of Seller except upon
death , disability, or involuntary transfer so long as Seller owns Membership
Interests of the Company ..
(b) Affirmative Covenants. From and after the date of this Agreement and
until the Closing, the Shareholders 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
(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 the Shareholders 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 the Shareholders in this Agreement.
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<PAGE> 24
5.03 Governmental Approvals. The Shareholders 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 the
Shareholders 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.
Prior to the Closing Seller shall bear all costs, attorneys' fees, filing fees
and expenses, of any kind, incurred by Seller or Shareholders in connection
with this Section. After the Closing the Company and or Buyer shall bear all
costs, attorneys' fees, filing fees and expenses of any kind incurred by
Seller or Shareholders in connection with this section.
5.04 Consents and Approvals. The Shareholders 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. The Shareholders 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 the
Shareholders and Seller to be met as promptly as practicable.
5.06 Exclusivity. Until the Closing Date, the Shareholders 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. The Shareholders shall notify Buyer promptly if any Person makes
any proposal, offer, inquiry or contact with respect to any such acquisition
or transaction.
5.07 Disclosure Schedule. The Shareholders 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 the Shareholders 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 the Shareholders
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 the Shareholders or
Seller subsequent to its disclosure to Buyer by the Shareholders 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 13.01), Buyer and its authorized representatives shall
promptly destroy or return to Seller all information furnished by the
Shareholders 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 13.01(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 the Shareholders such information concerning Buyer as The
Shareholders may require to make such filings and prepare such applications as
may be required for the consummation by the Shareholders of the transactions
contemplated by this Agreement.
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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.
ARTICLE VII
Conditions of Closing
7.01 Preamble. The respective obligations set forth herein of the
Shareholders, 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
the Shareholders 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 the Shareholders, 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) Creation of the Company. The Company shall have been formed, the
operating agreement with respect thereto shall have been signed and Seller and
Buyer shall have contributed their respective assets (and any obligations or
liabilities related to contracts or agreements which are part of such assets,
but not contingent liabilities), including any real property owned in fee, to
the Company in exchange for 50% of the Membership Interests of the Company for
Buyer and 50% of the Membership Interests for Seller.
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<PAGE> 27
7.03 Conditions to Obligations of Buyer.
(a) Representations and Warranties of Seller and The Shareholders;
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, Seller and
each of the Shareholders 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 Seller and the Shareholders to the foregoing effects, which
certificates shall list or attach copies of any such written consents by
Buyer.
(b) Opinion of Counsel for the Shareholders. Buyer shall have received from
L. Randolph Harris, Esquire, Harris and Harris, P.C., 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 Seller and the
Shareholders shall have been obtained, including the consent to the assignment
of the Lease.
(d) 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.
(e) 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.
(f) Transaction Documents. The Parties thereto shall have entered into the
Employment Agreements substantially in the form of Exhibit D hereto, the Lease
substantially in the form of Exhibit E hereto and the Operating Agreement
substantially in the form of Exhibit F hereto..
(g) 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.
(h) Results of "Due Diligence" Inquiry. Any investigation of Seller and the
Shareholders undertaken by Buyer shall not have resulted in the discovery of
any information or matter which Buyer in its reasonable discretion has
determined to be material and adverse.
(i) 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.
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<PAGE> 28
(j) 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
(k) Change of Name. Seller shall have taken the steps necessary to change
its name to not contain the words "O.N.E. Color Communications" and to permit
the Company to use such words in its name.
(l) Board of Directors Approval. Buyer shall have obtained the approval of
its Board of Directors to the consummation of this Agreement.
7.04 Conditions to Obligations of Seller and the Shareholders.
(a) Representations and Warranties of Buyer; Performance of Covenants.
Except as otherwise consented to in writing by Seller, 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 Sellers, 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 Seller and the
Shareholders shall have received a certificate of Buyer to the foregoing
effects, which certificate shall list or attach copies of any such written
consents of the Shareholders.
(b) Opinion of Counsel for Buyer. Seller and the Shareholders shall have
received from Joseph C. Bartolacci, Esquire, General Counsel of Buyer, or
other counsel reasonably satisfactory to Seller and the Shareholders, 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 Seller
and the Shareholders, of other counsel satisfactory to Seller and the
Shareholders.
(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
Employment Agreements substantially in the form of Exhibit D hereto, the Lease
substantially in the form of Exhibit E hereto, the Operating Agreement
substantially in the form of Exhibit F hereto 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 Seller and the Shareholders a certificate in form and substance
satisfactory to Seller and the Shareholders, 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 Seller and the Shareholders.
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<PAGE> 29
7.05 Frustration of Closing Conditions. No party may rely on the failure of
any condition set forth in this Article to be satisfied if such failure was
caused by such party's failure to use reasonable efforts to consummate the
transactions contemplated by this Agreement.
ARTICLE VIII
Indemnity
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 (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.
8.02 Indemnification Provisions for Benefit of Buyer. If there is any Event
of Breach (as defined in Section 8.04), and provided that Buyer deliver to
Seller pursuant to Section 8.05 hereof, a claim for indemnification with
respect to such alleged Event of Breach, then Seller shall indemnify Buyer
for any Event of Breach of any of the Shareholders and/or Seller contained
herein by any of the Shareholders 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 Event of Breach through and after the date
of such claim. Notwithstanding anything herein to the contrary, Buyer, Seller
and the Shareholders agree that Buyer shall not seek indemnification from the
Seller to the extent that the total of all claims for indemnification do not
exceed $75,000 throughout the time provided by the applicable statute of
limitations. To the extent that Buyer's claims for indemnification prior to
the Closing Date through the time provided by the applicable statute of
limitations do not exceed $500,000, Buyer shall have the right to require
Seller to indemnify Buyer for all such claims , including the first $75,000 of
claims for indemnification. To the extent that Buyer's claims for
indemnification prior to the closing date exceed $500,000, any party may
choose to terminate this Agreement without liability to any other party. To
the extent that Buyer's claims for indemnification, both before and after the
Closing Date , exceed $500,000 Buyer agrees to limit Seller's indemnification
to the total of the purchase price and the Call Purchase Price as those terms
are defined herein. While this indemnification provision is limited to Seller,
the Shareholders agree that Buyer may offset claims for indemnification
hereunder against payments due from Buyer to the Seller as part of the
Purchase Price for the assets or to the Shareholders as part of the Call
Purchase Price.
8.03. Indemnification Provisions for Benefit of the Shareholders. If there
is any Event of Breach (as defined in Section 8.04), and provided that Seller
or the Shareholders deliver to Buyer pursuant to Section 8.05 hereof a claim
for indemnification with respect to such alleged Event of Breach, then Buyer
shall indemnify Seller and/or each of the Shareholders from and against all
Adverse Consequences that Seller or such Shareholder has suffered or may
suffer caused by, resulting from, arising out of or relating to such Event of
Breach through and after the date of such claim.
8.04. Event of Breach. As used herein, an "Event of Breach" shall mean any
one or more of the following: (i) any untruth, inaccuracy or
misrepresentation in or breach of any of the representations, warranties,
covenants or agreements made by the party making such representation,
warranty, covenant or agreement; (ii) any failure of a party to perform or
observe any term, provision, covenant, obligation, agreement or condition on
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<PAGE> 30
the part of that party to be performed or observed under this Agreement; and
(iii) any misrepresentation of a party in, or omission from, any statement,
certificate, Schedule, Exhibit or other document prepared or furnished by that
party pursuant to this Agreement.
8.05. 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 the Shareholders) or to the Shareholders (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.
8.06. Matters Involving Third Parties.
(a) If any party 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 a
Shareholder thereof, and (ii) if such notice or knowledge is received or
acquired by Seller or by a Shareholder, it 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
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 8.06(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 8.06(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
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<PAGE> 31
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.
8.07. Treatment of Indemnification Payments. All indemnification payments
made by the Shareholders or Buyer under this Article VIII shall be deemed
adjustments to the Purchase Price.
8.08. 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
CALL PROVISIONS
9.01 Certain Definitions. The following definitions shall apply to the Call
Right and the Required Call described in this Article IX:
(a) "Applicable Percentage" shall mean, at any time, the ratio that Seller's
Membership Interests bears to the total Membership Interests bears to the
total Membership Interests then outstanding.
(b) "Call" shall mean the exercise of the Call Right or the occurrence of the
Required Call, as the case may be.
(c) "EBIT" shall mean the Company's net earnings prior to goodwill
amortization, interest and taxes, as determined in accordance with generally
accepted accounting principles and consistent with past practice by the
accountants of the Company, for a period of time (and which may include
earnings attributable to Seller prior to the Closing Date).
(d) "Multipliers" shall mean the numbers set forth below which correspond to
the average percentage growth in EBIT, from fiscal year to year and as
compared to the prior fiscal year, for the full fiscal years commencing with
the fiscal year of the Company ended in 1998 and ending with the last full
fiscal year of the Company ended prior to the Scheduled Call Closing Date:
Average % Growth in EBIT Multiplier
- ------------------------ ----------
Less than or equal to 0% 6
More than 0% but less than or equal to 9% 7.5
More than 9% but less than or equal to 14% 8
More than 14% 8.5
Example: EBIT is 100 in 1997, 110 in 1998, 115 in 1999 and 125 in 2000. The
Call Right is exercised in 2001. There is 10% growth from 1997 to 1998, 4.5%
growth from 1998 to 1999 and 8.7% growth from 1999 to 2000, for an average of
7.7% growth, so the Multiplier would be 7.5.
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<PAGE> 32
(e) "Call Purchase Price" shall mean, at any time, the Applicable Percentage
of the Total Equity Value, but in any event not less than $4,500,000.
9.02 Call Rights.
(a) Commencing 30 days after the third anniversary of the Closing , for a
period of 60 days from such date (the "Exercise Period"), Buyer shall have a
call right (the "Call Right") enabling Buyer to require Seller (or its
successor or representative, as the case may be) to sell all, but not less
than all, of Seller's Membership Interests at a purchase price equal to the
Call Purchase Price. The Call Right shall be exercisable by Buyer during the
Exercise Period by written notice to Seller.
(b) If Buyer does not exercise its Call Right, on the fifth anniversary of
the Closing and no later than 90 days thereafter Buyer shall be required to
make a call to purchase (the "Required Call") Seller's Membership Interests,
and Seller shall be required to sell to Buyer all, but not less than all, of
Seller's Membership Interests at a purchase price equal to the Call Purchase
Price. The Required Call shall be exercised by Buyer by written notice to
Seller on or before 90 days after the fifth anniversary of the Closing .
(c) Notwithstanding the foregoing, Seller shall have a right (the "Deferral
Right") enabling Seller (or its successor or representative, as the case may
be) to require Buyer to defer the purchase of the Membership Interests of
Seller for two years if the Call Right is exercised on the third anniversary
of the Closing and for one year if the Required Call occurs, as the case may
be. The Deferral Right shall be exercisable by Seller (or its successor or
representative, as the case may be) by written notice to Buyer within 10 days
after the notice of the exercise of the Call Right or the Required Call is
made by Buyer.
(d) "Total Equity Value" shall be determined by the following formula with
respect to the Company:
TEV = [(EBIT1 + EBIT2) / 2 x Multiplier] + cash balances - indebtedness other
than trade debt
where TEV = Total Equity Value
EBIT1 = EBIT for the full fiscal year of the Company immediately preceding the
date of calculation of Total Equity Value
EBIT2 = EBIT for the second full fiscal year of the Company preceding the date
of calculation of Total Equity Value
On the call date, Seller can be reimbursed for additional capital
contributions during the period of joint operations in addition to the Total
Equity Value. This situation may arise if Seller is reluctant to make
additional investments because of the potential of inadequate return prior to
the Call Date. The reimbursement for any such additional contributions will be
based only on mutual agreement between Buyer and Seller at the time the
additional capital is contributed.
(e) Tax-Deferred Reorganization. The parties intend to cause the Call to be
accomplished, to the extent possible at the time of the Call based upon the
parties' respective tax situations and the tax laws at such time, as a
tax-deferred reorganization whereby Seller would be merged with and into
Buyer, in exchange for the Common Stock of Matthews being paid to the
Shareholders in a reorganization described in Section 368(a)(i)(A) and
Section 368(a)(2)(D) of the Code. The parties agree to use their respective
best faith efforts to accomplish such tax deferred reorganization. If such
tax-deferred reorganization by way of merger occurs, Buyer agrees to cause the
transaction to be reported by it or its Affiliates as a tax-deferred
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<PAGE> 33
reorganization. Notwithstanding the foregoing, (i) none of Matthews, Buyer,
Seller or the Shareholders shall have any obligation to conduct their
respective affairs to ensure that such a tax-deferred reorganization can
occur, (ii) no guarantee of such a tax-deferred reorganization is made hereby,
so that no liability shall accrue among the parties if such a tax-deferred
reorganization cannot be accomplished and (iii) even if a tax-deferred
reorganization can be accomplished, Seller and the Shareholders agree to
negotiate in good faith with Buyer if Buyer proposes, at Buyer's sole option,
that the Call be accomplished as a taxable transaction, with a payment by
Buyer or its Affiliates to Seller or Shareholders as compensation for
structuring the transaction as such (such payment to be for the time value of
money based upon the accelerated payment of taxes by the Shareholders as
compared to a tax-deferred reorganization).
9.03 Closing of Call . Any purchase by Buyer of any Membership Interest as a
result of a Call, whether by tax-deferred reorganization in a merger, or
otherwise, shall take place no later than 45 days following the date of notice
of the Call (if no Deferral Right is also exercised) or on March 31 of the
applicable year as described in Section 9.02(c) above (if a Deferral Right is
exercised) (the "Scheduled Call Closing Date"), except that no closing shall
occur in the event that the governmental consents required for the parties to
carry out the Call have not been obtained. The closing on a Scheduled Call
Closing Date shall take place at the principal office of the Company, with a
cash payment by Buyer to Seller on the applicable date (if no tax-deferred
reorganization is to be completed) or a payment of shares of Matthews Common
Stock as set forth in the next sentence (if a tax-deferred reorganization is
to be completed). If a tax-deferred reorganization by way of a merger of
Seller into Buyer in exchange for shares of Matthews Common Stock is to be
completed, the Shareholders shall be entitled to the number of shares of
Matthews Common Stock in the aggregate equal to the Call Purchase Price
divided by the Fair Market Value of one share of the Common Stock of Matthews,
with any fractional shares to be paid in cash. As used in the previous
sentence, "Fair Market Value" shall be defined as the average of the
respective means between the following prices for Matthews Common Stock, as
applicable for the 10 trading days immediately preceding the Scheduled Call
Closing Date: (1) if the Common Stock is listed on the New York Stock
Exchange, the highest and lowest sales prices per share of Common Stock as
quoted in the New York Stock Exchange Composite Transactions listing for each
such date, (2) if the Common Stock is not listed on the New York Stock
Exchange, the highest and lowest sales prices per share of Common Stock for
each such date on (or on any composite index including) the principal U.S.
securities exchange registered under the Securities Exchange Act of 1934, as
amended, on which the Common Stock is listed, or (3) if the Common Stock is
not listed on any such securities exchange, the highest and lowest sales
prices per share of Common Stock for each such date on the National
Association of Securities Dealers Automated Quotation System. On the
Scheduled Call Closing Date, each of the Shareholders and Seller shall execute
and deliver the Release in the form of Exhibit I hereto.
9.04 Operation of Business. The Shareholders and Buyer 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 is outside the
ordinary course of business and designed to affect such calculation. The
Seller and Buyer agree that fifty percent (50%) of the earnings of the Company
shall be distributed to the Members each year in accordance with each
Member's applicable percentage of ownership of the Company. Distribution of
greater amounts will be only with the unanimous agreement of Buyer and Seller.
<PAGE>
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ARTICLE X
CORPORATE GOVERNANCE
10.01 Membership Interest. The initial Membership Interests of the Company
shall be 50% for Seller and 50% for Buyer.
10.02 Board of Managers.
(a) At the Closing, Seller and Buyer shall elect a Board of Managers of the
Company, to consist of one of Stephen Kozel, Kim Fogarty or Thomas Kozel of
Seller, and Geoffrey Barefoot of Matthews. If the member of the Board chosen
from among the owners of Seller ceases or becomes unable to serve as a member
of the Board, Buyer and Seller agree that Seller shall have the unilateral
right to appoint a successor member of the Board from among the above named
owners of Seller.
(b) If, and only if, EBIT is less than $1,000,000 for any fiscal year ending
on December 31 (or the fiscal year end of the Company is changed to September
30, then on September 30), Buyer shall have the right to immediately appoint
an additional manager to provide it with a majority of the managers on the
Board, and Seller shall vote its Membership Interests to elect such manager.
Such right of Buyer to elect a majority of the managers on the Board shall
thereafter continue.
(c) The right of Buyer to elect a majority of managers shall be subject to
renegotiation between Buyer and Seller if the likelihood of a significant
reduction of EBIT is envisioned if certain actions are taken and Buyer and
Seller agree to take such action and further agree that the rights of Buyer to
elect a majority of managers shall be modified. Likewise, it is forseeable
that the Board of managers may decide to take action which could significantly
reduce EBIT prior to the third anniversary of the Closing which would result
in a reduction in the amount to be paid to Seller by Buyer pursuant to Section
1.02(ii) herein. In that case, the Buyer and Seller may renegotiate the
amounts to be paid under Section 1.02(ii) provided, however, that any
modification to this agreement shall be in writing and signed by both parties.
ARTICLE XI
MEMBERSHIP INTEREST TRANSFER RESTRICTIONS
11.01 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.
11.02 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. If the Offering Member is the
Buyer, Buyer shall also give notice to the Seller offering to purchase all of
Seller's Membership Interest for an amount which is the greater of the Call
Purchase Price or the amount of the bona fide written offer whichever is
greater. If the Seller accepts such offer, the purchase shall occur as set
forth for a Call sale in Article IX.<PAGE>
<PAGE> 35
(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 desire to purchase less than all of 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, specifying the number of
interests that they desire to purchase. The other Members shall have the
option of purchasing the Membership Interest 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 all of the
Offered Membership Interest 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 all of 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 call provisions set forth in Article IX
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.
11.03 Transfers by Operations of Law.
(a) In the event that a Member (i) files a voluntary petition under any
bankruptcy or insolvency law or a petition for the appointment of a receiver
or makes an assignment for the benefit of creditors, or (ii) is subjected
involuntarily to such a petition or assignment or to an attachment or other
legal or equitable interest with respect to its Membership Interests and such
involuntary petition or assignment or attachment is not discharged within
thirty (30) days after its date, or (iii) is subjected to a transfer of its
Membership Interests by operation of law (except upon the death of an
individual Member), the Company shall have the right to elect to purchase all
of the Membership Interests which are then owned by said Member. Failure of
the Company to elect to purchase said interests under this paragraph shall not
affect its right to purchase the same interests under Section 11.02 in the
event of a proposed sale, assignment, transfer, pledge or other disposition by
or to any receiver, petitioner, assignee, transferee or other person obtaining
an interest in said interest.
(b) The purchase price with respect to purchases made under this paragraph
shall be the Book Value of the Membership Interests as of the fiscal year end
of the Company coincident with or next preceding said transfer.
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<PAGE> 36
For purposes this Agreement, "Book Value" shall mean book value (net Member's
equity), as of the fiscal year end of the Company coincident with or next
preceding the date of the event causing a purchase and sale of interests
hereunder, which shall be determined in accordance with generally accepted
accounting principles by the Company's accountant using the actual basis of
accounting and by subtracting the total amount to its liabilities from the
total net book value to its assets and dividing the difference thereby
obtained by the number of interests of the Company issued and outstanding as
of the date of valuation.
(c) The terms of any purchase as set forth under this Section 11.03 shall be
the Agreement Terms as set forth in Section 11.05 hereof.
11.04 Sale of Membership Interest Upon Death.
(a) Following the death of a Member, the Company and the remaining Members
shall have the option to purchase 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 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, specifying any number of interests it desires 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 desire to purchase less than all of 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, specifying the number of
interests that they desire to purchase. 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 11.02(c) hereof.
(d) The price to be paid for the purchased Membership Interest under this
Paragraph shall be Total Equity Value, and the terms of purchase shall be the
Agreement Terms as described in Section 11.05 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.
11.05 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.
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11.06 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 an attached
Purchase and Membership Interest Agreement dated , 1998 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
interest may be transferred. A copy of said Agreement is on file at the
offices of the Company."
11.07 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.
11.08 Term. This Article XI shall terminate upon the voluntary agreement of
all Members who are then bound by the terms hereof.
11.09 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 XII
Definitions
As used herein the following terms have the following meanings:
"Adverse Consequences" shall mean 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.
"Agreement Terms" shall have the meaning set forth in Section 11.05.
"Applicable Percentage" shall have the meaning set forth in Section 9.01.
"Assets" shall have the meaning set forth in Section 1.01.
"Assignment and Assumption Agreement" shall mean an Assignment and Assumption
Agreement dated the Closing Date between Seller and Buyer.
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<PAGE> 38
"Bill of Sale" shall mean a Bill of Sale dated the Closing Date from Seller to
Buyer.
"Book Value" shall have the meaning set forth in Section 11.03.
"Buyer" shall have the meaning set forth in the preamble hereto.
"Call" shall have the meaning set forth in Section 9.01.
"Call Purchase Price" shall have the meaning set forth in Section 9.01.
"Call Right" shall have the meaning set forth in Section 9.02.
"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.
"Company" shall have the meaning set forth in the preamble 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.
"Cumulative EBIT" shall mean the Company's EBIT from the period of the Closing
Date until the third anniversary of the Closing Date.
"Debt Instruments" shall have the meaning set forth in Section 3.15.
"Deferral Right" shall have the meaning set forth in Section 9.02.
"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 the Shareholders to Buyer 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 9.01.
"Employee Benefit Plan" shall mean 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
<PAGE>
<PAGE> 39
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" shall have the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" shall have the meaning set forth in ERISA
Section 3(1).
"Employment Agreement" shall mean each of the Employment Agreements dated as
of the Closing Date between Stephen Kozel, Kim Fogarty and Thomas Kozel 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" shall mean 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).
"Event of Breach" shall have the meaning set forth in Section 8.04.
"Extremely Hazardous Substance" shall have 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 9.02.
"Fiduciary" shall have the meaning set forth in ERISA Section 3(21).
"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 Seller.
"Indemnified Party" shall have the meaning set forth in Section 8.06(b).
"Indemnifying Party" shall have the meaning set forth in Section 8.06(b).
<PAGE>
<PAGE> 40
"Lease" shall mean the Restated Lease Agreement between Edward Kozel and
Elizabeth Kozel and the Company with respect to the Company facilities.
"Liability," whether or not capitalized, shall mean 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.
"Lien" shall mean 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" shall mean each of Buyer and Seller, and "Members" shall mean both of
them.
"Membership Interests" shall mean the membership interests, [$ par value], in
the Company.
"Multiemployer Plan" shall mean 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.
"Multiplier" shall have the meaning set forth in Section 9.01.
"Offered Membership Interest" shall have the meaning set forth in Section
11.02(a).
"Offering Member" shall have the meaning set forth in Section 11.02(a).
"PBGC" shall mean 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" shall have the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" shall have the meaning set forth in Section 1.02.
<PAGE>
<PAGE> 41
"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" shall have the meaning set forth in ERISA Section 4043.
"Required Call" shall have the meaning set forth in Section 9.02.
"Scheduled Call Closing Date" shall have the meaning set forth in Section
9.02.
"Seller" shall have the meaning set forth in the preamble hereto.
"Shareholder" and "Shareholders" shall have the meaning set forth in the
preamble hereto.
"Tax" or "Taxes" shall mean 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" shall mean 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.
"Third-Party Claim" shall have the meaning set forth in Section 8.06(b).
"Total Equity Value" shall have the meaning set forth in Section 9.01.
"Transaction Documents" shall mean this Agreement, the Employment Agreements
and the Lease.
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 all the Shareholders, Seller and
Buyer;
(ii) by either Buyer or all the Shareholders after April 15, 1998 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;
<PAGE>
<PAGE> 42
(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 all the Shareholders 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 either Buyer or all the Shareholders 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 all the Shareholders, 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 all the Shareholders 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 Buyer's
request (whether at or after the Closing) and without further consideration,
Seller and all the Shareholders 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.
13.03 Press Releases and Public Announcements. Except as otherwise required
by law, prior to the Closing, neither Buyer, on the other hand, nor all the
Shareholders or Seller, on the other hand, 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 all the Shareholders (in the case of an announcement or disclosure other
than by all the Shareholders) 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.
13.04 Expenses; Taxes. The Shareholders or the Seller will pay from the
proceeds of sale or from future distributions of the Company 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 the Shareholders. 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 complied with by
them, including, without limitation, all accounting and legal fees and
expenses of Buyer. The parties do not anticipate that any sales tax will be
due in connection with this transaction; however, any such sales tax arising
from the sale of the Assets to Buyer shall be paid by Buyer.
<PAGE>
<PAGE> 43
13.05 Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California. All the parties hereto submit to the jurisdiction of any
state or federal court sitting in Pittsburgh, Pennsylvania, 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. All the parties hereto 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 Buyer: If to the Company:
c/o Matthews International Corporation To both the addresses at the left
Two NorthShore Center
Pittsburgh, PA 15212
Attn: President
If to the Shareholders or Seller:
c/o Stephen Kozel
1001 42nd Street
Oakland, CA 94608
<PAGE>
<PAGE> 44
with a copy to:
L. Randolph Harris
Harris & Harris, P.C.
One Kaiser Plaza, Suite 1010
Oakland, CA 94612
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. The parties hereto 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 the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party hereto 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, the Shareholder and Seller, and on the
other hand, the Company; (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 he
Shareholder and Seller 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 the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
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<PAGE> 45
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
Mattone can assign its Call Right to another entity controlled by Matthews if
sole member limited liability companies are not permitted by California law at
the time of the Call.
13.12. Time of the Essence. The parties agree that time is of the essence
with respect to all terms and conditions of this Agreement.
13.13. Attorneys' Fees. If any action at law or in equity is brought to
enforce or interpret the provisions of this Agreement or any other agreement
or instrument provided for herein, the prevailing party in such action shall
be entitled to recover as an element of such party's costs of suit, and not as
damages, reasonable attorneys' fees, to be fixed by the court. The prevailing
party shall be the party who is entitled to recover its costs of suit as
ordered by the court or by applicable law or court rules. A party not
entitled to recover its costs shall not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
<PAGE>
<PAGE> 46
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.
MATTONE HOLDING CORP.
By:
------------------------------
Title:
------------------------------
ONE COLOR COMMUNICATIONS, INC.
By:
------------------------------
Title:
------------------------------
------------------------------
Stephen Kozel
------------------------------
Kim Fogarty
------------------------------
Thomas Kozel
------------------------------
Peter Kozel
To be signed at Closing:
O.N.E. COLOR COMMUNICATIONS, LLC
By:
------------------------------
Title:
------------------------------
<PAGE> 47
SPOUSES' CONSENT
We, the undersigned spouses of the Shareholders of O.N.E. Color
Communications, Inc., acknowledge that we have read the foregoing Asset
Purchase and Membership Interest Agreement and that we know its contents. We
hereby consent to the sale, approve of the provisions of the Agreement, and
agree that we will take no action at any time to hinder operation of this
Agreement.
- ----------------------------------
Suzanne Kozel
- ----------------------------------
Timothy Fogarty
- ----------------------------------
Donna Kozel
- ----------------------------------
Debra Kozel
<PAGE>
<PAGE> 1
EXHIBIT 10.2
O.N.E. COLOR COMMUNICATIONS, LLC
OPERATING AGREEMENT
May 1, 1998
<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 5
2.4 Registered Office and Registered Agent 5
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 6
2.10 Regulations Relating to Shares 6
2.11 Holders of Record 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 Regular Meetings; Notice 8
5.4 Special Meetings; Notice 8
5.5 Manner of Acting 8
5.6 Presumption of Assent 8
5.7 Certain Powers of Managers 9
5.8 Managers Have No Exclusive Duty to Company 10
5.9 Bank Accounts 10
5.10 Resignation 10
5.11 Removal 10
5.12 Vacancies 10
ARTICLE VI OFFICERS 11
<PAGE>
<PAGE> 3
6.1 Officers of the Company 11
6.2 Election Managers and Term of Office 11
6.3 Removal 11
6.4 Vacancies 11
6.5 Chairman 12
6.6 President 12
6.7 The Vice Presidents 13
6.8 The Treasurer 13
6.9 The Secretary 14
6.10 Assistant Treasurers and Assistant Secretaries 14
6.11 Salaries 14
6.12 Delegation of Duties 15
ARTICLE VII MEETINGS OF MEMBERS 15
7.1 Meetings 15
7.2 Place of Meetings 15
7.3 Notice of Meeting 15
7.4 Record Date 15
7.5 Quorum 16
7.6 Manner of Acting 16
7.7 Proxies 16
7.8 Action by Members Without a Meeting 16
7.9 Waiver of Notice 17
ARTICLE VIII STANDARD OF CARE AND INDEMNIFICATION OF MANAGERS,
OFFICERS AND EMPLOYEES 17
8.1 Standard of Care 17
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 18
9.4 Priority and Return of Capital 18
9.5 Resignation 18
ARTICLE X CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS 18
10.1 Initial Capital Contributions 18
10.2 Additional Capital Contributions 19
10.3 Capital Accounts 19
<PAGE>
<PAGE> 4
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 25
11.10 Tax Matters Partner 25
ARTICLE XII RESTRICTIONS ON TRANSFERABILITY 25
12.1 Restriction on Transfer of Membership Interests 25
12.2 Voluntary Sales 26
12.3 Sale of Membership Interests Upon Death, Bankruptcy, Dissolution 27
12.4 Effectiveness of Transfer 28
12.5 Vote on 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 29
14.1 Dissolution 29
14.2 Winding Up 29
14.3 Distribution of Assets Upon Winding Up 30
14.4 Articles of Dissolution 30
ARTICLE XV MISCELLANEOUS PROVISIONS 31
15.1 Notices 31
15.2 Application of California Law 31
15.3 Waiver of Action for Partition 31
15.4 Amendment 31
15.5 Execution of Additional Instruments 31
15.6 Construction 31
15.7 Headings 31
15.8 Waivers 32
15.9 Rights and Remedies Cumulative 32
15.10 Severability 32
15.11 Heirs, Successors and Assigns 32
<PAGE>
<PAGE> 5
15.12 No Third Party Beneficiaries 32
15.13 Counterparts 32
15.14 Dispute Resolutions 32
15.15 Investment Representations 35
15.16 Execution of Notes, Checks, Contracts and Other Instruments 36
SIGNATURE PAGE 36
<PAGE>
<PAGE> 6
OPERATING AGREEMENT
THIS OPERATING AGREEMENT is made and entered into this first day of May, 1998,
among MATTONE HOLDING CORP. ("Mattone") and O.N.E. COLOR COMMUNICATIONS, INC.
("O.N.E., Inc.") (together, the "Members").
WHEREAS, the Members have formed a limited liability company under the
Beverly-Killea Limited Liability Company Act. The Articles of Organization of
the Company filed with the California Secretary of State on April 27, 1998 are
hereby adopted and approved by 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 California 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) "California Act" shall mean the Beverly-Killea Limited Liability Company
Act at California Corporations Code Sec. 17000, et seq. as the same may be
amended from time to time.
(d) "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.
(e) "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.
<PAGE>
<PAGE> 7
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent superseding federal revenue laws.
(g) "Company" shall refer to O.N.E. Color Communications, LLC
(h) "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.
(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.
<PAGE>
<PAGE> 8
(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 California Act.
(p) "Membership Interest Agreement" shall mean the Asset Purchase and
Membership Interest Agreement dated as of February 24, 1998 among Mattone, KC,
Stephen Kozel, Kim Fogarty, Thomas Kozel, Peter Kozel 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).
<PAGE>
<PAGE> 9
(u) "Offering Member" has the meaning set forth in Section 12.2(a).
(v) "Resignation" has the meaning set out in Section 9.5.
(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.
(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. O.N.E. Color Communications, LLC has been organized as a
California limited liability company by executing and delivering the Articles
to the California Secretary of State in accordance with and pursuant to the
California Act. The Articles are attached hereto as Exhibit A.
2.2 Name. The name of the Company is O.N.E. Color Communications, LLC
<PAGE>
<PAGE> 10
2.3 Principal Place of Business. The principal place of business of the
Company shall be 1001 42nd Street, Oakland, California, 94608. 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 1001 42nd Street, Oakland, California, 94608 and
the name of its initial agent for service of process shall be Stephen Kozel.
2.5 Term. The term of the Company shall expire and the Company shall
dissolve on April 30, 2048 pursuant to its Articles of Organization unless the
Company is earlier dissolved in accordance with either the provisions of this
Operating Agreement or the California Act.
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.
<PAGE>
<PAGE> 11
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.
ARTICLE III
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be to:
(a) engage in the business of graphic arts ; 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
California Act may have and exercise.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the initial Members are as follows:
<PAGE>
<PAGE> 12
NAME ADDRESS
- ---- -------
Mattone Holding Corp. c/o Matthews International
Corporation
Two NorthShore Center
Pittsburgh, PA 15212
Attn.: President
O.N.E. Color Communications, Inc. c/o Stephen Kozel
1001 42nd Street
Oakland, CA 94608
ARTICLE V
RIGHTS AND DUTIES OF BOARD OF MANAGERS
5.1 Management. The business, property and affairs of the Company shall be
managed exclusively by its "Board of Managers". Except for situations in
which the approval of the Members is expressly required by this Agreement, the
Board of Managers shall have full, complete and exclusive 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, subject to the requirements of
the Membership Interest Agreement. In no instance shall there be less than
one (1) Manager. Subject to the requirements of Section 10.02 of the
Membership Interest Agreement, 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.
<PAGE>
<PAGE> 13
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.
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 California, 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 California 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.
<PAGE>
<PAGE> 14
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 real 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;
(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;
<PAGE>
<PAGE> 15
(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. Managers shall
receive no compensation for their services as Managers.
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.
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. Subject to the requirements of the Membership Interest
Agreement, 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. Subject to the requirements of the Membership Interest
Agreement, 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.
<PAGE>
<PAGE> 16
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.
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.
<PAGE>
<PAGE> 17
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. Stephen Kozel shall be the
initial Chairman of the Company and if Stephen Kozel ceases to serve as
Chairman, Kim Fogarty shall serve as Chairman of the Company and if Kim
Fogarty ceases to serve as Chairman, Thomas Kozel shall serve as Chairman of
the Company. Such Chairman, as the case may be, shall serve as such until his
or her successor is elected by a majority of the Board of Managers of the
Company.
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 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.
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:
<PAGE>
<PAGE> 18
(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.
Stephen Kozel shall be the initial President of the Company and if Stephen
Kozel ceases to serve as President, Kim Fogarty shall serve as President of
the Company and if Kim Fogarty ceases to serve as President , Thomas Kozel
shall serve as President of the Company. Such President, as the case may be,
shall serve as such until his or her successor is elected by a majority of the
Board of Managers of the Company.
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. Kim Fogarty shall serve
as a Vice-President of the Company and Thomas Kozel shall serve as a
Vice-President of the Company and shall serve as such until their successors
are elected by a majority of 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. Kim Fogarty shall be the initial Secretary
of the Company and shall serve as such until her successor is elected by a
majority of the Board of Managers 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.
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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.
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 California, 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.
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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.
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 California Act, by the
Articles or by this Operating Agreement. Any Member 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.
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.
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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.
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 California 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.
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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.
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 that upon the Closing of the Call under Section 9.03 of the Membership
Interest Agreement, ONE COLOR COMMUNICATIONS , INC. shall have the right to
resign as a Member. 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.
If a Member fails to make the Initial Capital Contribution specified in this
section within 15 days after the effective date of this Agreement, that
Member's entire Membership Interest shall terminate, and that Member shall
indemnify and hold the Company and the other Members harmless from any loss,
cost, or expense, including reasonable attorneys' fees, caused by the failure
to make the Initial Capital Contribution.
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10.2 Additional Capital Contributions. If capital is needed for growth of
the Company, the Board of Managers may by unanimous vote: 1) require equal
Additional Capital Contributions from the Members; 2) seek equal loans by the
Members to the Company; and/or 3) seek third party loans.
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.
(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.
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(d) Except as otherwise required in the California 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.
(e) A Member shall not be entitled to withdraw any part of the Member's
Capital Contribution or to receive any distributions, whether of money or
property, from the Company except as provided in this Agreement.
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.
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.
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(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.
(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).
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(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.
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(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.
11.3 Distributions. Interim distributions and liquidating distributions
shall be made as follows:
(a) Subject to Section 17254 of the California Act, the Board of Managers
shall cause the Company to make quarterly distributions of fifty percent (50%)
of the estimated annual earnings for the Company to the Members to be divided
equally. In addition, the Managers may unanimously vote on 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.
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(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 Call 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;
(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;
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(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. Oakland National Engraving Company, Inc. 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.
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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. If the Offering Member is Mattone,
Mattone shall also give notice to KC offering to purchase all of KC's
Membership Interest for an amount which is the greater of the Call Purchase
Price under the Asset Purchase and Membership Interest Agreement or the amount
of the bona fide written offer whichever is greater. If KC accepts such offer
the purchase shall occur as set forth for a Call sale in Article IX of the
Asset Purchase and Membership Interest Agreement.
(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.
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(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 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, Bankruptcy, Dissolution.
(a) Following the death, bankruptcy, winding up, dissolution or
reorganization of a Member, the Company and the remaining Members shall have
the option to purchase all of the Membership Interests held by that Member on
the date of his death/bankruptcy or dissolution, and the estate or successors
in interest of that 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, bankruptcy or dissolution of a Member, to notify the
estate or successor 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
that 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 or successor of the such 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> 33
(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 or
successor of such Member shall cooperate with the Company and the remaining
Members to effectuate the purposes of this Agreement. All purchases shall be
paid for all in cash at the Closing Date.
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.
12.5 Vote on Transfer. Neither the Member whose interest is subject to
purchase under this Article, nor such Member's Affiliate, shall participate in
any vote or discussion of any matter pertaining to the disposition of the
Member's Membership Interest in the Company under this Agreement.
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.
<PAGE>
<PAGE> 34
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:
(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 17351 of
the California Act;
(iv) administrative dissolution under Section 17350 of the California Act;
or
(v) upon bankruptcy of a Member.
(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
California 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.
<PAGE>
<PAGE> 35
14.3 Distribution of Assets Upon Winding Up.
On the dissolution of the Company, the Company shall engage in no further
business other than that necessary to wind up the business and affairs of the
Company. The Managers who have not wrongfully dissolved the Company, or, if
there is no such Manager, the Members, shall wind up the affairs of the
Company. The Delegates winding up the affairs of the Company shall give
Notice of the commencement of winding up by mail to all known creditors and
claimants against the Company whose addresses appear in the records of the
Company. After paying or adequately providing for the payment of all known
debts of the Company (except debts owing to Members), the remaining assets of
the Company shall be distributed or applied in the following order:
(a) To pay the expenses of liquidation.
(b) To the establishment of reasonable reserves by the Delegates for
contingent liabilities or obligations of the Company. Upon the Delegate's
determination that such reserves are no longer necessary, said reserves shall
be distributed as provided in this Section.
(c) To repay outstanding loans to Members. If there are insufficient funds
to pay such loans in full, each Member shall be repaid in the ratio that the
Member's loan, together with interest accrued and unpaid thereon, bears to the
total of all such loans from Members, including all interest accrued and
unpaid thereon. Such repayment shall first be credited to unpaid principal
and the remainder shall be credited to accrued and unpaid interest.
(d) Among the Members with Positive Capital Account Balances.
Each Member shall look solely to the assets of the Company for the return of
the Member's investment, and if the Company property remaining after the
payment or discharge of the debts and liabilities of the Company is
insufficient to return the investment of each Member, such Member shall have
no recourse against any other Members for indemnification, contribution, or
reimbursement, except as specifically provided in this Agreement.
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 California Act. Articles of dissolution shall be filed with
the California 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> 36
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 California 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 California, and
specifically the California 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 unanimous vote of the Members.
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> 37
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> 38
(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
Oakland, California ("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 Oakland, California, 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> 39
(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, if any action at law or in
equity is brought to enforce or interpret the provisions of this Agreement or
any other agreement or instrument provided for herein, the prevailing party in
such action shall be entitled to recover as an element of such party's costs
of suit, and not as damages, reasonable attorneys' fees, to be fixed by the
court. The prevailing party shall be the party who is entitled to recover its
costs of suit as ordered by the court or by applicable law or court rules. A
party not entitled to recover its costs shall not recover attorneys' fees. No
sum for attorneys' fees shall be counted in calculating the amount of judgment
for purposes of determining whether a party is entitled to recover its costs
or attorneys' fees.
(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.
<PAGE>
<PAGE> 40
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.
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.
<PAGE>
<PAGE> 41
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.
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.
MATTONE HOLDING CORP.
By:
------------------------------
Its:
------------------------------
KOZEL CORPORATION
By:
------------------------------
Stephen Kozel, President
<PAGE>
<PAGE> 42
EXHIBIT A
MEMBERSHIP
INTEREST IN THE DESCRIPTION OF INITIAL
MEMBER / ADDRESSES COMPANY (%) CAPITAL CONTRIBUTIONS
- ------------------ --------------- ----------------------
Mattone Holding Corp. 50% Certain of the assets and
c/o Matthews International liabilities of KC purchased
Corporation pursuant to and as described
Two NorthShore Center in the Membership Interest
Pittsburgh, PA 15212 Agreement, but not including
Attention: President any contingent liabilities of KC
Kozel Corporation 50% Certain of the assets and
1001 42nd Street liabilities of KC as described
Oakland, CA 94608 in the Membership Interest
Agreement, but not including
any contingent liabilities of KC
<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 NINE-MONTH PERIOD
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 20,492,675
<SECURITIES> 5,003,341
<RECEIVABLES> 31,771,847
<ALLOWANCES> 0
<INVENTORY> 12,503,502
<CURRENT-ASSETS> 71,609,323
<PP&E> 77,988,044
<DEPRECIATION> 33,099,690
<TOTAL-ASSETS> 172,470,347
<CURRENT-LIABILITIES> 39,607,617
<BONDS> 0
0
0
<COMMON> 18,166,996
<OTHER-SE> 81,487,957
<TOTAL-LIABILITY-AND-EQUITY> 172,470,347
<SALES> 156,221,775
<TOTAL-REVENUES> 156,221,775
<CGS> 86,895,061
<TOTAL-COSTS> 86,895,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,523
<INCOME-PRETAX> 27,762,843
<INCOME-TAX> 10,878,876
<INCOME-CONTINUING> 16,883,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,883,967
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.00
</TABLE>
