Stock Purchase Agreement - Master Graphics Inc. and Hederman Brothers Inc.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of March 1, 1998, by
MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), and H. HENRY HEDERMAN,
an individual resident of Jackson, Mississippi, H. HENRY HEDERMAN, JR., an
individual resident in Jackson, Mississippi, and MARTHA DEAN HEDERMAN, as
trustee of the H. Henry Hederman Grandchild Trust No. 1 U/A dated 12/31/87 and
the H. Henry Hederman Grandchild Trust No. 2 U/A dated 12/31/87 (collectively
the "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Hederman Brothers, Inc, a
Mississippi corporation (the "Company"), for the consideration and on the terms
set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACCOUNTANTS"-KPMG Peat Marwick LLP, the Buyer's independent certified public
-------------
accountants.
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or may
---------------------
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
---------------
"BLACKWELL DIVISION"-the operating division of Premier formally known as
--------------------
Blackwell Lithographers, Inc.
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
--------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUYER"--as defined in the first paragraph of this Agreement.
-------
<PAGE>
"CLOSING"--as defined in Section 2.3.
---------
"CLOSING DATE"--the effective date and time as of which the Closing takes place.
--------------
"COMPANY"--as defined in the Recitals of this Agreement.
---------
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
---------
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
---------------------------
Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Promissory Note, the
Facility Lease, the Employment Agreement, and the Noncompetition Agreements;
(c) the performance by Buyer and Sellers of their respective covenants and
obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of control over
the Company.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
----------
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES"--as defined in Section 10.2.
---------
"EARNOUT"-as defined in Section 2.2(b)
---------
"EBITDA"---pre-tax income plus interest expense deducted in computing pre-tax
--------
income, minus interest income other than finance charges included in pre-tax
income, plus or minus any extraordinary items of expense or income,
respectively, deducted or included in computing pre-tax income, plus or minus
any losses or gains from the sale of capital assets, respectively, deducted or
included in computing pre-tax income, plus depreciation and amortization
deducted in computing pre-tax income, all as determined in accordance with GAAP
by the Accountants. In computing pre-tax income (a) one-third (1/3) of the Net
Value Added generated from orders generated by the division in question but
processed by a separate division shall be included in the originating division's
pre-tax income, and (b) no allocation of home office overhead shall be taken
into account in computing pre-tax income.
"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(ii).
-----------------------
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
-------------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any
2
<PAGE>
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
-------------
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
-----------------------------------------------
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including on-
site or off-site contamination, occupational safety and health, and regulation
of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or administrative
proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
-------------------
(a) advising appropriate authorities, employees, and the public of intended or
actual releases of pollutants or hazardous substances or materials, violations
of discharge limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the hazardous
characteristics of wastes that are generated;
3
<PAGE>
(d) assuring that products are designed, formulated, packaged, and used so that
they do not present unreasonable risks to human health or the Environment when
used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
-------
law, and regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES"--any real property, leaseholds, or other interests currently or
------------
formerly owned or operated by the Company and any buildings, plants, structures,
or equipment (including motor vehicles, tank cars, and rolling stock) currently
or formerly owned or operated by the Company.
"FACILITY LEASE"-as defined in Section 2.4(a)(v).
----------------
"GAAP"--generally accepted accounting principles, applied on a basis consistent
------
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.4(b) were prepared.
"GUARANTIES"--as defined in Section 2.4(b)(ii).
------------
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
----------------------------
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
-------------------
(a) nation, state, county, city, town, village, district, or other jurisdiction
of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal);
(d) multi-national organization or body; or
4
<PAGE>
(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
--------------------
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
---------------------
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HEDERMAN BROTHERS DIVISION"-contemporaneous with the acquisition of the Company
----------------------------
by Buyer the Company will be merged into Premier. Thereafter, the Company will
be operated as the Hederman Brothers Division of Premier.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
------------------------------
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
-----
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
-----
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
-----------
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise become aware
of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
5
<PAGE>
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
-------------------
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"NET VALUE ADDED"--the Value Added from orders where the sale is generated by
-----------------
either the Hederman Brothers Division or the Blackwell Division and the work is
performed by a separate division of Premier less the Value Added from orders
where the sale is generated by a separate division of Premier and the work is
performed by the either the Hederman Brothers Division or the Blackwell
Division, all as (a) determined by Premier's estimating department, acting
reasonably and in good faith, and (b) approved by Sellers, acting reasonably and
in good faith after conducting (by themselves or through others selected by
them) such review of all relevant books and records as they may determine to be
desirable. In no event shall the Net Value Added be less than zero.
"NONCOMPETITION AGREEMENTS"--as defined in Section 2.4(a)(iii).
---------------------------
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
------------------------------------
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
-------
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
-----------------------------
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority);
and
(c) such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
Notwithstanding anything herein to the contrary, for purposes of this Agreement
the sale of the real estate located at 500 Steed Road, Ridgeland, Mississippi
will be considered a transaction in the Ordinary Course of Business.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation
--------------------------
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership;
6
<PAGE>
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person; and (e)
any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
--------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PLAN"--as defined in Section 3.13.
------
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
------------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PREMIER"-Premier Graphics, Inc., a Delaware corporation, which is a wholly-
---------
owned subsidiary of Buyer.
"PROMISSORY NOTES"--as defined in Section 2.4(b)(ii).
------------------
"RELATED PERSON"--with respect to a particular individual:
----------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual or
one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members of
such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
7
<PAGE>
(e) any Person with respect to which such specified Person serves as a general
partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse [and former spouses], (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 20% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 20% of the outstanding equity securities or
equity interests in a Person.
"REPLACEMENT NOTES"-as defined in Section 2.4(b)(iv).
-------------------
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
----------------
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
----------------
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
---------
"SHAREHOLDER NOTES"-two (2) promissory notes dated December 31, 1997, from the
-------------------
Company to the H. Henry Hederman Trust and to Hap Hederman in the amounts of
$1,200,000 and $607,000, respectively.
"SHARES"--as defined in the Recitals of this Agreement.
--------
"STOCK PURCHASE WARRANTS"-as defined in Section 2.4(b)(iii).
-------------------------
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
------------
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN"--any return (including any information return), report, statement,
------------
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection,
8
<PAGE>
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
-------------------
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
------------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"VALUE ADDED"--revenue generated from a particular job less the cost of paper,
-------------
film plates, all direct material costs and outside services associated with such
job.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be:
(a) $1,693,000, of which $100 shall be allocated to the Noncompetition
Agreements and the remainder shall be allocated to the Shares; plus
(b) a potential earnout (the "Earnout") of up to $2,200,000 payable in cash over
a four (4) year period if certain financial goals are met. The EBITDA of the
Blackwell Division and the Hederman Brothers Division will be combined for
calendar years 1998, 1999, 2000 and 2001. Sellers shall collectively be
entitled to an earnout in each of the four (4) years equal to the lesser of (i)
$733,333, or (ii) the excess of the combined EBITDA of the Blackwell Division
and the Hederman Brothers Division over $2,500,000, or (iii) $2,200,000 less the
amount of the Earnout paid in prior years. To the extent the combined EBITDA
exceeds $3,233,333 in any given year, the amount by which the combined EBITDA
exceeds $3,233,333 shall be added to the next year's combined EBITDA calculation
for purposes of determining the amount of the earnout payment for the next year.
For the calendar year 1998 the EBITDA of the Hederman Brothers Division for the
period commencing with the Closing Date and ending December 31, 1998, will be
annualized for purposes of computing the earnout for 1998.
2.3 CLOSING
9
<PAGE>
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Black Bobango & Morgan, Attorneys, at 530 Oak Court
Drive, Suite 345, Memphis, Tennessee, at 10:00 a.m. (local time) on February 25,
1998, or at such other time and place as the parties may agree, to be effective
as of 12:01 a. m. on March 1, 1998. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers) for transfer to Buyer;
(ii) an employment agreement in substantially the form of Exhibit 2.4(a)(ii),
executed by H. Henry Hederman, Jr. (the "Employment Agreement");
(iii) a noncompetition agreement in the form of Exhibit 2.4(a)(iii), executed
by H. Henry Hederman, and H. Henry Hederman, Jr. (the "Noncompetition
Agreement");
(iv) the original Shareholder Notes marked "superceded and replaced";
(v) a ten (10) year lease for the facility at which the Company currently
operates in substantially the form of Exhibit 2.4(a)(v) (the "Facility Lease")
executed by the owners of such property; and
(vi) a certificate executed by Sellers representing and warranting to Buyer
that each of Sellers' representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date.
(b) Buyer will deliver to Sellers:
(i) $1,500,000 by wire transfer to accounts specified by Sellers;
(ii) promissory notes payable to Sellers in the aggregate principal amount of
$193,000 in the form of Exhibit 2.4(b)(ii)(A) (the "Promissory Notes"), which
will be personally guaranteed by John P. Miller pursuant to guaranty agreements
in the form of Exhibit 2.4(b)(ii)(B) (the "Guaranties");
(iii) stock purchase warrants in the aggregate amount of $2,000,000 issued to
Sellers in the form of Exhibit 2.4 (b)(iii) executed by Buyer and John P. Miller
(the "Stock Purchase Warrant");
(iv) promissory notes payable to H. Henry Hederman, Jr. and the H. Henry
Hederman, Jr. Trust in
10
<PAGE>
the principal amounts of $607,000 and $1,200,000, respectively, and which will
be in the form of Exhibit 2.4(b)(iv) (the "Replacement Notes"), which will be
personally guaranteed by John P. Miller pursuant to guaranty agreements in the
form of Exhibit 2.4(b)(ii)(B);
(v) a certificate executed by Buyer to the effect that, except as otherwise
stated in such certificate, each of Buyer's representations and warranties in
this Agreement was accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made on the Closing
Date;
(vi) the Employment Agreements executed by Buyer; and
(vii) the Facility Lease executed by Premier, which will be personally
guaranteed by John P. Miller pursuant to a guaranty agreement in the form of
Exhibit 2.4(b)(vii)(A) and guaranteed by Buyer pursuant to a guaranty agreement
in the form of Exhibit 2.4(b)(vii)(B).
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. The Company
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents of
the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms. Upon the
execution and delivery by Sellers of the Employment Agreements, the Sellers'
Releases, and the Noncompetition Agreements (collectively, the "Sellers' Closing
Documents"), the Sellers' Closing Documents will constitute the legal, valid,
and binding obligations of Sellers, enforceable against Sellers in accordance
with their respective terms. Sellers have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and the
Sellers' Closing Documents and to perform their obligations under this Agreement
and the Sellers' Closing Documents.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly
11
<PAGE>
(with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any provision
of the Organizational Documents of the Company, or (B) any resolution adopted by
the board of directors or the stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company or Sellers, or any of the assets
owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is
held by the Company or that otherwise relates to the business of, or any of the
assets owned or used by, the Company;
(iv) cause Buyer or the Company to become subject to, or to become liable for
the payment of, any Tax;
(v) cause any of the assets owned by the Company to be reassessed or revalued
by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by the Company.
Except as set forth in Schedule 3.2, neither Sellers nor the Company is or will
be required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
(c) Sellers are acquiring the Promissory Notes and Replacement Notes for their
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 50,000 shares of
common stock, par value $100 per share, of which 7,214 shares are issued and
outstanding and constitute the Shares. Sellers are and will be on the Closing
Date the record and beneficial owners and holders of the Shares as reflected on
Schedule 3.3, free and clear of all Encumbrances. No legend or other reference
to any purported Encumbrance appears upon any certificate representing equity
securities of the Company. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. There are no Contracts relating to the issuance, sale, or
transfer
12
<PAGE>
of any equity securities or other securities of the Company. None of the
outstanding equity securities or other securities of the Company was issued in
violation of the Securities Act or any other Legal Requirement. The Company does
not own, or have any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: unaudited balance sheets of the Company as of
December 31 in each of the years 1995 through 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for each of
the fiscal years then ended (the December 31,1997 balance sheet shall
hereinafter be referred to as the "Balance Sheet"), including in each case the
notes thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP; the
financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No financial
statements of any Person other than the Company are required by GAAP to be
included in the financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls. The minute
books of the Company contain accurate and complete records of all meetings held
of, and corporate action taken by, the stockholders, the Boards of Directors,
and committees of the Boards of Directors of the Company, and no meeting of any
such stockholders, Board of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of the
Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by the Company. The Company owns
(with good and marketable title in the case of real property, subject only to
the matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own located in the facilities owned or operated by the Company or
reflected as owned in the books and records of the Company, including all of the
properties and assets reflected in the Balance Sheet (except for assets held
under capitalized leases disclosed or not required to be disclosed in Schedule
3.6 and personal property sold since the date of the Balance Sheet in the
Ordinary Course of Business), and all of the properties and assets purchased or
otherwise acquired by the Company since the date of the Balance Sheet (except
for personal property acquired and sold since the date of the Balance Sheet in
the Ordinary Course of Business and consistent with past practice), which
subsequently purchased or
13
<PAGE>
acquired properties and assets (other than inventory and short-term investments)
are listed in Schedule 3.6. All material properties and assets reflected in the
Balance Sheet are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the Balance Sheet as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Balance Sheet (such mortgages and security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(c) liens for current taxes not yet due, and (d) with respect to real property,
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company, and (ii) zoning laws
and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto. All buildings, plants, and structures owned
by the Company lie wholly within the boundaries of the real property owned by
the Company and do not encroach upon the property of, or otherwise conflict with
the property rights of, any other Person.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures, and equipment of the Company are sufficient for the
continued conduct of the Company's business after the Closing in substantially
the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the Balance Sheet
or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. There is no contest, claim, or right of set-
off, other than returns in the Ordinary Course of Business, under any Contract
with any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable. Schedule 3.8 contains a complete and accurate list of
all Accounts Receivable as of January 31, 1998, which list sets forth the aging
of such Accounts Receivable.
3.9 INVENTORY
All inventory of the Company, whether or not reflected in the Balance Sheet,
consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the
Balance Sheet or on the accounting records of the Company as of the Closing
Date, as the case
14
<PAGE>
may be. All inventories not written off have been priced at the lower of cost or
net realizable value on a first in, first out basis. The quantities of each item
of inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Schedule 3.10, the Company has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since
January1,1991) all Tax Returns that are or were required to be filed by it
pursuant to applicable Legal Requirements. Sellers have delivered or made
available to Buyer copies of, and Schedule 3.11 contains a complete and accurate
list of, all such Tax Returns relating to income or franchise taxes filed since
January 1,1991. The Company has paid, or made provision for the payment of, all
Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Sellers or the Company,
except such Taxes, if any, as are listed in Schedule 3.11 and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Balance Sheet.
(b) The United States federal and state income Tax Returns of the Company
subject to such Taxes have been audited by the IRS or relevant state tax
authorities or are closed by the applicable statute of limitations for all
taxable years through 1993. Schedule 3.11 contains a complete and accurate list
of all audits of all such Tax Returns, including a reasonably detailed
description of the nature and outcome of each audit. All deficiencies proposed
as a result of such audits have been paid, reserved against, settled, or, as
described in Schedule 3.11, are being contested in good faith by appropriate
proceedings. Schedule 3.11 describes all adjustments to the United States
federal income Tax Returns filed by the Company for all taxable years since
1993, and the resulting deficiencies proposed by the IRS. Except as described in
Schedule 3.11, neither the Sellers nor the Company has given or been requested
to give waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations relating to
the payment of Taxes of the Company or for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the books of
the Company are adequate (determined in accordance with GAAP) and are at least
equal to the Company's liability for Taxes. There exists no proposed tax
assessment against the Company except as disclosed in the Balance Sheet or in
Schedule 3.11. No consent to the application of Section 341(f)(2) of the IRC has
been filed with respect to any property or assets held, acquired, or to be
acquired by the Company.
15
<PAGE>
All Taxes that the Company is or was required by Legal Requirements to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheet, there has not been any material adverse
change in the business, operations, properties, prospects, assets, or condition
of the Company, and no event has occurred or circumstance exists that may result
in such a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) Schedule 3.13 sets forth a true and complete list of all employment
contracts, all collective bargaining or other labor agreements, all pension,
retirement, stock option, stock purchase, savings, profit-sharing, deferred
compensation, retainer, consultant, bonus, group insurance, incentive, welfare
or any other contracts, plans or arrangements providing for employee
compensation or benefits (the "Plans"), and all trust agreements relating
thereto, to which the Company is a party or to which the Company contributes or
by which it is bound. Copies of each of the foregoing have been or promptly will
be furnished or made available to Purchaser. The only Plans which individually
or collectively would constitute an "employee pension benefit plan" as defined
in Section 3(2) of ERISA are identified in Schedule 3.13, and are hereinafter
referred to as the "Pension Plans." No Plan constitutes a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
(b) Each Plan that is intended to be qualified under Section 401(a) of the Code
is so qualified, and each trust forming a part thereof is exempt from tax
pursuant to Section 501(a) of the Code. Copies of all Internal Revenue Service
determination letters and audit reports relating to such Plans have been or
promptly will be provided to Purchaser. Requests for determination letters
relating to amendments required to cause such Plans to be in compliance with the
Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of
1984, and the Retirement Equity Act of 1984, were timely filed and have been
received or are currently pending.
(c) Each Plan has been maintained in substantial compliance with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, that are applicable to such
Plans. No "accumulated funding deficiency" within the meaning of ERISA has been
incurred with respect to any Pension Plan, whether or not waived. No reportable
event (as described in Section 4043(b) of ERISA) has occurred with respect to
any Plan. No Plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction" as such term is
defined in Section 4975 of the Code, which could subject such Plans or any of
them, any such trust, or any such trustee or administrator thereof, or any party
dealing with such employee
16
<PAGE>
benefit plans or any such trust, to any tax or penalty on prohibited
transactions imposed by such Section 4975; as of the date of this Agreement, the
fair market value of the assets of any Pension Plan that is subject to Title IV
of ERISA (excluding for these purposes any accrued but unpaid contributions)
exceeded the present value of all benefits accrued under any such Plan,
determined on a termination basis using the assumptions established by the
Pension Benefit Guaranty Corporation ("PBGC") as in effect on such date. The
Company has not incurred any liability under Title IV of ERISA arising in
connection with the termination of, or complete or partial withdrawal from, any
plan covered or previously covered by Title IV of ERISA.
(d) All contributions and payments accrued under each Plan,
determined in accordance with prior funding and accrual practices as adjusted to
the extent required to include proportional contribution and payment accruals
for the period from the last funding date to the Closing Date, will be
discharged and paid on or prior to the Closing Date except to the extent that
any such amount is recorded as a liability on the Balance Sheet. Except as set
forth in Schedule 3.13, there has been no amendment to, written interpretation
or announcement (whether or not written) relating to, or change in employee
participation or coverage under any Plan that would increase materially the
expense of maintaining such Plan above the level of expense incurred in respect
thereof for the preceding fiscal year.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.14:
(i) the Company is, and at all times has been, in full compliance with each
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a violation by the Company of,
or a failure on the part of the Company to comply with, any Legal Requirement,
or (B) may give rise to any obligation on the part of the Company to undertake,
or to bear all or any portion of the cost of, any remedial action of any nature;
and
(iii) the Company has not received any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) Schedule 3.14 contains a complete and accurate list of each Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or to any of the assets owned or used by, the Company. Each
Governmental Authorization listed or required to be listed in Schedule 3.14 is
valid and in full force and effect. Except as set forth in Schedule 3.14:
17
<PAGE>
(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Schedule 3.14;
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Schedule 3.14, or
(B) result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Schedule 3.14;
(iii) the Company has not received, at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 3.14
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.14 collectively constitute
all of the Governmental Authorizations necessary to permit the Company to
lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit the Company to own and use its assets
in the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.15, there is no pending Proceeding:
(i) that has been commenced by or against the Company or that otherwise relates
to or may affect the business of, or any of the assets owned or used by, the
Company; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Sellers and the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Sellers
have delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Schedule 3.15. The Proceedings
listed in Schedule 3.15 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Company.
18
<PAGE>
(b) Except as set forth in Schedule 3.15:
(i) there is no Order to which the Company, or any of the assets owned or used
by the Company, is subject;
(ii) no Seller is subject to any Order that relates to the business of, or any
of the assets owned or used by, the Company; and
(iii) to the Knowledge of Sellers and the Company, no officer, director, agent,
or employee of the Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Company.
(c) Except as set forth in Schedule 3.15:
(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is subject; and
(iii) the Company has not received at any time any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order to which the Company, or
any of the assets owned or used by the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since the date of the Balance Sheet, the
Company has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred
19
<PAGE>
compensation, savings, insurance, pension, retirement, or other employment
benefit plan for or with any employees of the Company;
(e) damage to or destruction or loss of any asset or property of the Company,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of the Company,
taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of Business),
lease, or other disposition of any asset or property of the Company other than
the transfer of the real property of the Company, which was transferred to the
Sellers in exchange for the Sellers' assuming the indebtedness secured by such
property, or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the Company
in excess of $25,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Schedule 3.17(a) contains a complete and accurate list, and Sellers have
delivered to Buyer true and complete copies, of:
(i) each Applicable Contract, other than purchase orders received in the
Ordinary Course of Business, that involves performance of services or delivery
of goods or materials by the Company of an amount or value in excess of $10,000;
(ii) each Applicable Contract, other than purchase orders placed in the
Ordinary Course of Business, that involves performance of services or delivery
of goods or materials to the Company of an amount or value in excess of $10,000;
(iii) each Applicable Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of the Company in excess
of $10,000;
(iv) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $10,000 and
20
<PAGE>
with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Applicable Contract to
or with any labor union or other employee representative of a group of
employees;
(vii) each joint venture, partnership, and other Applicable Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way purport
to restrict the business activity of the Company or any Affiliate of the Company
or limit the freedom of the Company or any Affiliate of the Company to engage in
any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for goods;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary Course
of Business that contains or provides for an express undertaking by the Company
to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by the Company other than in the
Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or written)
in respect of any of the foregoing.
(b) Except as set forth in Schedule 3.17(b):
(i) No Seller nor any Related Person of a Seller has or may acquire any rights
under, and no Seller nor any Related Person of a Seller has or may become
subject to any obligation or liability under, any Contract that relates to the
business of, or any of the assets owned or used by, the Company; and
(ii) to the Knowledge of Sellers, no officer, director, agent, employee,
consultant, or contractor of the Company is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or practice
relating to the business of the Company, or (B) assign to the Company or to any
other Person any rights to any invention, improvement, or discovery.
21
<PAGE>
(c) Except as set forth in Schedule 3.17(c), each Contract identified or
required to be identified in Schedule 3.17(a) is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.17(d):
(i) to the best of Sellers' Knowledge the Company is, and at all times has
been, in full compliance with all applicable terms and requirements of each
Contract under which the Company has or had any obligation or liability or by
which the Company or any of the assets owned or used by the Company is or was
bound;
(ii) to the best of Sellers' Knowledge each other Person that has or had any
obligation or liability under any Contract under which the Company has or had
any rights is, and at all times has been, in full compliance with all applicable
terms and requirements of such Contract;
(iii) to the best of Sellers' Knowledge no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give the Company or other Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
Applicable Contract; and
(iv) the Company has not given to or received from any other Person at any
time notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the Company under
current or completed Contracts with any Person and, to the Knowledge of Sellers
and the Company, no such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision of
products or services by the Company have been entered into in the Ordinary
Course of Business and have been entered into without the commission of any act
alone or in concert with any other Person, or any consideration having been paid
or promised, that is or would be in violation of any Legal Requirement.
3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is or has
been covered at any time within the three years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies of
insurance; and
22
<PAGE>
(iii) any statement by the accountants of the Company's with regard to the
adequacy of such entity's coverage or of the reserves for claims.
(b) Schedule 3.18(b) describes:
(i) any self-insurance arrangement by or affecting the Company, including any
reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to insurance
(including such obligations under leases and service agreements) and identifies
the policy under which such coverage is provided.
(c) Schedule 3.18(c) sets forth, by year, for the current policy year and each
of the two preceding policy years:
(i) a summary of the loss experience under each policy other than group health
insurance policies;
(ii) a statement describing each claim under an insurance policy other than
group health insurance policies for an amount in excess of $10,000, which sets
forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and period of
coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were self-
insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 3.18(d):
(i) All policies to which the Company is a party or that provide coverage to
either Sellers, the Company, or any director or officer of the Company:
(A) are valid, outstanding, and enforceable;
(B) taken together, provide adequate insurance coverage for the assets and the
operations of the Company for all risks normally insured against by a Person
carrying on the same business or businesses as the Company; and
(C) to the best of Sellers' Knowledge are sufficient for compliance with all
Legal Requirements and Contracts to which the Company is a party or by which it
is bound.
23
<PAGE>
(ii) Neither Sellers nor the Company have received (A) any refusal of coverage
or any notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance policy is
no longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise performed all of
their respective obligations, under each policy to which the Company is a party
or that provides coverage to the Company or director thereof.
(iv) The Company has given notice to the insurer of all claims that may be
insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Schedule 3.19:
(a) The Company is, and at all times has been, in compliance in all material
respects with, and has not been and is not in violation of or liable under, any
Environmental Law. Neither Sellers nor the Company have any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be held to
be responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law by the Company, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which the Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
the Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers and the Company,
Threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which the Company has or had an interest.
(c) Neither Sellers nor the Company have Knowledge of any basis to expect, nor
has either of them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, Order, summons,
warning, or other communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or failure by the
Company to comply with any Environmental Law, or of any alleged, actual, or
potential obligation to undertake or bear the cost of any Environmental, Health,
and Safety Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company
24
<PAGE>
had an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by the Company, or any other Person for whose conduct they are or may
be held responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d) Neither the Company, or any other Person for whose conduct it may be held
responsible, has any Environmental, Health, and Safety Liabilities with respect
to the Facilities or, to the Knowledge of Sellers and the Company, with respect
to any other properties and assets (whether real, personal, or mixed) in which
the Company (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) There are no Hazardous Materials present on or in the Environment at the
Facilities or to the best of Sellers' Knowledge, at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities or such adjoining property, or incorporated into any structure
therein or thereon. Neither Sellers, the Company, nor any other Person for whose
conduct they are or may be held responsible, or to the Knowledge of Sellers and
the Company, any other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company has
or had an interest except in full compliance with all applicable Environmental
Laws.
(f) There has been no Release or, to the Knowledge of Sellers and the Company,
Threat of Release, of any Hazardous Materials at or from the Facilities or at
any other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which the Company has or had an interest, or to the
Knowledge of Sellers and the Company any geologically or hydrologically
adjoining property, whether by the Company or any other Person.
(g) Sellers have delivered to Buyer true and complete copies and results of any
reports, studies, analyses, tests, or monitoring possessed or initiated by
Sellers or the Company pertaining to Hazardous Materials or Hazardous Activities
in, on, or under the Facilities, or concerning compliance by Sellers, the
Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Schedule 3.20 contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1997; and vacation accrued.
(b) No employee or director of the Company is a party to, or is otherwise bound
by, any agreement
25
<PAGE>
or arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee or director of the
Company, or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Sellers or the Company by any such
employee or director. To Sellers' Knowledge, no director, officer, or other key
employee of the Company intends to terminate his employment with the Company.
(c) Schedule 3.20 also contains a complete and accurate list of the following
information for each retired employee or director of the Company, or their
dependents, receiving benefits or scheduled to receive benefits in the future:
name, pension benefit, pension option election, retiree medical insurance
coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1994, the Company has not been nor is currently a party to any
collective bargaining or other labor Contract. Since January 1, 1997, there has
not been, there is not presently pending or existing, and to Sellers' Knowledge
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Company
or their premises, or (c) any application for certification of a collective
bargaining agent. To Sellers' Knowledge no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by the Company, and no such action
is contemplated by the Company. The Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) The term "Intellectual Property Assets" includes:
(i) the name Hederman Brothers, all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all copyrights in both published works and unpublished works
(collectively, "Copy rights");
(iii) all know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans, drawings, and
blue prints (collectively, "Trade Secrets");
26
<PAGE>
owned, used, or licensed by the Company as licensee or licensor.
(b) The Company (i) has not made any filing with any governmental agency or
taken any other unusual action to obtain or protect its ownership or use of any
Intellectual Property Assets, (ii) is obliged to make future payments
principally for its ownership or use of any Intellectual Property Assets, (iii)
has received any notice that its use of any Intellectual Property Assets
infringes on the rights of any other person, or (iv) upon the consummation of
the transactions contemplated hereunder will be in violation of any contracts or
agreements relating to the use of any Intellectual Property Assets.
3.23 CERTAIN PAYMENTS
Since January 1, 1992, neither the Company nor any director, officer, agent, or
employee of the Company, or to Sellers' Knowledge any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly (a)
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company, or (iv) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Company.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
(c) There is no fact known to Sellers that has specific application to Sellers
or the Company (other than general economic or industry conditions) and that
materially adversely affects the assets, business, prospects, financial
condition, or results of operations of the Company (on a consolidated basis)
that has not been set forth in this Agreement.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Neither Sellers nor any Related Person of Sellers or of the Company has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any significant transaction with the Company other than
business dealings or transactions conducted in the Ordinary Course of Business
with the Company
27
<PAGE>
at terms, or (ii) engaged in competition with the Company in any material
respect with respect to any line of the products or services of the Company (a
"Competing Business") in any market presently served by the Company except for
less than one percent of the outstanding capital stock of any Competing Business
that is publicly traded on any recognized exchange or in the over-the-counter
market. Except as set forth in Schedule 3.25, neither Sellers nor any Related
Person of Sellers or of the Company is a party to any Contract with, or has any
claim or right against, the Company.
3.26 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware..
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements, the Promissory
Notes and the Stock Purchase Warrants (collectively, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the legal, valid, and
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform its obligations under this Agreement and the Buyer's
Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery of
this Agreement by Buyer, nor the consummation or performance of any of the
Contemplated Transactions by Buyer, will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the stockholders of
Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
28
<PAGE>
(iv) any Contract to which Buyer is a party or by which Buyer may be bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Other than fees payable to Asset Services, L. P., Buyer and its officers and
agents have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement and will indemnify and hold Sellers harmless from
any such payment alleged to be due by or through Buyer as a result of the action
of Buyer or its officers or agents.
4.6 FINANCIAL STATEMENTS
Buyer has, or will, deliver to Sellers (a) an unaudited consolidated balance
sheet and income statement of Buyer as of December 31, 1997, (b) an unaudited
balance sheet of Premier as of December 31, 1997, and (c) an unaudited balance
sheet of John P. Miller as of December 31, 1997. Such financial statements and
notes fairly present the financial condition of Buyer, Premier and John P.
Miller as of the applicable dates.
5. COVENANTS OF SELLERS
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company and its Representatives to, (a) afford Buyer and its
Representatives and prospective lenders and their Representatives (collectively,
"Buyer's Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may
29
<PAGE>
reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of Business;
(b) use their Best Efforts to preserve intact the current business organization
of the Company, keep available the services of the current officers, employees,
and agents of the Company, and maintain the relations and good will with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with the Company;
(c) confer with Buyer concerning operational matters of a material nature; and
(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause the
Company not to, without the prior consent of Buyer, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Sellers will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Sellers will promptly
notify Buyer in writing if Sellers or the Company become aware of any fact or
condition that causes or constitutes a Breach of any of Sellers' representations
and warranties as of the date of this Agreement, or if Sellers or the Company
become aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Sellers will promptly notify
30
<PAGE>
Buyer of the occurrence of any Breach of any covenant of Sellers in this Section
5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to the Company by Sellers or any Related Person of Sellers to
be paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause the Company and each of their Representatives
not to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Buyer) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of the
Company, or any of the capital stock of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use their
Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
6. COVENANTS OF BUYER
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will, and will
cause each Related Person to, cooperate with Sellers with respect to all filings
that Sellers are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with Sellers in obtaining all
consents identified in Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of its business or
to incur any other burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date, Buyer will use its Best Efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
6.3 REMOVAL FROM GUARANTIES
31
<PAGE>
To the extent any of the Sellers have personally guaranteed any obligations of
the Company, Buyer will use its best efforts to have such Seller(s) removed from
such Guaranties as soon as practical after Closing.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Sellers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement, and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
(b) Each of Sellers' representations and warranties in Sections 3.3, 3.4, and
3.12 must have been accurate in all respects as of the date of this Agreement,
and must be accurate in all respects as of the Closing Date as if made on the
Closing Date.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been duly performed and complied with in all material
respects.
(b) Each document required to be delivered pursuant to Section 2.4 must have
been delivered, and each of the other covenants and obligations in Section 5.4
must have been performed and complied with in all respects.
7.3 CONSENTS
Each of the Consents of Schedule 3.2, and each Consent identified in Schedule
4.2, must have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Sellers' counsel, dated the Closing Date, substantially in the
form of Exhibit 7.4(a);
(b) such other documents as Buyer may reasonably request for the purpose of (i)
enabling its counsel
32
<PAGE>
to provide the opinion referred to in Section 8.4(a), (ii) evidencing the
accuracy of any of Sellers' representations and warranties, (iii) evidencing the
performance by Sellers of, or the compliance by Sellers with, any covenant or
obligation required to be performed or complied with by Sellers, (iv) evidencing
the satisfaction of any condition referred to in this Section 7, or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
33
<PAGE>
(a) All of the covenants and obligations that Buyer is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be delivered by
Buyer pursuant to Section 2.4 and must have made the cash payments required to
be made by Buyer pursuant to Section 2.4(b)(i).
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2 and 4.2 must have been obtained
and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Sellers:
(a) an opinion of Black Bobango & Morgan, A Professional Corporation, dated the
Closing Date, in the form of Exhibit 8.4(a); and
(b) such other documents as Sellers may reasonably request for the purpose of
(i) enabling their counsel to provide the opinion referred to in Section 7.4(a),
(ii) evidencing the accuracy of any representation or warranty of Buyer, (iii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (ii)
evidencing the satisfaction of any condition referred to in this Section 8, or
(v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
8.6 EMPLOYMENT AGREEMENTS WITH KEY EMPLOYEES
Premier will have offered three year employment contracts to the key employees
of the Company containing terms and conditions substantially the same as the
terms and conditions under which they are currently employed. Buyer and Seller
will mutually determine which employees are key employees.
8.7 FINANCIAL CONDITION
There shall not have been a material adverse change in the financial condition
or assets and properties of Buyer or John P. Miller since December 31, 1997.
34
<PAGE>
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date; or
(c) by mutual consent of Buyer and Sellers.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the certificate delivered pursuant to Section 2.4(a)(v), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation.
35
<PAGE>
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Each Seller will severally indemnify and hold harmless Buyer, the Company, and
their respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of investigation
and defense and reasonable attorneys' fees) or diminution of value, whether or
not involving a third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by such Seller in this
Agreement, or any other certificate or document delivered by such Seller
pursuant to this Agreement;
(b) any Breach of any representation or warranty made by such Seller in this
Agreement as if such representation or warranty were made on and as of the
Closing Date, other than any such Breach that is expressly identified in the
certificate delivered pursuant to Section 2.4(a)(v) as having caused the
condition specified in Section 7.1 not to be satisfied;
(c) any Breach by such Seller of any covenant or obligation of such Seller in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with either such Seller or the Company (or any Person
acting on their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
10.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or before the second
anniversary of the Closing Date Buyer notifies Sellers of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer. Sellers will have no liability (for
36
<PAGE>
indemnification or otherwise) with respect to a claim with respect to Section
3.13 unless on or before the fourth anniversary of the Closing Date Buyer
notifies Sellers of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Buyer. A claim with respect to
Section 3.3, 3.11 or 3.19, or a claim for indemnification or reimbursement not
based upon any representation or warranty or any covenant or obligation to be
performed and complied with prior to the Closing Date, may be made at any time.
If the Closing occurs, Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before the second anniversary of the Closing Date Sellers notify Buyer of
a claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Sellers.
10.5 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with respect
to the matters described in clause (a), clause (b) or, to the extent relating to
any failure to perform or comply prior to the Closing Date, clause (c) of
Section 10.2, or clause (a) of Section 10.11 until the total of all Damages with
respect to such matters exceeds $50,000, and then only for the amount by which
such Damages exceed $50,000.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a) or (b) of Section 10.3 until the total of
all Damages with respect to such matters exceeds $50,000, and then only for the
amount by which such Damages exceed $50,000.
10.7 RIGHT OF SET-OFF
Upon notice to Sellers specifying in reasonable detail the basis for such set-
off, Buyer may set off any amount to which it may be entitled under this Section
10 against amounts otherwise payable under the Promissory Notes or from the
Earnout. The exercise of such right of set-off by Buyer in good faith, whether
or not ultimately determined to be justified, will not constitute an event of
default under the Promissory Note or hereunder. Neither the exercise of nor the
failure to exercise such right of set-off will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2 or 10.3,
or of notice of the commencement of any Proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
37
<PAGE>
(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
10.11 ACCOUNTS RECEIVABLE
(a) Sellers' responsibilities with respect to the Company's accounts receivable
are as described in Section 3.8 and this Section 10.11. On August 31, 1998 the
aggregate amounts owed under the
38
<PAGE>
Promissory Notes and/or the Replacement Notes shall be reduced by the excess of
(i) the then outstanding balances of all accounts receivable of the Company that
had been outstanding for sixty (60) days or more as of the Closing Date over
(ii) the sum of (A) the reserve for bad debts as the Closing Date, plus (B) the
amount of the unused $50,000 deductible for breaches of representations,
warranties and covenants as set forth in Section 10.5 above.
(b) Buyer shall cause ownership of accounts receivable equal to the amount of
the reduction of the Promissory Notes and/or the Replacement Notes to be
transferred to Sellers. The actual accounts receivables transferred to Sellers
shall be designated by Sellers out of the receivables which had been outstanding
for sixty (60) days or more as of the Closing Date. For purposes of this
Section payments received after Closing from obligors of the accounts receivable
referred to in Clause (a) above shall be applied first towards satisfaction of
the oldest accounts receivable unless designated otherwise by the account
debtor.
11. GENERAL PROVISIONS
11.1 EXPENSES
The Company shall be responsible for up to $50,000 in legal and accounting fees
incurred by Sellers in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions. Otherwise,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, and accountants. Sellers will cause the Company not to incur
any out-of-pocket expenses in connection with this Agreement other than the
legal fees set forth above. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Unless consented to by Buyer in advance or
required by Legal Requirements, prior to the Closing Sellers shall, and shall
cause the Company to, keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person. Sellers and Buyer will consult
with each other concerning the means by which the Company' employees, customers,
and suppliers and others having dealings with the Company will be informed of
the Contemplated Transactions, and Buyer will have the right to be present for
any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the
39
<PAGE>
Company to maintain in confidence, and not use to the detriment of another party
or the Company any written, oral, or other information obtained in confidence
from another party or the Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings, or (d) the
furnishing of such information by Buyer to lenders or other institutions
providing financial accommodations to Buyer.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Buyer's request cause the Company to waive, any cause of action, right, or claim
arising out of the access of Buyer or its representatives to any trade secrets
or other confidential information of the Company except for the intentional
competitive misuse by Buyer of such trade secrets or confidential information.
11.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
Sellers: H. Henry Hederman
H. Henry Hederman, Jr.
Martha Dean Hederman, Trustee
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
40
<PAGE>
Facsimile No.:(601) 949-4555
Buyer: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Facsimile No.: (901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 683-2553
11.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in (a) the courts of the State of Tennessee, County of Shelby, or (b) the courts
of the State of Mississippi, County of Hinds, or (c) if it has or can acquire
jurisdiction, in the United States District Court for the Western District of
Tennessee, or (d) if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of Mississippi, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other
41
<PAGE>
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing signed
by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including any Letter of Intent between Buyer and Sellers)
and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, which will not be unreasonably withheld.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
11.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
11.13 TIME OF ESSENCE
42
<PAGE>
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Mississippi without
regard to conflicts of laws principles.
11.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
43
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John. P. Miller
-------------------
Its: President
SELLERS: /s/ H. Henry Hederman
---------------------
H. Henry Hederman
/s/ H. Henry Hederman, Jr.
--------------------------
H. Henry Hederman, Jr.
/s/ Martha Dean Hederman
------------------------
Martha Dean Hederman, as trustee of
the H. Henry Hederman Grandchild
Trust No. 1 U/A dated 12/31/87 and the
H. Henry Hederman Grandchild
Trust No. 2 U/A dated 12/31/87
44