Stock Purchase Agreement - Master Graphics Inc. and Walter P. McMullen
STOCK PURCHASE AGREEMENT
AMONG
MASTER GRAPHICS, INC.
AND
WALTER P. MCMULLEN
June 4, 1997
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1. Definitions ..........................................................
2. Purchase and Sale of Shares ..........................................
(a) Basic Transaction ...............................................
(b) Purchase Price ..................................................
(c) Purchase Price Adjustment .......................................
(d) Tax Dividend Payment to Seller ..................................
(e) The Closing .....................................................
(f) Deliveries at the Closing .......................................
(g) Transfer of Assets at or Prior to Closing .......................
(h) Stock Option in Favor of Seller .................................
3. Representations and Warranties Concerning the
Transaction ..........................................................
(a) Representations and Warranties of the Seller ....................
(b) Representations and Warranties of the Buyer .....................
4. Representations and Warranties Concerning the Company ................
(a) Organization, Qualification, and Corporate Power ................
(b) Capitalization ..................................................
(c) Noncontravention ................................................
(d) Brokers' Fees ...................................................
(e) Title to Tangible Assets ........................................
(f) Subsidiaries ....................................................
(g) Financial Statements ............................................
(h) Events Subsequent to Most Recent Fiscal Month End ...............
(i) Legal Compliance ................................................
(j) Tax Matters .....................................................
(k) Real Property ...................................................
(l) Intellectual Property ...........................................
(m) Contracts .......................................................
(n) Powers of Attorney ..............................................
(o) Litigation ......................................................
(p) Employee Benefits ...............................................
(q) Certain Business Relationships with the Company .................
(r) Absence of Undisclosed Liabilities ..............................
(s) Employees .......................................................
(t) Environmental Compliance ........................................
(u) Disclaimer of Other Representations and Warranties ..............
5. Pre-Closing Covenants ................................................
(a) General .........................................................
(b) Notices and Consents ............................................
(c) Operation of Business ...........................................
(d) Full Access .....................................................
(e) Notice of Developments ..........................................
(f) Exclusivity .....................................................
6. Post-Closing Covenants ...............................................
(a) General .........................................................
(b) Litigation Support ..............................................
(c) Covenant Not to Compete .........................................
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(d) Access to Buyer Information .....................................
(e) Business and Financial Covenants ................................
(f) Tax Calculation Adjustments .....................................
(g) Environmental Compliance ........................................
(h) Payments and Notice to Unsecured Creditors ......................
(i) Special Indemnity ...............................................
7. Conditions to Obligation to Close ....................................
(a) Conditions to Obligation of the Buyer ...........................
(b) Conditions to Obligation of the Seller ..........................
8. Remedies for Breaches of This Agreement ..............................
(a) Survival of Representations and Warranties ......................
(b) Indemnification Provisions for Benefit of the Buyer .............
(c) Indemnification Provisions for Benefit of the Seller ............
(d) Matters Involving Third Parties .................................
(e) Determination of Adverse Consequences ...........................
(f) Other Indemnification Provisions ................................
9. Termination ..........................................................
(a) Termination of Agreement ........................................
(b) Effect of Termination ...........................................
10. Miscellaneous ........................................................
(a) Press Releases and Public Announcements .........................
(b) No Third-Party Beneficiaries ....................................
(c) Entire Agreement ................................................
(d) Succession and Assignment .......................................
(e) Counterpart .....................................................
(f) Headings ........................................................
(g) Notices .........................................................
(h) Governing Law ...................................................
(i) Amendments and Waivers ..........................................
(j) Severability ....................................................
(k) Expenses ........................................................
(l) Construction ....................................................
(m) Incorporation of Exhibits, Annexes, and Schedules ...............
Exhibit A--Form of Buyer Note
Exhibit B--Form of Guaranty
Exhibits C-1 through C-4--Forms of Employment Agreement
Exhibit D--Form of Opinion of Counsel to the Seller
Exhibit E--Form of Opinion of Counsel to the Buyer
Annex I--Exceptions to the Seller's Representations and Warranties Concerning
the Transaction
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Annex II--Exceptions to the Buyer's Representations and Warranties Concerning
the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties Concerning the
Company
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STOCK PURCHASE AGREEMENT
Agreement entered into on June 4, 1997, by and among MASTER GRAPHICS, INC.,
a Delaware corporation (the "Buyer"), and WALTER P. MCMULLEN (the "Seller"). The
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Buyer and the Seller are referred to collectively herein as the "Parties."
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The Seller owns substantially all of the outstanding capital stock of
Lithograph Printing Company of Memphis, a Tennessee corporation (the "Company").
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This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell (or cause the sale) to the Buyer, all
of the outstanding capital stock of the Company in return for cash and the Buyer
Note.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
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"Adverse Consequences" means all actions, suits, proceedings, hearings,
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investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, liabilities,
obligations, taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
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promulgated under the Securities Exchange Act.
"Applicable Rate" means the prime rate of interest as published in The Wall
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Street Journal from time to time.
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"Buyer" has the meaning set forth in the preface above.
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"Buyer Note" has the meaning set forth in (S)2(b) below.
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"Cash" means cash and cash equivalents (including marketable securities and
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short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in (S)2(e) below.
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"Closing Date" has the meaning set forth in (S)2(e) below.
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"Code" means the Internal Revenue Code of 1986, as amended.
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"Confidential Information" means any information concerning the businesses
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and affairs of any Party that is not already generally available to the public.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
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"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
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retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan [or material fringe
benefit plan or program].
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
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"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
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"Environmental Laws" has the meaning set forth in (S)4(t) below.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"Financial Statement" has the meaning set forth in (S)4(g) below.
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"Financing Commitment" has the meaning set forth in (S)3(b)(xii) below.
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"GAAP" means United States generally accepted accounting principles as in
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effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
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Act of 1976, as amended.
"Income Tax" means any federal, state, local, or foreign income tax,
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including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
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refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnified Party" has the meaning set forth in (S)8(d) below.
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"Indemnifying Party" has the meaning set forth in (S)8(d) below.
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"Knowledge" means actual knowledge without independent investigation.
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"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
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below.
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
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"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
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"Net Worth" means the excess of the book value of the assets of the Company
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over its liabilities calculated in a manner consistent with the historical
accounting practices of the Company.
"Ordinary Course of Business" means the ordinary course of business
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consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
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"PBGC" means the Pension Benefit Guaranty Corporation.
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"Person" means an individual, a partnership, a corporation, an association,
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a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Purchase Price" has the meaning set forth in (S)2(b) below.
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"Related Person" shall mean any person (a) which now or hereafter directly
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or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, Buyer, or (b) which now or hereafter
beneficially owns or holds five percent (5%) or more of the capital stock of
Buyer, or (c) five percent (5%) or more of the capital stock of which is
beneficially owned or held by Buyer. For purposes hereof, "control" shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
"Reportable Event" has the meaning set forth in ERISA (S)4043.
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"Securities Act" means the Securities Act of 1933, as amended.
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"Securities Exchange Act" means the Securities Exchange Act of 1934, as
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amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
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or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d)
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other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
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"Share" means any share of the Common Stock, voting or non-voting, of the
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Company.
"Subsidiary" means any corporation with respect to which a specified Person
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(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Third Party Claim" has the meaning set forth in (S)8(d) below.
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2. Purchase and Sale of Company Shares.
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(a) Basic Transaction. On and subject to the terms and conditions of this
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Agreement, the Buyer agrees to purchase from the Seller, and the other
shareholders of the Company ("Other Shareholders"), and the Seller agrees to
sell to the Buyer, or to cause the Other Shareholders to sell, all of his or
their Shares for the consideration specified below in this (S)2.
(b) Purchase Price. The Buyer agrees to pay to the Seller (or to the Other
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Shareholders as designated by Seller) at the Closing $11,558,000.00 (the
"Purchase Price") by delivery of (i) its promissory note (the "Buyer Note") in
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the form of Exhibit A attached hereto in the principal amount of $3,750,000.00
and (ii) cash for the balance of the Purchase Price payable by wire transfer or
delivery of other immediately available funds. The Buyer Note shall be
guaranteed by the Company in the form of Exhibit B-1 attached hereto and by John
P. Miller personally in the form of Exhibit B-2 attached hereto. The cash
portion Purchase Price shall be allocated among (with the amount of the Buyer
Note allocated only to Seller) the Seller and the Other Shareholders in
proportion to their respective holdings of Shares as set forth in (S)4(b) of the
Disclosure Schedule.
(c) Purchase Price Adjustment.
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(i) Basis for Adjustment. The amount of the Purchase Price shall be
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reduced at Closing by the amount, if any, by which the Net Worth of the
Company on the Closing Date is less than the sum of $4,747,436.00, as
determined in accordance with the procedures hereinafter set forth. In the
event of any reduction in the Purchase Price pursuant to this Section, the
amount of the reduction shall be applied to reduce the amount of the Buyer
Note and the cash payment at Closing on a proportionate basis.
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(ii) Initial Determination. At close of business on the day prior
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to the Closing Date, the Company will determine the value of its Net Worth
(the "Closing Net Worth") in accordance with its usual accounting
practices. The Closing Net Worth determination shall be delivered to each
of the Parties, and shall be used by the Parties for purposes of any
adjustment to the Purchase Price pursuant to Subsection (i) above.
(iii) Objections to Valuation. If any Party believes that the
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Closing Net Worth as calculated is incorrect, it may object thereto by
delivering to the other Parties, a statement of its objections in
reasonable detail within ten (10) days after the delivery to it of the
Closing Net Worth. The Parties shall attempt to resolve any such
disagreement promptly, but if agreement has not been reached within thirty
(30) days of the Closing Date, the disagreement shall be resolved forthwith
in accordance with the provisions of this Section.
(iv) Disagreements. In the event that the Parties cannot agree as
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to the Closing Net Worth, any such disagreement shall be submitted
forthwith to arbitration in Memphis, Tennessee, by a neutral, independent
accounting firm, (the "Independent Accountant") as may be agreed to by the
parties or, if the parties are unable to so agree, to such an Independent
Accountant as is selected by the Chairman of the Department of Accountancy
at The University of Memphis.
(v) Procedures. The parties shall submit to the Independent
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Accountant (within ten (10) days of the appointment of the Independent
Accountant) their respective determination of Closing Net Worth. The
Independent Accountant shall as promptly as practicable make a
determination of the amounts of the Closing Net Worth, based upon the
information available to the Independent Accountant, without performing any
independent audit, and using the accounting practices historically followed
by the Company, which determination shall be final and binding upon the
Parties and shall be enforceable by a court of competent jurisdiction. In
the event the determination as issued by the Independent Accountant shows a
Closing Net Worth which is less than the sum of $4,747,436.00, then the
Buyer Note shall be deemed to have been reduced in principal amount by
thirty-two and four-tenths percent (32.4%) of such deficiency, with the
balance of the deficiency to be paid by Seller to Buyer in cash.
(vi) Attorneys' Fees. The Independent Accountant shall award
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attorneys' fees and costs, including the cost of the Independent
Accountant, in favor of the Party that it determines to be the prevailing
party, if the Independent Accountant finds such award to be equitable;
otherwise, the
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cost of the Independent Accountant shall be borne equally by the Parties.
(d) Tax Dividend Payment to Seller and the Other Shareholders. Prior to the
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Closing, the Seller will cause the Company to pay the Seller and the Other
Shareholders in proportion to their respective holdings of Shares an aggregate
amount equal to the Seller's good faith estimate of the tax liability of the
Seller and the Other Shareholders based upon the taxable income of the Company
for the taxable period of January 1, 1997 through the Closing Date. The
estimated tax liability of the Seller and the Other Shareholders shall be
calculated at 40% of the Company's taxable income for those periods.
(e) The Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of The Bogatin Law
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Firm in Memphis, Tennessee, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyer and the Seller may
mutually determine (the "Closing Date"); provided, however, that the Closing
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Date shall be no later than June 15, 1997.
(f) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
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to the Buyer the various certificates, instruments, and documents referred to in
(S)7(a) below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in (S)7(b) below, (iii) the
Seller will deliver to the Buyer stock certificates representing all of the
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) the Buyer will deliver to the Seller the consideration specified in
(S)2(b) above.
(g) Transfer of Assets at or Prior to Closing. At or prior to Closing, the
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Seller may cause the Company to transfer to the Seller any one or more of the
assets listed on (S)2(g) of the Disclosure Schedule, as part of the
consideration of this transaction; provided that the book value of any such
assets so transferred shall be deducted from the Purchase Price, with the
deduction to be applied to the cash portion of the Purchase Price.
(h) Stock Option in Favor of Seller.
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(i) In the event that Buyer or any of Buyer's successors or assigns (a
"Buyer Entity") shall cause to be made or shall be involved in a public offering
of its stock (the "IPO") within ten years of the Closing Date, Seller shall have
the option to acquire, at the initial IPO price per share, the number of shares
up to that number pursuant to which the purchase price would equal
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$3,750,000.00, with the maximum number of shares which Seller shall have the
option to purchase to be determined as follows:
$3,750,000.00 divided by Initial IPO Price Per Share = Maximum
Number of Option Shares.
(ii) In the event of any acquisition or merger of a Buyer Entity,
pursuant to which the shareholders of the Buyer Entity receive shares of stock
of any company whose stock is traded on any exchange (a "Surviving Entity")
during the ten (10) year period following the Closing Date, the Buyer shall
cause its shareholders to agree (with the agreement of the shareholders to be
provided at Closing) to grant and convey to Seller an option to acquire at a
purchase price per share equal to the price per share determined in connection
with such acquisition or merger, a maximum number of shares up to that number
pursuant to which the purchase price would equal $3,750,000.00, with the maximum
number of shares which Seller shall have the option to purchase to be determined
as follows:
$3,750,000.00 divided by Price Per Share of Surviving
Entity = Maximum Number of Option Shares.
(iii) At closing, Buyer shall execute and deliver, and shall cause
its shareholders to execute and deliver, such agreements and instruments as may
be requested by Seller to effectively grant and convey the options contemplated
herein.
3. Representations and Warranties Concerning the Transaction.
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(a) Representations and Warranties of the Seller. The Seller represents
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and warrants to the Buyer that the statements contained in this (S)3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this (S)3(a))
with respect to himself, except as set forth in Annex I attached hereto.
(i) Authorization of Transaction. The Seller has full power and
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authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
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this Agreement, nor the consummation of the
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transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
the Seller is subject.
(iii) Brokers' Fees. The Seller has no liability or obligation to pay
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any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Investment. The Seller (A) understands that the Buyer Note has
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not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Note solely for his own account for
investment purposes, and not with a view to the distribution thereof, and
(C) has received certain information concerning the Buyer and has had the
opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Note.
(v) Shares. The Seller holds of record and owns beneficially the
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number of Shares set forth next to his name in (S)4(b) of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), taxes,
Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands, except as otherwise shown on
the Disclosure Schedule. Except as shown on the Disclosure Schedule, the
Seller is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Seller to sell, transfer, or
otherwise dispose of any capital stock of the Company (other than this
Agreement). The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock
of the Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
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warrants to the Seller that the statements contained in this (S)3(b) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this (S)3(b)), except as
set forth in Annex II attached hereto.
(i) Organization of the Buyer. The Buyer is a corporation duly
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organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
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(ii) Authorization of Transaction. The Buyer has full power and
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authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
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this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no liability or obligation to pay
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any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Shares with a view
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to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
(vi) Financial Statements. Buyer has previously provided to Seller
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copies of the following financial statements (collectively the "Financial
Statements"): (i) audited balance sheets and statements of income, changes
in stockholders' equity, and cash flow as of and for the fiscal year ended
December 31, 1995; and (ii) unaudited balance sheets and statements of
income, changes in stockholders' equity, and cash flow (the "Most Recent
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Financial Statements") as of and for the fiscal year ended December 31,
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1996 (the "Most Recent Fiscal Year End"). The Financial Statements
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(including the notes thereto) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby and
present fairly the financial condition of the Buyer as of such dates and
the results of operations of the Buyer for such periods; provided, however,
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that the Most Recent Financial Statements are subject to normal year-end
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adjustments and lack footnotes and other presentation items.
(vii) Events Subsequent to Most Recent Fiscal Year End. Since the
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Most Recent Fiscal Year End, there has not been any material adverse change
in the financial condition of the Buyer.
(viii) Legal Compliance. The Buyer has complied with all applicable
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laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local,
and foreign governments (and all agencies thereof), except where the
failure to comply would not have a material adverse effect upon the
financial condition of the Buyer taken as a whole.
(ix) Tax Matters. The Buyer has filed all Income Tax Returns that
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it was required to file, and has paid all Income Taxes shown thereon as
owing, except where the failure to file Income Tax Returns or to pay Income
Taxes would not have a material adverse effect on the financial condition
of the Buyer.
(x) Litigation. The Buyer is not subject to any outstanding
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injunction, judgment, order, decree, ruling, or charge, and is not a party
to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction, except where the injunction,
judgment, order, decree, ruling, action, suit, proceeding, hearing, or
investigation would not have a material adverse effect on the financial
condition of the Buyer taken as a whole.
(xi) Employee Benefits.
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(A) With respect to each Employee Benefit Plan that the Buyer
maintains or to which the Buyer contributes:
(I) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation
in all respects with the applicable requirements of ERISA and the
Code, except where the failure to comply would not have a material
adverse effect on the financial condition of the Buyer taken as a
whole.
(II) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
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(III) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan has received a determination letter from the
Internal Revenue Service to the effect that it meets the requirements
of Code (S)401(a).
(IV) As of the last day of the most recent prior plan year,
the market value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equaled or exceeded the present value of liabilities thereunder
(determined in accordance with then current funding assumptions).
(B) With respect to each Employee Benefit Plan that the Buyer
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(I) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC.
No proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been instituted.
(II) No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of
any such Employee Benefit Plan (other than routine claims for
benefits) is pending, except where the action, suit, proceeding,
hearing, or investigation would not have a material adverse effect on
the financial condition of the Buyer taken as a whole.
(III) The Buyer has not incurred any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal liability) with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(xii) Financing Commitment. The Buyer has received a commitment (the
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"Financing Commitment") from a financial institution for financing the
transactions contemplated by this Agreement, and Buyer will proceed with
its best efforts to promptly satisfy all conditions to financing as set
forth in the Financing Commitment.
4. Representations and Warranties Concerning the Company. Seller
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represents and warrants to the Buyer that the statements
11
<PAGE>
contained in this (S)4 are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this (S)4), except as set forth in the disclosure schedule delivered
by the Seller to the Buyer on the date hereof (the "Disclosure Schedule").
-------------------
(a) Organization, Qualification, and Corporate Power. The Company is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the financial
condition of the Company taken as a whole. The Company has full corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. (S)4(a) of the Disclosure Schedule
lists the directors and officers of the Company.
(b) Capitalization. The entire authorized capital stock of the Company
--------------
consists of 800,000 Shares, of which 128,286 Shares are issued and outstanding.
All of the issued and outstanding Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the Seller and
the Other Shareholders as set forth in (S)4(b) of the Disclosure Schedule.
Except as shown on (S)4(b) of the Disclosure Schedule, there are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require the Company to issue, sell, or otherwise cause to become outstanding any
of its capital stock. Except as shown on (S)4(b) of the Disclosure Schedule,
there are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company.
(c) Noncontravention. To the Knowledge of the Seller, neither the execution
----------------
and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Company is subject
or any provision of the charter or bylaws of the Company or (ii) except as shown
in (S)4(C) of the Disclosure Schedule, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Company is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets), except where the violation, conflict, breach, default,
acceleration,
12
<PAGE>
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the financial condition of
the Company taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of the Seller, the
Company does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the financial condition of the Company taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company does not have any liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) Title to Tangible Assets. The Company has good title to, or a valid
------------------------
leasehold interest in, the material tangible assets it uses regularly in the
conduct of its business. To the extent that the Company's material tangible
assets have not been either expensed or fully depreciated, such assets are
reflected in the Financial Statements to the extent so required to be under
GAAP. The Company's material tangible assets are free of any liens or
encumbrances except those reflected in the Financial Statements and liens for
personal property taxes not yet due and payable.
(f) Subsidiaries. The Company does not have any Subsidiaries.
------------
(g) Financial Statements. Seller has previously provided to Buyer copies of
--------------------
the following financial statements (collectively the "Financial Statements"):
(i) audited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1994 and
1995, for the Company; and (ii) audited balance sheets and statements of income,
changes in stockholders' equity, and cash flow (the "Most Recent Financial
---------------------
Statements") as of and for the fiscal year ended December 31, 1996 (the "Most
---------- ----
Recent Fiscal Year End") for the Company. The Financial Statements (including
----------------------
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
------------------------------------------------
Fiscal Year End, there has not been any material adverse change in the financial
condition of the Company. Without limiting the generality of the foregoing,
since that date the Company has not engaged in any practice, taken any action,
or
13
<PAGE>
entered into any transaction outside the Ordinary Course of Business the primary
purpose or effect of which has been to generate or preserve Cash.
(i) Legal Compliance. To the Knowledge of the Seller, the Company has
----------------
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to comply would not have a material adverse effect upon
the financial condition of the Company taken as a whole.
(j) Tax Matters.
-----------
(i) The Company has filed all Income Tax Returns that it was required
to file, and has paid all Income Taxes shown thereon as owing, except where
the failure to file Income Tax Returns or to pay Income Taxes would not
have a material adverse effect on the financial condition of the Company.
(ii) (S)4(j) of the Disclosure Schedule lists all Income Tax Returns
that currently are the subject of audit. For the years subsequent to
December 31, 1993, the Seller has delivered to the Buyer correct and
complete copies of all federal Income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company.
(iii) The Company has not waived any statute of limitations in respect
of Income Taxes or agreed to any extension of time with respect to an
Income Tax assessment or deficiency.
(iv) The Company is not a party to any Income Tax allocation or
sharing agreement.
(k) Real Property.
-------------
(i) Except for that certain investment real estate listed in (S)2(g)
on the Disclosure Schedule, which the Parties anticipate will be
transferred to Seller at or prior to Closing, the Company does not own any
real property.
(ii) (S)4(k)(ii) of the Disclosure Schedule lists all real property
leased or subleased to the Company. The Seller has delivered to the Buyer
correct and complete copies of the leases and subleases listed in
(S)4(k)(ii) of the Disclosure Schedule (as amended to date). Each lease
and sublease listed in (S)4(k)(ii) of the Disclosure Schedule is legal,
valid, binding, enforceable, and in full force and effect, except where the
illegality, invalidity, nonbinding nature, unenforceability, or
ineffectiveness would not have a material
14
<PAGE>
adverse effect on the financial condition of the Company taken as a whole.
(l) Intellectual Property. (S)4(l) of the Disclosure Schedule identifies
---------------------
each patent or registration which has been issued to the Company with respect to
any of its intellectual property, identifies each pending patent application or
application for registration which the Company has made with respect to any of
its intellectual property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect to any
of its intellectual property.
(m) Contracts. (S)4(m) of the Disclosure Schedule lists all written
---------
contracts and other written agreements to which the Company is a party the
performance of which will involve consideration in excess of $50,000.00
("Contracts"). The Seller has delivered to the Buyer a correct and complete
copy of each Contract or other agreement listed in 4(m) of the Disclosure
Schedule (as amended to date). To Seller's knowledge, the Contracts are in full
force and effect and there are no events currently existing which would
constitute an event of default under such Contracts.
(n) Powers of Attorney. To the Knowledge of the Seller, there are no
------------------
outstanding powers of attorney executed on behalf of the Company.
(o) Litigation. (S)4(o) of the Disclosure Schedule sets forth each instance
----------
in which the Company (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is (or to seller's knowledge, is
threatened to be) a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, except where the
injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing,
or investigation would not have a material adverse effect on the financial
condition of the Company taken as a whole.
(p) Employee Benefits.
-----------------
(i) (S)4(p) of the Disclosure Schedule lists each Employee Benefit
Plan that the Company maintains or to which the Company contributes.
(A) To the Knowledge of the Seller, each such Employee Benefit
Plan (and each related trust, insurance contract, or fund) complies in form
and in operation in all respects with the applicable requirements of ERISA
and the Code, except where the failure to comply would not have a material
adverse effect on the financial condition of the Company taken as a whole.
15
<PAGE>
(B) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan.
(C) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Code (S)401(a).
(D) As of the last day of the most recent prior plan year, the
market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equaled
or exceeded the present value of liabilities thereunder (determined in
accordance with then current funding assumptions).
(E) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No proceeding by the
PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted.
(B) No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending,
except where the action, suit, proceeding, hearing, or investigation would
not have a material adverse effect on the financial condition of the
Company taken as a whole.
(C) The Company has not incurred any liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal liability) with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
16
<PAGE>
(q) Certain Business Relationships with the Company. Except as shown in
-----------------------------------------------
(S)4(Q) of the Disclosure Schedule, neither the Seller nor any of his Affiliates
have been involved in any material business arrangement or relationship with the
Company within the past 12 months and neither the Seller nor any of his
Affiliates (other than the Company) owns any material asset, tangible or
intangible, which is used in the business of the Company.
(r) Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
indebtedness, obligation or liability, whether absolute, contingent or otherwise
of the type required to be reflected on the Company's Financial Statements
except for those disclosed in, reflected on or reserved against in the Financial
Statements.
(s) Employees. Section 4(s) of the Disclosure Schedule lists all of the
---------
employees of the Company, including the current rate of compensation payable to
each. Except as set forth in the Disclosure Schedule, the Company is not a
party to any union contract or other collective bargaining agreement.
(t) Environmental Compliance.
------------------------
(i) All property owned, leased or subleased by the Company (the "Real
Property") and the use and operation thereof are currently in substantial
compliance with all applicable laws, ordinances, rules and regulations
(including consent decrees and administrative orders) relating to public
health and safety in protection of the environment, including those
statutes, regulations and ordinances identified in subparagraph (iii) below
(collectively, "Environmental Laws"), and all permits, licenses and
authorizations relating to the use and operation of the Real Property
required by applicable Environmental Laws are in effect, except to the
extent the absence thereof would not have a material adverse effect on the
financial condition of the Company.
(ii) There are no pending or to Seller's knowledge, threatened (A)
requests for information, actions or proceedings from or by any
governmental agency or any other person or entity regarding the condition
or use of the Real Property or the release, generation, discharge,
manufacture, treatment, transportation or disposal of Hazardous Material
on, in, under (including the underlying ground water) or from the Real
Property, or regarding any Environmental Law, or (B) liens or governmental
actions, notices or violations, notices of non-compliance or other
proceedings of any kind with respect to the Real Property. Seller shall
immediately notify Buyer and proves copies upon receipt of all written
complaints, claims, citations, inquiries, reports or notices relating to
the condition of the Real Property or compliance with Environmental Laws
(collectively, "Environmental Notices") received after the date hereof.
17
<PAGE>
(iii) For purposes of this Agreement, "Hazardous Material" means (A)
"Hazardous Substances" or "Toxic Substances" as those terms are defined by
the Comprehensive Environmental Response, Compensation and Liability act,
42 U.S.C. 9601 et seq., as now and hereinafter amended, (B) "Hazardous
-- ---
Wastes", as that term is defined by the Resource Conservation and Recovery
Act, 42 U.S. C. 6902 et seq., as now and hereinafter amended, (C) any
-- ---
pollutant or contaminate or hazardous, dangerous or toxic chemicals,
materials or substances within the meaning of any other applicable federal,
state or local law, regulation, ordinance or requirement (including consent
decrees and administrative orders) relating to or imposing liability or
standards or conduct concerning any hazardous, toxic or dangerous waste
substances or materials, (D) crude oil or petroleum, (E) any radioactive
material, including any source, special nuclear or byproduct material as
defined as 42 U.S.C. 211 et seq., (F) asbestos in friable condition, (G)
-- ---
polychlorinated biphenyls ("PCBs") or substances or compounds containing
PCBs, and (H) medical waste.
(u) Disclaimer of other Representations and Warranties. Except as
--------------------------------------------------
expressly set forth in Section 3 and this Section 4, the Seller makes no
representation or warranty, express or implied, at law or in equity, in respect
of the Company, or any of its assets, liabilities or operations, including,
without limitation, with respect to merchantability or fitness for any
particular purpose, and any such other representations or warranties are hereby
expressly disclaimed. Buyer hereby acknowledges and agrees that, except to the
extent specifically set forth in Section 3 and this Section 4, the Buyer is
purchasing the Shares on an "as-is, where-is" basis.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
---------------------
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
-------
efforts to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in (S)7
below).
(b) Notices and Consents. The Seller will cause the Company to give any
--------------------
notices to third parties, and will cause the Company to use its reasonable best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in (S)4(c) above. Each of the
Parties will (and the Seller will cause the Company to give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and
18
<PAGE>
governmental agencies in connection with the matters referred to in (S)3(a)(i),
(S)3(b)(ii) and (S)4(c) above.
(c) Operation of Business. The Seller will not cause or permit the Company
---------------------
to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business.
(d) Full Access. The Buyer will permit, and the Seller will cause the
-----------
Company to permit, representatives of the other Party to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Buyer or the Company, to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to Buyer or the Company, respectively. Each Party will treat and
hold as such any Confidential Information it receives from the Buyer or the
Company in the course of the reviews contemplated by this (S)5(d), will not use
any of the Confidential Information except in connection with this Agreement,
and, if this Agreement is terminated for any reason whatsoever, will return to
the Buyer or the Company, as appropriate, all tangible embodiments (and all
copies) of the Confidential Information which are in its possession.
(e) Notice of Developments.
----------------------
(i) The Seller may elect at any time to notify the Buyer of any
development causing a breach of any of the representations and warranties
in (S)4 above. Unless the Buyer has the right to terminate this Agreement
pursuant to (S)9(a)(ii) below by reason of the development and exercises
that right within the period of 10 business days referred to in (S)9(a)(ii)
below, the written notice pursuant to this (S)5(e)(i) will be deemed to
have amended the Disclosure Schedule, to have qualified the representations
and warranties contained in (S)4 above, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development.
(ii) Each Party will give prompt written notice to the others of any
material adverse development causing a breach of any of his or its own
representations and warranties in (S)3 above. No disclosure by any Party
pursuant to this (S)5(e)(ii), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or
cure any misrepresentation or breach of warranty.
(f) Exclusivity. The Seller will not (and the Seller will not cause or
-----------
permit the Company to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Company
(including any acquisition structured as a merger, consolidation, or share
exchange); provided, however,
-----------------
19
<PAGE>
that the Seller, the Company and its directors and officers will remain free to
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require.
6. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
-------
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under (S)8 below).
(b) Litigation Support. In the event and for so long as any Party actively
------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties shall cooperate with him or it
and his or its counsel in the defense or contest, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under (S)8 below).
(c) Covenant Not to Compete. For a period of three (3) year(s) from and
-----------------------
after the Closing Date, Seller will not engage directly or indirectly in any
business that the Company conducts as of the Closing Date in any geographic area
in which the Company conducts that business as of the Closing Date; provided,
---------
however, that ownership of less than 5% of the outstanding stock of any
-------
publicly-traded corporation shall not be deemed such engagement solely by reason
thereof in any of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this (S)6(c) is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
20
<PAGE>
which the judgment may be appealed.
(d) Access to Buyer Information. Until final payment by Buyer of all
---------------------------
amounts due pursuant to the Buyer Note, the Buyer agrees to provide to Seller or
his representatives complete access to Buyer's books and records and to cause
the books and records of any guarantors to be available to Seller and his
representatives. In addition, Buyer shall provide to Seller copies of (i)
Buyer's quarterly financial statements within 30 days of the end of each
quarter, not audited but certified by Buyer's chief financial officer, (ii)
Buyer's annual financial statements within ninety (90) days of the end of each
fiscal year, certified by Buyer's independent accountants; and (iii) all loan
documents evidencing Senior Debt (as defined in the Buyer Note), and all
amendments thereto.
(e) Business and Financial Covenants. Buyer covenants and agrees that from
--------------------------------
the date hereof and until payment in full of the principal of and interest on
the Buyer Note, unless the Seller shall otherwise consent in writing, such
consent to be at the discretion of the Seller, Buyer will:
(i) Perform all things necessary to preserve and keep in full force
and effect its existence, rights and franchises, comply with all laws
applicable to it and continue to conduct and operate its business
substantially as conducted and operated during the present and preceding
calendar years.
(ii) Maintain, preserve and protect all franchises, patents,
copyrights, trademarks and tradenames and other proprietary assets and
preserve all the remainder of its properties used or useful in the conduct
of its business substantially as conducted and operated during the present
and preceding fiscal year; preserve all the remainder of its properties
used or useful in the conduct of its business and keep the same in good
repair, working order and condition, and from time to time make, or cause
to be made, all needed and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may be properly conducted at all times.
(iii) (A) At all times maintain in some company or companies (having
a Best's rating of A:XI or better) approved by Seller:
(I) Comprehensive public liability insurance covering claims for
bodily injury, death, and property damage, with minimum limits
satisfactory to the Seller, but in any event not less than those
amounts customarily maintained by companies in the same or
substantially similar business; and
21
<PAGE>
(II) Hazard insurance insuring Buyer's property and assets
against loss by fire (with extended coverage) and against such other
hazards and perils (including but not limited to loss by windstorm,
hail, explosion, riot, aircraft, smoke, vandalism, malicious mischief
and vehicle damage) for the replacement value of such property and
assets.
(iv) Pay all of its indebtednesses and obligations promptly in
accordance with normal terms and practices of its business and pay and
discharge or cause to be paid and discharged promptly all taxes,
assessments, and governmental charges or levies imposed upon it or upon any
of its income, profits, or properties, real, personal or mixed, or upon any
part thereof, before the same shall become in default, as well as all
lawful claims for labor, materials, and supplies which otherwise, if
unpaid, might become a lien or charge upon such properties or any part
thereof; provided, however, that the Buyer shall not be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
trade payable, charge, levy or claim so long as the validity thereof shall
be contested in good faith by appropriate proceedings.
(v) Furnish to the Seller as soon as available, and in any event
within ninety (90) days after the end of each fiscal year of Buyer,
consolidated and consolidating balance sheets and statements of income and
surplus of Buyer which have been certified by an independent Certified
Public Accountant, showing the financial condition of Buyer as at the close
of such year and the results of operations during such year; and, within
thirty (30) days after the end of each month, financial statements similar
to those mentioned above, not audited but certified by the Treasurer or
other appropriate financial officer ("Certifying Officer") of Buyer such
balance sheets to be as of the end of each such month, and such statements
of income and surplus to be for the period from the beginning of the fiscal
year to the end of such month, in each case subject only to audit and year-
end adjustment. The certificate of the Certifying Officer shall (i) state
that the attached financial statement, together with any explanatory notes
therein referred to and attached thereto, is correct and complete and
fairly presents the financial condition of the Buyer as of the date of the
financial statement, and the results of its operations for the period
ending on the date reflected in said financial statement, (ii) state that
such financial statement has been prepared in accordance with generally
accepted accounting principals applied on a consistent basis maintained
throughout the period involved, (iii) certify that the Buyer is in
compliance with all provisions of this Agreement and (iv) contain the
calculations with respect to the financial covenants set forth in
Subsections (viii), (ix) and (x).
22
<PAGE>
(vi) At the time of Buyer's first knowledge or notice, furnish the
Seller with written notice of the occurrence of any event or the existence
of any event, circumstance, or condition which constitutes or upon notice,
lapse of time, or both, would constitute an event of default under the
terms of this Agreement, the Buyer Note or any Senior Debt.
(vii) Furnish such other information regarding the operations,
business affairs and financial condition of the Buyer as Seller may
reasonably request.
(viii) Permit any person designated by Seller to visit and inspect
any of the properties, corporate books and financial reports of the Buyer
and to discuss its affairs, finances and accounts with its principal
officers, at all such reasonable times and as often as Seller may
reasonably request.
(ix) Except for any guarantee by Buyer of obligations of any
Subsidiary of Buyer in connection with the acquisition of businesses from
time to time by such Subsidiary, not guarantee or otherwise in any way
become or be responsible for the indebtedness or obligations of any other
Person, by any means whatsoever, whether by agreement to purchase the
indebtedness of any other Person or agreement for the furnishing of funds
to any other Person through the purchase of goods, supplies or services (or
by way of stock purchase, capital contribution, advance or loan) for the
purpose of paying or discharging the indebtedness of any other Person, or
otherwise, except for the endorsement of negotiable instruments by the
Buyer in the ordinary course of business for collection.
(x) Not make any loans to any Person.
(xi) Not (A) declare or pay, or set aside any sum for the payment
of, any dividends or make any other distribution upon any shares of its
capital stock of any class, or (B) purchase, redeem or other otherwise
acquire for value any shares of its capital stock of any class, or commit
to do any of same, or set aside any sum therefor, or permit any subsidiary
to purchase or acquire for value any shares of its capital stock of any
class, or commit to do any of the same, or set aside any sum therefor, or
(C) make any payment to a profit sharing plan or to any other retirement or
pension plan to or for the benefit of management shareholders which exceeds
(based on a percentage of compensation) similar payments made for the
benefit of all employees of the Buyer.
(f) Tax Calculation Adjustments. In the event the final tax returns for
---------------------------
the Company for the periods ending December 31, 1996 and the Closing Date,
result in a tax liability to the Seller and
23
<PAGE>
the Other Shareholders in excess of the estimated tax liability as determined
pursuant to Section 2(d) hereof, the Buyer shall cause the Company to promptly
pay to the Seller and the Other Shareholders in proportion to their respective
holdings of Shares the amount of such additional tax liability; provided that in
the event such payment causes the Net Worth of the Company to be less than the
minimum specified in Section 2(c) hereof, then the Purchase Price shall be
adjusted as set forth therein.
(g) Environmental Compliance. From and after the Closing Date, the Buyer
------------------------
shall at all times cause the Company and its operations to be in compliance with
all Environmental Laws.
(h) Payments and Notice to Unsecured Creditors. In connection with the
------------------------------------------
Closing, the Buyer will be entering into a loan agreement with First American
National Bank (the "Bank"), pursuant to which the Bank will provide a revolving
line of credit in favor of the Buyer and its merged subsidiary in the amount of
$7,500,000.00. Effective upon the Closing, the Buyer agrees to maintain the
line of credit in effect at all times for a minimum period of ninety (90) days
following the Closing, and to maintain minimum availability under the line of
credit for such 90-day period in an amount equal to or greater than the
aggregate amount of the outstanding indebtednesses owed to unsecured creditors
of the Buyer and its merged subsidiary as of the Closing Date (an amount which
is currently approximately $1,500,000). The Buyer further agrees that in the
event any unsecured creditors of the Buyer or its merged subsidiary are not paid
when due in the ordinary course of business, at any time during the ninety (90)
day period following closing, the Buyer will draw down sufficient funds from the
line of credit to pay the total amount due such unsecured creditors. For
purposes of this Agreement, unsecured creditors shall include not only the
unsecured creditors as of the Closing Date, but those arising within the ninety
(90) day period following the Closing Date.
In addition to the foregoing, the Buyer agrees to prepare an appropriate
professional notice of the acquisition of the Company, and the merger of the
Company with the other subsidiaries of the Buyer, which will be included with
all purchase orders issued by the Buyer and its merged subsidiary, and also with
all checks issued by the Buyer and its merged subsidiary, during the ninety (90)
day period following the Closing.
(i) Special Indemnity. In the event Seller or any of the Other
-----------------
Shareholders incurs any extra tax costs as a result of any claims by the
Internal Revenue Service recharacterizing the sale of stock by them as something
other than a sale of stock, the Buyer shall reimburse the Seller and/or the
Other Shareholders by the amount of such extra tax costs, together with such
additional
24
<PAGE>
amount as will pay any additional taxes resulting from such payment, so that the
net amount to the Seller and the Other Shareholders after taxes shall be equal
to the extra tax costs so incurred by them. In addition, the Buyer hereby
agrees to indemnify and hold the Seller and the Other Shareholders harmless from
any and all costs and expenses incurred in connection with any such
recharacterization, including but not limited to legal fees. All amounts owed to
the Seller and/or the Other Shareholders under this Section 6(i) are hereinafter
referred to as the "Special Indemnity Amount."
The Special Indemnity Amount shall be payable by the Buyer to the Seller
and/or the Other Shareholders as soon as it can be paid by the Buyer without
violating any of the Buyer's loan covenants; provided, however, that in no event
-----------------
shall the Special Indemnity Amount be payable earlier than the third (3rd)
anniversary of the Closing Date or later than the maturity date of the Buyer
Note. The Special Indemnity Amount shall accrue interest at the rate of 12% per
annum commencing on the date the Seller and/or the Other Shareholders notify the
Buyer of its liability for the Special Indemnity Amount.
7. Conditions to Obligation to Close.
---------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
-------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S)3(a) and (S)4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Seller shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in (S)7(a)(i)-(iii) is
satisfied in all respects;
(v) the Buyer shall have received from counsel to Seller an opinion
in form and substance as set forth in Exhibit D attached hereto, addressed
to the Buyer, and dated as of the Closing Date;
(vi) the Buyer shall have received the financing for the
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<PAGE>
acquisition pursuant to the terms of the Financing Commitment; and
(vii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this (S)7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller to
--------------------------------------
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S)3(b) above
shall be true and correct in all material respects at and as of the Closing
Date, and no event shall have occurred causing any of the representations
and warranties in (S)3(a) or (S)4 to be untrue or incorrect in any material
respect;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a certificate to the
effect that each of the conditions specified above in (S)7(b)(i)-(iii) is
satisfied in all respects;
(v) the Seller, Eddie R. Cox, Russell F. Gordon, and Phyllis A.
Leoncavallo shall have been offered employment agreements by the Buyer in
form and substance as set forth in Exhibit C;
(vi) the Seller shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Seller, and dated as of the Closing Date;
(vii) the Buyer shall have provided to the Seller evidenced
satisfactory to Seller in his discretion that the Buyer is and will be
solvent (considering all indebtedness including the Buyer Note) on and
after the Closing and will remain solvent (considering all indebtedness
including the Buyer Note) through maturity of the Buyer Note, and that the
Buyer Note will be paid when due;
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<PAGE>
(viii) the Buyer shall have caused Seller to be released from any
personal guaranties of any indebtednesses and obligations of the Company;
(ix) the Buyer shall have delivered to Seller the guaranties as
described in Section 2(b) hereof;
(x) the Buyer shall have affirmed the lease of the real property
located at 4222 and 4240 Pilot Drive, Memphis, Tennessee, between Graphic
Development Company as Lessor and the Company as Lessee, with such
modifications as Seller may require; and
(xi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller.
The Seller may waive any condition specified in this (S)7(b) if they execute a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
---------------------------------------
(a) Survival of Representations and Warranties.
------------------------------------------
All of the representations and warranties of each of the Seller contained
in (S)4 above shall survive the Closing hereunder (unless the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of eighteen (18)
months thereafter. All of the representations and warranties of the Parties
contained in (S)3 above shall survive the Closing (unless the damaged Party knew
or had reason to know of any misrepresentation or breach of warranty at the time
of Closing) and continue in full force and effect forever thereafter (subject to
any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) In the event the Seller breaches any of his representations,
warranties, and covenants contained herein (other than the covenants in
(S)2(a) above and the representations and warranties in (S)3(a) above),
and, if there is an applicable survival period pursuant to (S)8(a) above,
provided that the Buyer makes a written claim for indemnification against
the Seller pursuant to (S)10(h) below within such survival period, then the
Seller agrees to indemnify the Buyer from and against any Adverse
Consequences the Buyer shall suffer through and after the date of the claim
for indemnification (but excluding any Adverse Consequences
---------
27
<PAGE>
the Buyer shall suffer after the end of any applicable survival period)
caused proximately by the breach; provided, however, that Seller shall not
-----------------
have any obligation to indemnify the Buyer from and against any Adverse
Consequences caused by the breach of any representation or warranty or
covenant of the Seller contained in (S)4 above: (A) until the Buyer has
suffered Adverse Consequences by reason of all such breaches in excess of a
$100,000.00 aggregate deductible (after which point the Seller will be
obligated only to indemnify the Buyer from and against further such Adverse
Consequences) or thereafter (B) to the extent the Adverse Consequences the
Buyer has suffered by reason of all such breaches exceeds the Purchase
Price received by the Seller (after which point the Seller will have no
obligation to indemnify the Buyer from and against further such Adverse
Consequences).
(ii) In the event Seller breaches any of his covenants in (S)2(a)
above or any of his representations and warranties in (S)3(a) above, and,
if there is an applicable survival period pursuant to (S)8(a) above,
provided that the Buyer makes a written claim for indemnification against
the Seller pursuant to (S)10(h) below within such survival period, then the
Seller agrees to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer shall suffer through and after the date of
the claim for indemnification (but excluding any Adverse Consequences the
---------
Buyer shall suffer after the end of any applicable survival period) caused
by the breach.
(iii) In the event Seller is determined by a court with jurisdiction
to be liable to the Buyer (or the Parties agree to such a determination)
pursuant to this (S)8(b), the amount of such liability shall be applied
first to reduce the remaining outstanding principal balance of the Buyer
Note payable to Seller.
(c) Indemnification Provisions for Benefit of the Seller. In the event the
----------------------------------------------------
Buyer breaches any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to (S)8(a)
above, provided that the Seller makes a written claim for indemnification
against the Buyer pursuant to (S)10(h) below within such survival period, then
the Buyer agrees to indemnify the Seller from and against the entirety of any
Adverse Consequences the Seller shall suffer through and after the date of the
claim for indemnification (but excluding any Adverse Consequences the Seller
---------
shall suffer after the end of any applicable survival period) caused proximately
by the breach.
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the
28
<PAGE>
"Indemnified Party") with respect to any matter (a "Third Party Claim")
----------------- -----------------
which may give rise to a claim for indemnification against any other Party
(the "Indemnifying Party") under this (S)8, then the Indemnified Party
-----------------
shall promptly (and in any event within five business days after receiving
notice of the Third Party Claim) notify each Indemnifying Party thereof in
writing.
(ii) Any Indemnifying Party will have the right at any time to assume
and thereafter conduct the defense of the Third Party Claim with counsel of
his or its choice reasonably satisfactory to the Indemnified Party.
(iii) Unless and until an Indemnifying Party assumes the defense of
the Third Party Claim as provided in (S)8(d)(ii) above, however, the
Indemnified Party may defend against the Third Party Claim in any manner he
or it reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of each of the Indemnifying Parties
(not to be withheld unreasonably).
(e) Determination of Adverse Consequences. The Parties shall make
-------------------------------------
appropriate adjustments for tax benefits and insurance coverage and take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)8. All
indemnification payments under this (S)8 shall be deemed adjustments to the
Purchase Price.
(f) Other Indemnification Provisions. The indemnification provisions in
--------------------------------
this (S)8 are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant; provided, however, that the Buyer acknowledges and agrees
-----------------
that the foregoing indemnification provisions in this (S)8 shall be the
exclusive remedy of the Buyer for any breach of the representations and
warranties in (S)4 above, or any claims of misrepresentation, fraud, fraud in
the inducement, and other claims, whether sounding in tort or contract.
9. Termination.
-----------
(a) Termination of Agreement. Certain of the Parties may terminate this
------------------------
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
29
<PAGE>
written notice to the Seller at any time prior to the Closing in the event
(A) the Seller has within the then previous 10 business days given the
Buyer any notice pursuant to (S)5(e)(i) above and (B) the development that
is the subject of the notice has had a material adverse effect upon the
financial condition of the Company taken as a whole;
(iii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event the Seller
has breached any material representation, warranty, or covenant contained
in this Agreement (other than the representations and warranties in (S)4
above) in any material respect, the Buyer has notified the Seller of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before June 15, 1997, by reason of the failure of any condition
precedent under (S)7(a) hereof (unless the failure results primarily from
the Buyer itself breaching any representation, warranty, or covenant
contained in this Agreement); and
(iv) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (A) in the event the Buyer
has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Seller has notified the
Buyer of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 15, 1997, by reason of the failure of any
condition precedent under (S)7(b) hereof (unless the failure results
primarily from the Seller themselves breaching any representation,
warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
---------------------
to (S)9(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
-----------------
confidentiality provisions contained in (S)5(d) above shall survive termination.
10. Miscellaneous.
-------------
(a) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
-----------------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Parties
prior to making the disclosure).
30
<PAGE>
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. Except for that certain Nondisclosure Agreement
----------------
dated February 5, 1997, between the Buyer and the Company, which shall survive
this Agreement to the extent not in conflict herewith, this Agreement (including
the documents referred to herein) constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they have related in any
way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
-----------------
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder, and
the Buyer shall guarantee the Buyer Note).
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Copy to:
---------------- -------
Mr. Walter P. McMullen Irvin Bogatin and
350 S. Yates Rd. Matthew P. Cavitch
Memphis, TN 38120 The Bogatin Law Firm
860 Ridge Lake Blvd, #360
Memphis, TN 38120
31
<PAGE>
If to the Buyer: Copy to:
--------------- -------
Mr. John P. Miller Michael P. Morgan
Master Graphics, Inc. Black, Bobango & Morgan
2500 Lamar Avenue 530 Oak Court Drive, Suite 345
Memphis, TN 38114 Memphis, TN 38117
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Tennessee without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Tennessee or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Tennessee.
(i) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction and which does not
materially affect the consideration to any Party pursuant to this Agreement
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(k) Expenses. Each of the Buyer and the Company will bear its own costs
--------
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. The Company will also
bear all of the Seller's costs and expenses (including all of their legal fees
not to exceed $75,000.00) incurred in connection with this Agreement and the
transactions contemplated hereby (other than any Income Tax on any gain
resulting from the sale of the Shares hereunder).
32
<PAGE>
(l) Construction. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
MASTER GRAPHICS, INC.
By: /s/John P. Miller
-----------------
Title: Chairman
/s/ Walter P. McMullen
----------------------
Walter P. McMullen
33