UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Commission File Number 0-21703
STYLING TECHNOLOGY CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2665378
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1146 SOUTH CEDAR RIDGE
DUNCANVILLE, TEXAS 75137
- ---------------------------------------- ----------
(address of principal executive offices) (zip code)
(972) 296-2887
----------------------------------------------------
(registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the issuer's class of capital stock as of the latest
practicable date, is as follows:
3,948,703 shares of Common Stock, $.0001 par value, as of May 14, 1997.
<PAGE>
STYLING TECHNOLOGY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and March 31, 1997 ............................. 3
Condensed Consolidated Statement of Operations -
Three Months ended March 31, 1996 and Three Months
ended March 31, 1997.............................................. 4
Condensed Consolidated Statement of Cash Flows - Predecessors -
Three Months ended March 31, 1996................................. 5
Condensed Consolidated Statement of Cash Flows -
Three Months ended March 31, 1997................................. 6
Notes to Condensed Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8
PART II. OTHER INFORMATION.................................................. 11
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
March 31,
December 31, 1997
1996 (UNAUDITED)
------------ -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,492,000 $ 2,294,000
Accounts receivable, net of allowance for doubtful
accounts of $427,000 at December 31, 1996 and March 31, 1997 1,640,000 4,171,000
Inventory 2,635,000 3,378,000
Prepaid expenses and other current assets 292,000 435,000
------------ ------------
Total current assets 9,059,000 10,278,000
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $11,000 at December 31, 1996 and $42,000 at March 31, 1997 1,125,000 1,196,000
GOODWILL AND OTHER 22,050,000 22,214,000
------------ ------------
Total assets $ 32,234,000 $ 33,688,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,000,000 $ 2,838,000
Accrued liabilities 1,518,000 2,068,000
Current portion of long-term debt 83,000 130,000
------------ ------------
Total current liabilities 4,601,000 5,036,000
------------ ------------
LONG-TERM DEBT, less current portion 2,316,000 2,290,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 1,000,000
shares authorized, no shares issued and outstanding -- --
Common stock, $.0001 par value, 10,000,000 shares
authorized, 4,756,554 shares issued and 3,948,703
outstanding at December 31, 1996; and March 31, 1997 1,000 1,000
Additional paid-in capital 27,455,000 27,446,000
Retained earnings (deficit) (339,000) 715,000
Treasury stock (1,800,000) (1,800,000)
------------ ------------
Total stockholders' equity 25,317,000 26,362,000
------------ ------------
Total liabilities and stockholders' equity $ 32,234,000 $ 33,688,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
3
<PAGE>
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessors
Three Months Ended
March 31, 1996 | Three Months
------------------------------------------------- | Ended
Body | March 31,
Gena Drench JDS KII | 1997
----------- ----------- --------- --------- | -----------
<S> <C> <C> <C> <C> <C>
NET SALES $ 2,048,000 $ 2,839,000 $ 901,000 $ 445,000 | $ 7,479,000
|
COST OF SALES 1,208,000 1,306,000 496,000 209,000 | 3,234,000
----------- ----------- --------- --------- | -----------
|
Gross profit 840,000 1,533,000 405,000 236,000 | 4,245,000
|
SELLING, GENERAL AND |
ADMINISTRATIVE EXPENSES 722,000 1,167,000 466,000 182,000 | 2,398,000
----------- ----------- --------- --------- | -----------
|
Income (loss) from operations 118,000 366,000 (61,000) 54,000 | 1,847,000
|
INTEREST EXPENSE AND OTHER, NET (24,000) (50,000) (10,000) (21,000)| (60,000)
----------- ----------- --------- --------- | -----------
|
Income (loss) before income taxes 94,000 316,000 (71,000) 33,000 | 1,787,000
|
PROVISION FOR INCOME TAXES 35,000 120,000 5,000 -- | 733,000
----------- ----------- --------- --------- | -----------
|
Net income (loss) $ 59,000 $ 196,000 $ (76,000) $ 33,000 | $ 1,054,000
=========== =========== ========= ========= | ===========
|
WEIGHTED AVERAGE SHARES |
OUTSTANDING | $ 4,116,536
|
NET INCOME PER COMMON SHARE: |
Primary | $ 0.26
|
Fully diluted | $ 0.26
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - PREDECESSORS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Body
Gena Drench JDS KII
---- ------ --- ---
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 59,000 $ 196,000 $ (76,000) $ 33,000
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation and amortization 56,000 33,000 3,000 5,000
Changes in assets and liabilities-
Accounts receivable (1,000) (496,000) (129,000) (39,000)
Inventory 140,000 641,000 62,000 44,000
Prepaids and other assets 85,000 (17,000) (4,000) 4,000
Accounts payable and
accrued liabilities (54,000) (93,000) 174,000 67,000
--------- --------- --------- ---------
Net cash provided by operating activities 285,000 264,000 30,000 114,000
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,000) (3,000) (2,000) --
--------- --------- --------- ---------
Net cash used in investing activities (1,000) (3,000) (2,000) --
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (86,000) -- (20,000) (105,000)
Net payments to parent -- (261,000) -- --
--------- --------- --------- ---------
Net cash used in financing activities (86,000) (261,000) (20,000) (105,000)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 198,000 -- 8,000 9,000
CASH AND CASH EQUIVALENTS, beginning of
period -- -- 27,000 97,000
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 198,000 $ -- $ 35,000 $ 106,000
========= ========= ========= =========
</TABLE>
5
<PAGE>
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,054,000
Adjustments to reconcile net income (loss) to net cash used in
operating activities -
Depreciation and amortization 252,000
Interest accretion on note payable 43,000
Changes in assets and liabilities -
Accounts receivable (2,477,000)
Inventory (520,000)
Prepaids and other assets (432,000)
Accounts payable and accrued liabilities 356,000
-----------
Net cash used in operating activities (1,724,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Utopia product line (350,000)
Purchases of property, plant & equipment (102,000)
-----------
Net cash used in investing activities (452,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (22,000)
-----------
Net cash used in financing activities (22,000)
DECREASE IN CASH AND CASH EQUIVALENTS 2,198,000
CASH AND CASH EQUIVALENTS, beginning of period 4,492,000
-----------
CASH AND CASH EQUIVALENTS, end of period $ 2,294,000
===========
6
<PAGE>
STYLING TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. FORMATION OF THE COMPANY:
Acquisitions and Initial Public Offering
Styling Technology Corporation (the Company) was formed in June 1995. From June
1995 through November 26, 1996, the Company conducted no operations and its only
activities related to negotiating acquisitions and related financing. During
November 1996, the Company completed an initial public offering (the Offering)
of 3,115,852 shares of its common stock. Simultaneously with the consummation of
the Offering, the Company acquired in separate transactions four businesses that
develop, produce, and market professional salon products (collectively, the
Acquired Businesses).
The Company acquired all of the outstanding stock of Gena Laboratories, Inc.
(Gena) and JDS Manufacturing Co., Inc. (JDS) and certain assets and liabilities
of the Body Drench Division of Designs by Norvell, Inc. (Body Drench) and
Kotchammer Investments, Inc. (KII). The cost of the Acquired Businesses,
including direct acquisition costs, was approximately $22,900,000. The combined
purchase price was funded with approximately $20,800,000 in cash from the net
proceeds of the Offering, and approximately $2,100,000 of seller carryback
financing and issuance of common stock. The acquisitions were accounted for
using the purchase method of accounting. The historical financial results of the
individual Acquired Businesses are presented for comparative purposes as the
Predecessors of the Company.
Immediately following the purchase of the Acquired Businesses, the Company
commenced operations on November 27, 1996. After the purchase, the Company began
consolidating its operations, negotiated a new manufacturing agreement with a
major supplier, met with major customers to discuss its new marketing plans,
strengthened its distribution network, and established its infrastructure and
organization for the future growth of existing operations and for future
acquisitions.
During March 1997, the Company acquired inventory and other assets of the Utopia
line of high-end tanning products from Creative Laboratories, Inc. for
approximately $350,000.
NOTE 2. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The statements presented do not include all information and footnotes required
to be in conformity with generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations in interim periods are not necessarily
indicative of results for a full year. These consolidated financial statements
and notes thereto should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1996. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the accompanying consolidated
financial statements, and the reported amounts of the revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The Company develops, produces, and markets high-end professional salon
products, including hair care, nail care, and skin and body care products as
well as salon appliances and salonwear. The Company sells its products primarily
to beauty and tanning supply distributors and, to a lesser extent, directly to
spas, resorts, health and country clubs, beauty salon chains, and hair, nail and
tanning salons throughout the United States as well as in Canada, Europe,
Argentina, Australia, and New Zealand. The Company offers a diversified line of
well-established, brand-name professional salon products that have been popular
in the professional salon products industry for more than 10 years.
The Company was founded in June 1995 and commenced operations on November
26, 1996. On that date, simultaneous with the consummation of an initial public
offering, the Company acquired four professional salon products businesses (the
"Acquired Businesses") that, on a combined basis, have a diversified line of
well-established, brand-name salon products. In March 1997, the Company acquired
the Utopia line of premium tanning products from Creative Laboratories, Inc.
Except for the historical information contained herein, the discussion in
this Report contains or may contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein, as well as
those factors discussed under "Special Considerations" contained in Item 1 of
the Company's Form 10-K for the fiscal year ended December 31, 1996. Historical
Results are not necessarily indicative of trends in operating results for any
future period.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997
The Company earned net income of $1,054,000, or $0.26 per share, for the
three months ended March 31, 1997. These results mark significant improvement
over the operating results of the Acquired Businesses during the same period in
1996. The Company attributes the improvement in net income during the three
months ended March 31, 1997 primarily to the successful implementation of a key
component of its business strategy, the enhancement of operating efficiencies of
the Acquired Businesses.
Net sales amounted to $7,479,000 for the three months ended March 31, 1997
compared to combined net sales for the Acquired Businesses of $6,233,000 for the
three months ended March 31, 1996. The $1,246,000, or 20%, increase in sales was
the result of increased sales of the Company's Body Drench, Gena, and JDS
product lines as compared to the sales achieved by the individual Acquired
Businesses in the same period during 1996. In particular, the Company's ability
to satisfy demand, which had previously gone unmet with respect to the Body
Drench line due to capital constraints of the prior owners, resulted in
substantial sales growth in the period.
Cost of sales amounted to $3,234,000, or 43% as a percentage of net sales,
for the three months ended March 31, 1997, compared to $3,219,000, or 52% as a
percentage of the combined net sales of the Acquired Businesses, for the three
months ended March 31, 1996. As a result of the foregoing, the Company realized
gross profit of $4,245,000, or 57%, for the three months ended March 31, 1997
compared to $3,014,000, or 48%, realized by the Acquired Businesses on a
combined basis. This improvement in gross margin percentage is attributable
primarily to the negotiation of reduced product costs in December 1996 with the
primary supplier of the Company's Body Drench Line, as well as the consolidation
of warehousing and production functions of the Gena and JDS product lines at the
Company's Duncanville, Texas facility.
8
<PAGE>
Selling, general, and administrative expenses were $2,398,000, or 32% as a
percentage of net sales, for the three months ended March 31, 1997, compared to
$2,573,000, or 41% as a percentage of the combined net sales of the Acquired
Businesses, for the three months ended March 31, 1996. This improvement in
selling, general, and administrative expenses as a percentage of net sales is
primarily attributable to the elimination of duplicative management and other
personnel, the consolidation of certain accounting, human resources, and other
administrative functions of the Acquired Businesses, partially offset by
approximately $200,000 of non-cash goodwill amortization resulting from
acquisitions and increased costs of operating as a public company.
The provision for income taxes for the three months ended March 31, 1997
amounted to $733,000, which represents an effective tax rate of approximately
41%.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
was $2,100,000 for the three months ended March 31, 1997, compared to $569,000
on a combined basis for the Acquired Businesses as a result of the factors
described above. EBITDA is not intended to represent net cash provided by
operating activities as defined by generally accepted accounting principles and
should not be considered as an alternative to net income as an indicator of
operating performance or to net cash provided by operating activities as a
measure of liquidity. The Company believes EBITDA is a measure commonly reported
and widely used by analysts, investors, and other interested parties who monitor
performance of companies that employ a consolidation or "roll-up" strategy.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance relative to
other consolidators.
SEASONALITY
Sales of the Company's indoor tanning products, which comprise a
significant portion of the Company's Body Drench and Utopia product lines, are
expected to be lowest in the third calendar quarter corresponding with the end
of the indoor tanning season in the United States. The Company believes,
however, that its efforts to increase its distribution of indoor tanning
products in Europe and other international locations will lessen the effects of
seasonal fluctuations on its sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased to $5,242,000 at March 31,
1997 from $4,458,000 at December 31, 1996. The increase of $784,000 is primarily
due to the Company's results of operations for the three months ended March 31,
1997. The Company's working capital at December 31, 1996 was primarily the
result of the completion of an initial public offering in November 1996, which
resulted in net proceeds to the Company of approximately $27,200,000, reduced by
the simultaneous distribution of the cash portion of the purchase price of the
Acquired Businesses of approximately $20,500,000 and the repurchase of treasury
shares from a founder of the Company for $1,800,000.
During the three months ended March 31, 1997, the Company used $2,074,000
of cash in operating activities, which resulted primarily from increased
investments in accounts receivable and inventory of $2,530,000 and $743,000,
respectively, directly related to strong customer demand and the resulting net
sales recorded in the period.
Net cash used in investing activities amounted to approximately $450,000
during the three months ended March 31, 1997. The Company acquired assets of the
Utopia line of premium tanning products from Creative Laboratories, Inc. for a
cash purchase price of approximately $350,000 and also incurred capital
expenditures of approximately $100,000, primarily relating to an investment in
information systems hardware and software related to the consolidation of the
Acquired Businesses to a common systems platform.
9
<PAGE>
The Company's current cash resources and expected cash flows from
operations are expected to be sufficient to fund the Company's capital needs
during the next twelve months at its current level of operations, apart from
capital needs resulting from acquisitions. However, the Company may be required
to obtain additional capital to fund its planned growth. The Company plans to
pursue strategic acquisitions to capitalize on the substantial fragmentation and
growth potential existing in the professional salon products market by acquiring
professional salon products companies possessing complementary products with
well-recognized brand names. The Company intends to fund its future capital
needs through a combination of current cash resources, expected cash flows from
operations, bank financing, seller notes payable, issuance of common stock, and
additional public or private debt or equity financings. The availability of such
capital resources cannot be assured and is dependent upon prevailing market
conditions, interest rates, and the financial condition of the Company.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Pursuant to a registration exemption under Section 4(2) of the Securities
Act of 1933, the Company granted Peter W. Burg, a director of the Company,
options to purchase 5,000 shares of Common Stock at an exercise price of $11.88
per share upon his appointment to the Board of Directors in February 1997. The
options vest and become exercisable in February 1998. Pursuant to the same
exemption, the Company granted Daniel Howell, a director of the Company, options
to purchase 25,000 shares of Common Stock at an exercise price of $10.50 per
share in March 1997. One-half of Mr. Howell's options vest and become
exercisable in March 1998 and one-half vest and become exercisable in March
1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.16 Asset Purchase Agreement between the Company and Creative
Laboratories, Inc., dated March 17, 1997
11.1 Statement regarding computation of primary earnings per share
11.2 Statement regarding computation of fully diluted earnings
per share
21 List of Subsidiaries of Styling Technology Corporation(1)
27 Financial Data Schedule
- ----------
(1) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K as filed with the Securities and Exchange Commission on April
10, 1997.
(b) REPORT ON FORM 8-K.
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STYLING TECHNOLOGY CORPORATION
Dated: May 14, 1997 By: /S/ RICHARD R. ROSS
----------------------------------------------------
Richard R. Ross
Chief Financial Officer, Treasurer, and Secretary
(Duly authorized officer of the registrant, principal
financial and accounting officer)
EXHIBIT 10.16
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of March 17, 1997, between STYLING TECHNOLOGY
CORPORATION, a Delaware corporation ("Buyer"), CREATIVE LABORATORIES, INC., a
Minnesota corporation ("Seller").
RECITAL
A. Seller develops, produces, markets, and distributes an exclusive line of
tanning products, which are marketed under the brandname "Utopia" (the "Utopia
Products"), to beauty distributors and tanning salons in the United States and
worldwide (the "Business"). Seller owns all of the assets and properties
relating to or used in connection with the Business, as represented by the
attached Bill of Sale.
B. Buyer desires to acquire, and Seller desires to transfer, certain of the
assets, properties, rights, and goodwill of Seller upon the terms and conditions
set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants set forth below, the parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS. On the Closing Date (as defined herein),
Seller shall sell, assign, transfer, convey, and deliver to Buyer, and Buyer
shall purchase from Seller, free and clear of all liens, claims, encumbrances,
security interests, and other charges, all of the following assets (collectively
"Transferred Assets");
(a) All of Seller's finished goods inventory of Utopia Products (the
"Finished Goods"), a complete list of which is attached hereto as SCHEDULE 1(A).
SCHEDULE 1(A) sets forth the product name, SKU number, and quantity as well as
Seller's actual cost of goods with respect to each item of the Finished Goods
included in Transferred Assets.
(b) All of Seller's inventory on consignment with full right of return
of Utopia Products (the "Consignment Inventory"), a complete list of which is
attached hereto as SCHEDULE 1(B). SCHEDULE 1(B) sets forth the product name, SKU
number, and quantity as well as Seller's dealer price (as in effect on February
27, 1997) with respect to each item of Consignment Inventory included in
Transferred Assets. The Consignment Inventory and the Finished Goods are
collectively referred to herein as the "Inventories."
(c) All of Seller's intellectual property rights that are owned
by or licensed to Seller, including, without limitation, all patents and
applications therefor, know-how, unpatented inventories, trade secrets,
packaging styles and methods, business and marketing plans, ideas for products
<PAGE>
or production developed by or on behalf of Seller, copyrights and applications
therefor, trademarks and applications therefor, service marks and applications
therefor, trade names and applications therefor, and all names, logos, and
slogans used by Seller related to Utopia Products (the "Intellectual Property"),
including the Intellectual Property set forth in SCHEDULE 1(C) attached hereto
and including any other Intellectual Property transferable by Seller relating to
Utopia Products. Attached to SCHEDULE 1(C) are copies of all such business and
marketing plans, license agreements, copyrighted materials, trademarks, and
trade names, and patents and all applications therefor relating directly or
indirectly to Utopia Products. The parties acknowledge and agree that Seller
makes no representations or warranties as to any Intellectual Property and that
Seller and Buyer have negotiated an allowance for legal expenses involved in
resolving certain Intellectual Property issues as is more specifically described
in paragraph 4(d) below.
(d) All sales and promotional materials relating to Utopia
Products, including, without limitation, educational materials, sales brochures,
product displays and t-shirts ("Promotional Materials"), a complete list of
which is attached hereto as SCHEDULE 1(D). SCHEDULE 1(D) sets forth the items
and quantity as well as Seller's actual cost with respect to each item of
Promotional Materials included in Transferred Assets.
(e) All right, title and interest owned by Seller in and to the
name "Utopia" and any and all names associated with any Utopia Products sold by
Seller at any time within the preceding twenty-four (24) months, and any
derivations thereof (the "Names").
(f) All of Seller's product formulas with respect to all Utopia
Products (the "Formulas"), complete copies of which are attached hereto as
SCHEDULE 1(F).
2. NO LIABILITIES ASSUMED. Notwithstanding anything contained herein or in
any document executed in connection herewith, Buyer shall not assume, and shall
not be deemed to have assumed, any of the debts, liabilities, or obligations of
Seller.
3. PURCHASE PRICE. The purchase price of the Transferred Assets (the
"Purchase Price"), shall be computed as set forth in SCHEDULE 3. The Purchase
Price shall be equal to thirty-five (35%) percent of the aggregate dealer price
(as in effect on February 27, 1997) with respect to the Consignment Inventory,
plus one hundred (100%) percent of Seller's aggregate actual cost of goods (not
to exceed the cost of goods reflected on the Inventory Valuation Report, a copy
of which is attached as SCHEDULE 3(A)) with respect to Finished Goods and
Promotional Materials, plus One Hundred Twenty Thousand ($120,000.00) Dollars
for the Intellectual Property and the Names, minus a Ten Thousand ($10,000.00)
Dollar credit against freight with respect to the Consignment Inventory, minus
Ten Thousand ($10,000.00) Dollars for potential legal expenses as referenced in
paragraph 4(d). Buyer shall pay the Purchase Price by cashier's check or wire
transfer to Seller on the Closing Date.
2
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants
to Buyer as follows.
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. Seller
and each of its subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation
with all requisite corporate powers and authority to own, operate, and lease its
assets and properties and to carry on its business as now being conducted.
(b) CORPORATE AUTHORITY. Seller has the corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Seller has duly authorized the
execution, delivery, and performance of this Agreement. No other corporate
proceedings on the part of Seller, including approval of shareholders, are
necessary to authorize the execution and delivery by Seller of this Agreement or
the consummation by Seller of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by, and constitutes a legal,
valid, and binding agreement of Seller , enforceable against Seller in
accordance with its terms.
(c) NO VIOLATION. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by Seller or any of its subsidiaries of, or constitute a
default under, or conflict with, or cause any acceleration of any obligation
with respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of Seller or any of its subsidiaries, or (ii) any
provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Seller
or any of its subsidiaries is subject or by which Seller or any of its
subsidiaries is bound, except as indicated on the attached SCHEDULE 4(C).
(d) INTELLECTUAL PROPERTY. To the extent that Seller owns the
rights to use all packaging, logos, trademarks, trade names, trade secrets,
fictitious names, service marks, patents and copyrights that are used in or
necessary to develop, produce, market, and distribute all Utopia Products, said
rights are being transferred to Buyer herewith. As part of the Purchase Price,
the parties have negotiated a credit from Seller to Buyer in the amount of Ten
Thousand ($10,000.00) Dollars for legal expenses which Buyer anticipates will be
incurred in properly documenting the Intellectual Property rights described in
the preceding sentence. As such, the parties acknowledge that all such
Intellectual Property rights are being transferred "as is" without
representation or warranty by Seller, except as expressly set forth herein.
SCHEDULE 1(C) hereto sets forth a true, complete and correct list of all of the
Intellectual Property owned or used by Seller. To the best of Seller's
knowledge, none of the matters covered by the Intellectual Property relating to
the Transferred Assets, nor any of the products or services sold or provided by
Seller relating to the Transferred Assets, nor any of the processes used or the
business practices followed by Seller relating to the Transferred Assets,
infringes or has infringed upon any trademark, trade name, trade secrets,
fictitious name, service mark, patent, or copyright owned by any person or
3
<PAGE>
entity (or any application with respect thereto), or constitutes unfair
competition. To the best of Seller's knowledge, Seller is not obligated and
following the Closing Buyer will not be obligated as a result of any act of
Seller to pay any royalty or other payment with respect to any of the
Intellectual Property. To the best of Seller's knowledge, no person or entity is
producing, providing, selling, or using products or services that would
constitute an infringement of any of the Intellectual Property.
(e) INVENTORIES. The Inventories of Seller are in good and
merchantable condition and do not include obsolete, obsolescent, or otherwise
not readily marketable items. The Finished Goods are saleable at prices
currently quoted by Seller, and the sale thereof to customers will not result in
any liability of any kind to Buyer.
(f) FORMULAS. Seller owns all rights with respect to, and has
good and marketable title to, all of the Formulas set forth in SCHEDULE 1(F).
Seller is not, and following the Closing Buyer will not be, obligated to pay any
royalty or other payment with respect to any of the Formulas. To the best of
Seller's knowledge, no person or entity is producing, providing, selling, or
using products that would constitute an infringement of any of the Formulas.
SCHEDULE 1(F) contains complete and accurate copies of all of the Formulas. The
Formulas attached to SCHEDULE 1(F) are the exact formulas being used routinely
to batch and produce each of the representative Utopia Products.
(g) TITLE TO PROPERTIES. Seller has good and marketable title to
all of the Transferred Assets. The Transferred Assets are subject to no
mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest
or title retention or other security arrangement.
(h) ACCURACY OF STATEMENTS. To the best of Seller's knowledge,
neither this Agreement nor any material statement, list, certificate, or other
information furnished or to be furnished by Seller or any Designated Shareholder
to Buyer in connection with this Agreement or any of the material transactions
contemplated hereby contains or will contain an untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein, in light of circumstances in which they
are made, not misleading.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Seller as follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. Buyer
and each of its subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation with
all requisite corporate power and authority to own, operate, and lease its
assets and properties and to carry on its business as now being conducted.
Neither Buyer nor any of its subsidiaries is subject to any material disability
by reason of the failure to be duly qualified as a foreign corporation for the
transaction of business or to be in good standing under the laws of any
jurisdiction.
4
<PAGE>
(b) CORPORATE AUTHORITY. Buyer has the corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Buyer has duly authorized the
execution, delivery, and performance of this Agreement. No other corporate
proceedings on the part of Buyer, including approval of stockholders, are
necessary to authorize the execution and delivery by Buyer of this Agreement or
the consummation by Buyer of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by, and constitutes a legal,
valid, and binding agreement of Buyer, enforceable against it in accordance with
its terms.
(c) NO VIOLATION. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by Buyer or any of its subsidiaries of, or constitute a
default under, or conflict with, or cause any acceleration of any obligation
with respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of Buyer or any if its subsidiaries, or (ii) any
provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Buyer
or any of its subsidiaries is subject or by which Buyer or any of its
subsidiaries is bound.
(d) ACCURACY OF STATEMENTS. Neither this Agreement nor any
statement, list, certificate, or other information furnished or to be furnished
by Buyer to Seller in connection with this Agreement or any of the transactions
contemplated hereby contains or will contain an untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
6. COVENANT NOT TO COMPETE; TRADE SECRETS.
(a) COVENANT NOT TO COMPETE. In consideration of the execution
and delivery of this Agreement by Buyer, and in consideration of the Purchase
Price, and as additional consideration therefor, Seller, its principal
shareholders, directors, and officers unconditionally agree that, during the
Restricted Period (as defined below), Seller, its principal shareholders,
directors, and officers will not, directly or indirectly (including, without
limitation, as a partner, shareholder, director, officer or employee of, or
lender or consultant to, any other person or entity), or in any other capacity
within, into or from the Restricted Territory (as defined below) engage in the
development, production, marketing, or distribution of Tanning Products (as
defined below) to distributors, wholesalers, retailers, or over the counter
("OTC") stores in the beauty industry unless first authorized in writing by
Buyer, which authorization may be withheld in the sole and absolute discretion
of Buyer; provided, however, that the foregoing restrictions shall not apply to
any sales to Regis Corporation, Sally Beauty Company, Inc., Nailco, Larry's
Beauty Supply (Oklahoma City, OK), Beauty Depot, or Salons Plus (Regina,
Saskatchewan). Moreover, nothing herein shall prohibit Seller from selling or
marketing Tanning Products to tanning salons under the brand names "Stages" or
"Jolt," or other of Seller's brand names, and nothing herein shall be deemed
5
<PAGE>
to prohibit or restrict Seller, its principal shareholders, directors or
officers from selling, marketing, manufacturing, or distributing goods or
products, other than Tanning Products, to the full service beauty industry or
otherwise. For purposes of this Agreement, the term "Restricted Period" shall
mean the period ending five (5) years from the Closing Date. For purposes of
this Agreement, the term "Restricted Territory" shall mean worldwide, including
the United States. For purposes of this Agreement, the term "Tanning Products"
shall mean tanning, sun care, and/or skin care products, such as tanning
lotions, tanning gels, tanning mousses, moisturizer products, and sun protection
products.
(b) TRADE SECRETS AND OTHER INFORMATION. After the Closing,
neither Seller nor any of its principal shareholders (Gary Simmons and Dale
Simmons, together the "Principal Shareholders") will communicate or divulge to,
or use for the benefit of, any person, firm or corporation, other than Buyer, or
its agents or representatives, any of the Intellectual Property or any other
trade secrets, methods, formulas, business and/or marketing plans, processes or
any other proprietary or confidential information with respect to the
Transferred Assets or Seller's operations, methods, or business prospects with
respect to the Transferred Assets. The preceding sentence shall not apply to
information that (i) is, was, or becomes generally known or available to the
public or the industry other than as a result of a disclosure by Seller or any
Principal Shareholder in violation of this Agreement, or (ii) is required to be
disclosed by law. Seller will advise Buyer, in writing, of any request,
including a subpoena or similar legal inquiry, to disclose any such confidential
information, such that Buyer can seek appropriate legal relief.
(c) EQUITABLE RELIEF. Seller and its Principal Shareholders
acknowledge that the covenants contained in each of paragraphs (a) and (b) of
this Section 6 are a material inducement for Buyer to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. Accordingly,
Seller and its Principal Shareholders acknowledge that the restrictions
contained in each of paragraphs (a) and (b) of this Section 6 (including,
without limitation, the Restricted Period and the Restricted Territory) are
reasonable and necessary for the protection of Buyer's investment in the
Transferred Assets, and that a breach of any such restriction could not
adequately be compensated by damages in an action at law. In the event of a
breach or threatened breach by Seller or any of its Principal Shareholders of
any of the provisions of paragraphs (a) or (b) of this Section 6, Buyer shall be
entitled to obtain an injunction (preliminary or permanent, or a temporary
restraining order) restraining the breach of this Agreement, as well as damages
and an equitable accounting of all earnings, profits and other benefits arising
from such violation, which right shall be cumulative and in addition to any
other rights or remedies to which Buyer may be entitled.
(d) SEVERABILITY; SURVIVAL. Each and every provision set forth in
this Section 6 is independent and severable from the others, and no provision
shall be rendered unenforceable by virtue of the fact that, for any reason, any
other or others of them may be unenforceable in whole or in part. The parties
hereto agree that if any provision of this Section 6 shall be declared by a
court of competent jurisdiction to be unenforceable for any reason whatsoever,
6
<PAGE>
the court may appropriately limit or modify such provision, and such provision
shall be given effect to the maximum extent permitted by applicable law. Each
provision of this Section 6 shall survive the Closing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer under this Agreement are, at the option of Buyer, subject to the
satisfaction of the following conditions on or before the Closing Date.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller herein contained shall have been true
and correct in all material respects when made and, in addition, shall be true
and correct in all material respects on the Closing Date with the same force and
effect as though made on and as of the Closing Date, except as affected by
transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. Seller shall have in all material
respects performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement to be performed and
complied with by it on or prior to the Closing Date and shall have delivered all
documents, instruments, and materials required by this Agreement.
(c) CERTIFICATE OF SELLER. Buyer shall have received from Seller
a certificate of the president and secretary of Seller, dated the date of the
Closing Date, certifying that to the best of their knowledge all representations
and warranties set forth in this Agreement are true, complete, and correct in
all material respects at and as of the Closing Date if made at that time, and
that to the best of their knowledge Seller has performed and complied in all
material respects with all agreements, covenants, and conditions required by
this Agreement to be performed or complied with by Seller at or before the
Closing Date.
(d) SATISFACTION WITH DUE DILIGENCE. Buyer shall have completed
its due diligence investigation of Seller and the results of such due diligence
shall have been satisfactory to Buyer, in its sole discretion.
(e) OPINION OF COUNSEL FOR SELLER. Buyer shall have received an
opinion of counsel for Seller, dated the Closing Date, in form and substance
satisfactory to Buyer and its counsel, to the effect that to the best of such
counsel's knowledge, based on due inquiry:
(i) Seller is duly organized, validly existing, and in good
standing under the laws of the state of its incorporation and has the corporate
power and authority under the laws of such state to own, lease, and operate its
properties, to carry on its business as then being conducted, and to consummate
the transaction contemplated hereby;
(ii) all necessary corporate proceedings of the Board of
Directors and the shareholders of Seller to approve and adopt this Agreement and
7
<PAGE>
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly and validly
taken;
(iii) Seller has the corporate power and authority to
execute and deliver this Agreement, and this Agreement has been duly authorized,
executed, and delivered by it and constitutes its legal, valid, and binding
obligation, except that the enforceability thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) general
principals of equity;
(iv) the consummation of the transactions contemplated by
this Agreement will not violate or result in a breach of or constitute a default
by Seller under any provision of any material indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, decree, award, ordinance,
regulation, or any other restriction of any kind or character known to such
counsel, to which Seller is a party or by which any of them are bound.
With respect to the opinions expressed pursuant to clause
(iv) above, such opinion may be based upon a certificate or certificates of any
officer or officers of Seller and such other matters as such counsel deems
appropriate, and such counsel may rely on opinions of other counsel reasonably
satisfactory to Buyer, which opinion is delivered in connection with this
Agreement.
(f) Buyer shall have received a letter from Seller dated as of the
Closing Date representing and warranting that all Consignment Inventory on
Schedule l(b) was delivered to customers on consignment with a one hundred
(100%) percent guaranteed full return privilege.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of Seller
under this Agreement are, at the option of Seller, subject to the satisfaction
of the following terms and conditions on or before the Closing Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer herein contained shall have been true and correct in all
material respects when made and, in addition, shall be true and correct in all
material respects on or as of the Closing Date with the same force and effect as
though made on and as of the Closing Date, except as affected by transactions
contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. Buyer shall have in all material
respects performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement to be performed and
complied with by Buyer on or prior to the Closing Date and shall have delivered
all consideration, documents, instruments, securities, and other materials
required by this Agreement.
(c) PURCHASE ORDER. Buyer shall have executed a purchase order (the
"Purchase Order") in the form attached hereto as SCHEDULE 8(C) to buy certain
8
<PAGE>
additional finished goods inventory from Seller. The Purchase Order shall
provide for a total purchase price equal to thirty-five (35%) percent of the
aggregate dealer price (as in effect on February 27, 1997) for such additional
finished goods inventory, and shall require delivery of such finished goods
inventory to Buyer within three (3) weeks of the date hereof.
9. SURVIVAL; INDEMNIFICATION BY SELLER.
(a) SURVIVAL. The representations, warranties, covenants, and
indemnification set forth herein shall survive the execution and delivery of
this Agreement. The representations, warranties, covenants, and indemnification
shall not be affected by any investigation, verification, approval, or
subsequent notice made by or on behalf of any party thereto.
(b) GENERAL. Seller covenants and agrees to defend, indemnity, and
hold Buyer harmless for, from and against any and all damages, losses,
liabilities (absolute and contingent), fines, penalties, costs and expenses
(including, without limitation, reasonable counsel fees and costs and expenses
incurred in the investigation, defense, or settlement of any claim covered by
this indemnity) with respect to or arising out of any demand, claim, inquiry,
investigation, proceeding, action or cause of action that Buyer may suffer or
incur by reason of (a) the material inaccuracy of any of the representations or
warranties of Seller or any Designated Shareholder contained in this Agreement,
or any of the agreements, certificates, documents, exhibits, or schedules
delivered in connection with this Agreement; (b) the failure to comply with, or
the breach, or the default by Seller of any of the material covenants,
warranties, or agreements made by Seller contained in this Agreement, or any of
the agreements, certificates, documents, exhibits, or schedules delivered in
connection with this Agreement; or (c) any claim or allegation of infringement
of any trademark, trade name, fictitious name, service mark, or copyright (or
any application with respect thereto) by any person or entity with respect to
any and all product that has been manufactured by Seller or caused to be
manufactured by Seller under the name Utopia, including but not limited to
finished goods as listed in SCHEDULE 1(A), consignment inventory as listed in
SCHEDULE 1(B), and the purchase order noted on Schedule 8(c).
(c) BULK SALES MATTERS. Seller covenants and agrees to defend,
indemnity, and hold Buyer harmless for, from, and against any and all damages,
losses, liabilities (absolute and contingent), fines, penalties, costs, and
expenses (including, without limitation, reasonable counsel fees and costs and
expenses incurred in the investigation, defense, or settlement of any claim
covered by this indemnity) with respect to or arising out of any demand, claim,
inquiry, investigation, proceeding, action or cause of action which Buyer may
suffer or incur by reason of any liability or obligation of Seller, of
whatsoever nature or type, with respect to or arising under any applicable Bulk
Sales Act.
(d) NOTICE AND RIGHT TO DEFEND THIRD-PARTY CLAIMS. Promptly upon
receipt of notice of any claim, demand, or assessment or the commencement of any
suit, action, or proceeding with respect to which indemnity may be sought
9
<PAGE>
pursuantto this Agreement, the party seeking to be indemnified or held harmless
(the "Indemnitee") shall notify in writing, if possible, within sufficient time
to respond to such claim or answer or otherwise plead in such action (but in any
event within ten (10) days), the party from whom indemnification is sought (the
"Indemnitor"). In case any claim, demand, or assessment shall be asserted, or
suit, action, or proceeding commenced against the Indemnitee, the Indemnitor
shall be entitled, at the Indemnitor's expense, to participate therein, and, to
the extent that it may wish, to assume the defense, conduct or settlement
thereof, at its own expense, with counsel satisfactory to the Indemnitee, whose
consent to the selection of counsel shall not be unreasonably withheld or
delayed, provided that the Indemnitor confirms to the Indemnitee that it is a
claim to which its rights of indemnification apply. The Indemnitor shall have
the right to settle or compromise monetary claims without the consent of
Indemnitee, however, as to any other claim, the Indemnitor shall first obtain
the prior written consent from the Indemnitee, which consent shall be exercised
in the sole discretion of the Indemnitee. After notice from the Indemnitor to
the Indemnitee of Indemnitor's intent so to assume the defense, conduct,
settlement, or compromise of such action, the Indemnitor shall not be liable to
the Indemnitee for any legal or other expenses (including, without limitation,
settlement costs) subsequently incurred by the Indemnitee in connection with the
defense, conduct, or settlement of such action while the Indemnitor is
diligently defending, conducting, settling, or compromising such action. The
Indemnitor shall keep the Indemnitee apprised of the status of the suit, action,
or proceeding and shall make Indemnitor's counsel available to the Indemnitee,
at the Indemnitor's expense, upon the request of the Indemnitee. The Indemnitee
shall cooperate with the Indemnitor in connection with any such claim and shall
make personnel, books and records and other information relevant to the claim
available to the Indemnitor to the extent that such personnel, books, and
records and other information are in the possession and/or control of the
Indemnitee. If the Indemnitor decides not to participate, the Indemnitee shall
be entitled, at the Indemnitor's expense, to defend, conduct, settle, or
compromise such matter with counsel satisfactory to the Indemnitor, whose
consent to the selection of counsel shall not be unreasonably withheld or
delayed.
10. CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of Buyer's legal counsel,
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, One East Camelback Road,
Suite I 100, Phoenix, Arizona on March 20, 1997 at 9:00 a.m., Mountain Standard
time, or at such other date, time, and place as may be agreed upon by Buyer and
Seller, which date is sometimes herein called the "Closing Date." Seller need
not be present at such Closing.
11. COVENANTS OF SELLER. Seller agrees that prior to the Closing Date:
(a) PRESERVATION OF BUSINESS. Seller shall use its best efforts to (i)
preserve intact the present business organization of Seller, (ii) preserve the
present goodwill and advantageous relationships of Seller with distributors and
suppliers and all other persons having business dealings with Seller, and (iii)
preserve and maintain in force all licenses, registrations, franchises, patents,
trademarks, copyrights, bonds, and other similar rights of Seller. Seller shall
10
<PAGE>
maintain in force all property, casualty, and other forms of insurance that it
is presently carrying. All of the foregoing are with respect to the Transferred
Assets only.
(b) PRESERVATION OF TRANSFERRED ASSETS. Seller shall not sell, lease,
exchange, mortgage, pledge, transfer, or otherwise dispose of or encumber the
Transferred Assets.
(c) ORDINARY COURSE. Seller shall operate its business regarding the
Transferred Assets only in the usual, regular, and ordinary course and manner in
accordance with past practices.
(d) ADDITIONAL DISCUSSIONS. Neither Seller nor any of its
representatives shall have any discussions with any parties (other than with
Buyer and its representatives) with respect to the sale, assignment, transfer,
or conveyance of the Transferred Assets.
12. BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each of the parties hereto agrees to use its best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper, or advisable to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using its best
efforts to obtain all necessary, proper, or advisable permits, consents,
authorizations, requests, and approvals of third parties and governmental
authorities. V%le Buyer does not believe an audit of Seller is required under
Rule 3-05 of Regulation S-X of the Securities and Exchange Commission (the
"SEC"), Seller agrees to make all of its books and records related to the
Transferred Assets reasonably available to Arthur Andersen LLP and to cooperate
fully with Buyer and Arthur Andersen LLP, including making any standard
representations and signing any reasonable standard audit representations
letters, in order to complete any audit that may be required under applicable
SEC rules and regulations, as determined by Arthur Andersen LLP. If at any time
after the Closing Date, any further reasonable action is necessary or desirable
to carry out the purposes of this Agreement (including providing any reasonable
information in any way related to the assets to be purchased pursuant to this
Agreement), the proper officers and directors of each party to this Agreement
shall take all such action.
13. CONTROLLING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the laws of Delaware, notwithstanding any Delaware
or other conflict-of-law provisions to the contrary.
14. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered against receipt
or when deposited in the United States mails, first class postage paid,
addressed as set forth below:
11
<PAGE>
If to Buyer:
Styling Technology Corporation
1146 South Cedar Ridge
Duncanville, Texas
Attention: Sam Leopold
with a copy given in the manner
prescribed above, to:
O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
If to Seller:
Creative Laboratories, Inc.
1325 Eagandale Court
Eagan, Minnesota 55121
Attention: Dale Simmons
with a copy given in the manner
prescribed above, to:
Iliff & Associates, P.A.
5050 France Avenue South
Edina, Minnesota 55410
Attention: Todd R. Iliff, Esq.
Any party may alter the address to which communications or copies are sent
by giving notice to such other parties of change of address in conformity with
the provisions of this paragraph for giving of notice.
15. BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no party may assign, delegate or transfer
its rights or obligations under this Agreement without prior written consent of
the other parties hereto. Any assignment, delegation, or transfer made in
violation of this Section 15 shall be null and void.
12
<PAGE>
16. ENTIRE AGREEMENT. This Agreement and the schedules and exhibits hereto
contain the entire understanding among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral or
written, except as herein contained. The express terms hereof control and
supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof. This Agreement may not be modified or amended other
than by an agreement in writing.
17. PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
18. GENDER. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
STYLING TECHNOLOGY CORPORATION
By: /s/ Sam Leopold
--------------------------------
Sam Leopold
Chairman of the Board and CEO
CREATIVE LABORATORIES, INC.
By: /s/ Gary Simmons
--------------------------------
Gary Simmons
Its:
--------------------------------
13
<PAGE>
CREATIVE LABORATORIES, INC.
By: /s/ Dale Simmons
--------------------------------
Dale Simmons
Its: President
PRINCIPAL SHAREHOLDERS (only as to
obligations as "Principal
Shareholders" as defined above):
/s/ Dale Simmons
-----------------------------------
Dale Simmons
/s/ Gary Simmons
-----------------------------------
Gary Simmons
14
EXHIBIT 11.1
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months
Ended
March 31,
1997
------------
Shares
Weighted average number of common
shares outstanding 3,948,703
Additional shares assuming conversion of:
Stock options 167,833
Weighted average shares outstanding 4,116,536
----------
Net income $1,054,000
==========
Primary earnings per share $ 0.26
==========
EXHIBIT 11.2
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Three Months
Ended
March 31,
1997
------------
Shares
Weighted average number of common
shares outstanding 3,948,703
Additional shares assuming conversion of:
Stock options 167,833
Weighted average shares outstanding 4,116,536
----------
Net income $1,054,000
==========
Fully diluted earnings per share $ 0.26
==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,294
<SECURITIES> 0
<RECEIVABLES> 4,171
<ALLOWANCES> 427
<INVENTORY> 3,378
<CURRENT-ASSETS> 10,278
<PP&E> 1,196
<DEPRECIATION> 31
<TOTAL-ASSETS> 33,688
<CURRENT-LIABILITIES> 5,036
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 26,361
<TOTAL-LIABILITY-AND-EQUITY> 33,688
<SALES> 7,479
<TOTAL-REVENUES> 7,479
<CGS> 3,234
<TOTAL-COSTS> 5,632
<OTHER-EXPENSES> 0
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<INCOME-TAX> 733
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</TABLE>
