SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
______________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): January 20, 1998
VESTCOM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 333-23519 22-3477425
(State or other (Commission (IRS Employer
jurisdiction of File Number) identification
incorporation) Number)
1100 Valley Brook Avenue, Lyndhurst, New Jersey 07071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (201) 935-7666
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On January 26, 1998, Vestcom International, Inc. (the "Company" or
"Vestcom") announced that it had completed the acquisition, through a
newly-formed wholly-owned subsidiary, of a substantial portion of the assets and
a substantial portion of the liabilities of Creative Data Services, Inc. ("CDS")
and of its wholly-owned subsidiary, DB Acquisition, Inc., d/b/a Business Mail
Express ("BME"). The acquisition was effective as of the close of business on
January 20, 1998.
CDS is engaged in the printing and production of labels, signage and
related items for customers concentrated primarily in the retail grocery
industry. BME provides direct mailing services, including the printing, sorting
and mailing of customer information, for customers in various industries.
Vestcom intends to continue both businesses.
The acquisition specifically excluded the assets and liabilities of CDS
related to the vinyl manufacturing operation of CDS, conducted primarily in
Southaven, Mississippi (the "Southaven Business"). CDS retained those assets and
liabilities and will continue to conduct its vinyl manufacturing operations,
including providing supplies to the Vestcom subsidiary.
The base purchase price for the transaction was $9,500,000, paid in cash at
the closing. CDS and BME are also entitled to an earn-out payment upon the
attainment of certain goals related to their gross profits in 1998, up to a
maximum of $2,500,000. The earnout is payable 50% in cash and 50% in stock of
Vestcom (which will be valued at the average of the closing prices of the common
stock of Vestcom as reported by Nasdaq for the last thirty trading days of the
earn-out period). The base purchase price is subject to adjustment if the net
assets acquired on the closing date vary from the net assets of the acquired
companies (excluding the assets and liabilities of the Southaven Business) as of
September 27, 1997.
The description of the terms of the acquisition described above is
qualified in its entirety by the Asset Purchase Agreement filed as Exhibit 2.1
to this Current Report on Form 8-K.
Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma data are filed with
this Current Report on Form 8-K:
1. Historical Consolidated Financial Statements of CDS:
A. Independent Auditors Report
B. Balance Sheets as of September 27, 1997 and September 28, 1996
C. Statements of Income for each of the three years ended September
27, 1997
D. Statements of Shareholders' Equity for each of the three years
ended September 27, 1997
E. Statements of Cash Flows for each of the three years ended
September 27, 1997
F. Notes to Consolidated Financial Statements
2. Pro Forma Financial Data:
<PAGE>
A. Vestcom International, Inc. Introduction to Unaudited Pro Forma
Combined Financial Information.
B. Vestcom International, Inc. Pro Forma Condensed Combined Balance
Sheet as of September 30,1997 (unaudited).
C. Vestcom International, Inc. Pro Forma Combined Statement of
Operations for the year ended December 31, 1996 (unaudited).
D. Vestcom International, Inc. Pro Forma Combined Statement of
Operations for the nine months ended September 30, 1997 (unaudited).
E. Vestcom International, Inc. Notes to Unaudited Pro Forma Combined
Financial Statements.
3. Exhibits:
The following Exhibits are filed with this Current Report on Form 8-K:
Exhibit 2.1 -- Asset Purchase Agreement, among the Company, CDS, BME
and certain other parties, dated as of January 20, 1998.
Exhibit 99.1 -- Press Release, dated January 26, 1998.
<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 hereunto duly authorized.
VESTCOM INTERNATIONAL, INC.
By: /s/Sheryl Bernstein Cilenti
Sheryl Bernstein Cilenti
Vice President and
General Counsel
Dated: February 4, 1998
<PAGE>
CREATIVE DATA SERVICES, INC.
Report and Consolidated Financial Statements
September 27, 1997, September 28, 1996 and September 30, 1995
<PAGE>
To the Stockholders of
Creative Data Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Creative Data Services, Inc. and subsidiary at September 27, 1997 and
September 28, 1996, and the results of their operations and their cash flows for
each of the 52 week periods ended September 27, 1997 and September 28, 1996 and
the 53 week period ended September 30, 1995 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 12 to the consolidated financial statements, Vestcom St.
Louis, Inc., a newly-created subsidiary of Vestcom International, Inc. purchased
certain of the net assets of Creative Data Services, Inc. as of January 20,
1998.
PRICE WATERHOUSE LLP
St. Louis, Missouri
November 20, 1997, except Note 12
which is as of January 20, 1998
<PAGE>
<TABLE>
<CAPTION>
CREATIVE DATA SERVICES, INC.
Consolidated Balance Sheet
September 27, 1997
Page 2
September 27, September 28,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 29,783 $ 1,223
Accounts receivable (less allowance for doubtful
accounts of $100,000 and $50,000, respectively) 3,566,582 2,382,914
Inventories 2,234,212 1,969,568
Prepaid expenses and other assets 313,178 113,389
_________ _____________
Total current assets 6,143,755 4,467,094
Fixtures and equipment, net 2,707,096 1,908,016
Goodwill, net 407,553 64,897
Other 265,878 199,060
___________ _____________
$ 9,524,282 $ 6,639,067
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 537,018 $ 306,908
Accounts payable 3,299,869 1,940,544
Accrued expenses 1,054,365 738,954
Deferred revenue 301,425 -
_________ _________
Total current liabilities 5,192,677 2,986,406
Revolving line of credit 3,408,344 1,871,148
Long-term debt 201,567 783,248
Other deferred liabilities 1,252 1,252
_________ _________
Total liabilities 8,803,840 5,642,054
Stockholders' equity:
Common stock of $.01 par value per share,
authorized 6,000,000 shares; 700,000 shares
issued and outstanding 7,000 7,000
Additional paid-in capital 343,000 343,000
Retained earnings 370,442 647,013
_______ _______
Total stockholders' equity $ 720,442 $ 997,013
____________ ____________
$ 9,524,282 $ 6,639,067
============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREATIVE DATA SERVICES, INC.
Consolidated Statement of Income
September 27, 1997
Page 3
<TABLE>
<CAPTION>
For the 52 For the 52 For the 53
weeks ended weeks ended weeks ended
September 27, 1997 September 28, 1996 September 30, 1995
<S> <C> <C> <C>
Net sales $ 23,380,977 $ 19,415,182 $ 19,110,136
Cost of goods sold 18,064,171 14,956,044 14,210,106
____________ ____________ _____________
Gross margin 5,316,806 4,459,138 4,900,030
Selling, general and administrative expenses 5,174,997 3,863,758 3,920,490
_________ _________ _________
Income from operations 141,809 595,380 979,540
Interest expense (455,635) (466,222) (492,142)
Gain (loss) on sale of fixed assets 99,631 (18,549) (12,721)
Other income (expense) (56,955) 35,421 11,238
___________ ________ _________
Income (loss) before income taxes (271,150) 146,030 485,915
Income taxes 5,421 892 13,200
Net income (loss) $ (276,571) $ 145,138 $ 472,715
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREATIVE DATA SERVICES, INC.
Consolidated Statement of Stockholders' Equity
For the 52 weeks ended September 27, 1997 and September 28, 1996
and the 53 weeks ended September 30, 1995
September 27, 1997
Page 4
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, September 24, 1994 35,000 $ 350 $ 349,650 $ 427,592 $ 777,592
Stock conversion 665,000 6,650 (6,650)
Dividends paid (272,335) (272,335)
Net income ______ _____ _______ 472,715 472,715
Balance, September 30, 1995 700,000 7,000 343,000 627,972 977,972
Dividends paid (126,097) (126,097)
Net income - - - 145,138 145,138
Balance, September 28, 1996 700,000 7,000 343,000 647,013 997,013
Net loss - - - (276,571) (276,571)
_______ _______ _________ _________ __________
Balance, September 27, 1997 700,000 $ 7,000 $ 343,000 $ 370,442 $ 720,442
======= ======= ========= ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREATIVE DATA SERVICES, INC.
Consolidated Statement of Cash Flows
September 27, 1997
Page 5
<TABLE>
<CAPTION>
For the 52 For the 52 For the 53
weeks ended weeks ended weeks ended
September 27, September 28, September 30,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (276,571) $ 145,138 $ 472,715
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 968,495 854,419 796,941
(Gain) loss on sale of fixtures and equipment (99,631) 18,549 12,721
Changes in assets and liabilities:
Increase in accounts receivable (1,183,668) (266,503) (188,350)
Increase in inventories (50,867) (12,952) (401,741)
Increase in prepaid expenses and other assets (45,827) (33,535) (72,172)
Increase (decrease) in accounts payable 1,342,229 (177,212) 325,713
(Decrease) increase in accrued expenses (223,913) (33,062) 367,265
(Decrease) increase in other deferred liabilities (97,975) (9,366) 2,000
__________ ________ __________
Net cash provided by operating activities 332,272 485,476 1,315,092
__________ ________ __________
Cash flows from investing activities:
Purchase assets of Business Mail Express (942,434)
Capital expenditures (395,873) (500,352) (619,400)
Proceeds from sale of fixtures and equipment 326,600 19,082 14,500
__________ ________ _________
Net cash used in investing activities (1,011,707) (481,270) (604,900)
Cash flows from financing activities:
Net borrowings (payments) under line of
credit agreement 1,612,200 322,428 (46,992)
Payments under term loan agreements (604,240) (202,412) (375,884)
Payments of financing fees (90,149) (7,037) (15,000)
Payments under capital lease obligations (209,816)
Dividends paid - (126,097) (272,335)
_________ _________ ___________
Net cash provided by (used in) financing activities 707,995 (13,118) (710,211)
Net increase (decrease) in cash 28,560 (8,912) (19)
Cash at beginning of period 1,223 10,135 10,154
_______ ______ _________
Cash at end of period $ 29,783 $ 1,223 $ 10,135
=========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
1. Description of business
Creative Data Services, Inc. (the Company) is engaged in the printing and
production of labels, signage and related items for customers concentrated
primarily in the retail grocery industry.
On January 16, 1997, Creative Data Services, Inc. formed a new company,
D.B. Acquisition, Inc., and acquired substantially all of the assets of
Business Mail Express, Inc. for approximately $1,400,000. The excess of
purchase price over the fair values of net assets acquired was $415,000 and
has been recorded as goodwill, which is being amortized on a straight-line
basis over five years.
Business Mail Express provides direct mailing services, including the
printing, sorting and mailing of customer information, for customers in
various industries.
2. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of its
wholly-owned subsidiary, D.B. Acquisition, Inc. All significant
intercompany transactions have been eliminated.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
under the first-in, first-out method for substantially all inventory.
Fixtures and equipment
Fixtures and equipment are carried at cost. Depreciation of fixtures and
equipment is charged to expense over the estimated useful lives of the
related assets using the straight line method. Estimated useful lives for
financial reporting purposes for fixtures and equipment range from three to
seven years.
Deferred financing costs
Deferred financing costs associated with long-term debt are amortized on a
straight-line basis over the lives of the related debt instruments and are
included in the other assets section of the balance sheet.
Goodwill
The excess of cost over the fair market value of assets acquired and
liabilities assumed has been recorded as goodwill and is being amortized
over a period of 5-10 years using the straight-line method.
Asset impairment
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of a tangible or
intangible asset may warrant revision or that the remaining balance of a
long-lived asset may not be recoverable. The measurement of possible
impairment is based on the ability to recover the balance of assets from
expected future operating cash flows on an undiscounted basis. In the
opinion of management, no such impairment existed at September 27, 1997.
Income taxes
Effective March 28, 1992, the Company elected S Corporation status under
provisions of the Internal Revenue Code. Under this election, all federal
taxable earnings and losses pass through to the stockholders as well as
income and losses from certain states which recognize S Corporation status.
<PAGE>
In states that do not recognize S Corporation status, the Company utilizes
the asset and liability method of accounting for income taxes.
Dividends
The Agreement described in Note 5 allows for reimbursement to the
stockholders of the estimated amount of federal and state income taxes to
be paid by the stockholders. The Company declared and paid dividends to the
stockholder of $0, $126,097 and $272,335 for the fiscal years ended
September 27, 1997, September 28, 1996 and September 30, 1995,
respectively, representing a reimbursement of the stockholders' estimated
tax liability associated with the S Corporation tax status.
Deferred revenue
Deferred revenue represents amounts received from customers in advance of
direct mailing services performed and is recognized as services are
performed. Costs associated with these services are charged to operations
as incurred.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Fair value of financial instruments
For purposes of financial reporting, the Company has determined that the
fair value of financial instruments approximates book value at
September 27, 1997 based on terms currently available to the Company in
financial markets.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 27, September 28,
1997 1996
<S> <C> <C>
Raw materials $ 759,522 $ 333,387
Work-in-process 1,267,920 1,399,605
Production supplies 105,126 115,137
Finished goods 197,219 171,439
---------------- ---------------
2,329,787 2,019,568
Excess and obsolescence reserves (95,575) (50,000)
----------------- ----------------
$ 2,234,212 $ 1,969,568
=============== ================
</TABLE>
Work-in-process consists of a supply of pre-printed labels and tags
manufactured and stocked by the Company for its customers, and includes the
cost of material, labor and overhead. The labels and tags, when ordered by
customers, are printed with pricing information, packaged and shipped.
4. Fixtures and equipment
September 27, September 28,
1997 1996
Fixtures and equipment $ 6,037,607 $ 5,115,859
Less accumulated depreciation (3,330,511) (3,207,843)
$ 2,707,096 $ 1,908,016
5. Long-term debt and revolving credit
<TABLE>
<CAPTION>
September 27, September 28,
1997 1996
<S> <C> <C>
Revolving credit agreement - Creative Data
Services, Inc. $ 2,169,350 $ 1,871,148
Revolving credit agreement - D.B. Acquisition, Inc. 1,238,994
Term loan 560,920 645,739
Capital lease obligations 177,665
Capital expenditure agreement 84,592
Success fee - 359,825
__________ __________
4,146,929 2,961,304
Less current maturities (537,018) (306,908)
$ 3,609,911 $ 2,654,396
----------- ------------
</TABLE>
On November 22, 1996, Creative Data Services, Inc. entered into the Second
Amendment to the Loan and Security Agreement. Under the Second Amendment,
the Company consolidated the outstanding balance of the Term Loan, the
outstanding principal of the Capital Expenditure Agreement and the
Successor fee obligation. The new term loan has an original principal
amount of $1,054,180 and is payable in 24 equal monthly installments of
$31,826, with the remaining principal balance of $296,356 due on November
30, 1998. The termination date of the note may be extended through November
30, 1999, provided the Company executes an option to extend the agreement
prior to October 1, 1998 and the bank approves the option. The Term Loan
bears interest at a per annum rate equal to the Reference Rate plus one and
one-half percent. The Reference Rate is defined as the higher of (a) the
reference rate of interest most recently announced by the Bank of Chicago,
Illinois, and (b) one-half of one percent per annum above the latest
Federal Funds Rate. At September 27, 1997, the Reference Rate was 8.5%.
Creative Data Services maintains a revolving line of credit with maximum
borrowings under the agreement of $5,000,000 less the outstanding principal
balance of the term and other loans made by the bank. The Company is
required to pay a commitment fee of 0.5% per annum on the unused
commitment. Borrowings are limited by a borrowing base of inventory and
accounts receivable, as defined in the Agreement. In accordance with the
Second Amendment, interest on the Revolving Credit Facility is at a per
annum rate equal to the Reference Rate, defined above, plus one percent.
The outstanding balance on the Revolving Credit Facility is due
coincidental with the termination date of the Term Loan described in the
preceding paragraph.
<PAGE>
On January 16, 1997, D.B. Acquisition, Inc. entered into a Revolving Credit
Agreement with Bank of America Illinois. The Company is required to pay a
commitment fee of 0.5% per annum on the unused commitment. Borrowings are
collateralized by all tangible and intangible assets of the Company.
Interest on the Revolving Credit Facility is at a per annum rate equal to
the Reference Rate plus one and one-half percent. The outstanding balance
on the Revolving Credit Facility is due on December 31, 1997.
The Term Loan and Revolving Credit Agreements stipulate that the Company
maintain certain financial ratios while restricting capital expenditures
and dividends paid to stockholders. At various times throughout the fiscal
year ended September 27, 1997, the Company was in default of its fixed
charge covenant. The Company's default of said covenant was cured by the
lender's waiver issued November 5, 1997.
In conjunction with obtaining the Revolving Line of Credit Agreement for
D.B. Acquisition, Inc. and the Second Amendment to the Loan and Security
Agreement, the Company incurred loan acquisition costs of approximately
$90,000 in fiscal 1997. These costs were capitalized and are being
amortized over the life of the loans.
See Note 12 regarding the acquisition of the Company and the related debt
extinguishment.
6. Income taxes
Effective March 28, 1992, the Company elected S Corporation status under
provisions of the Internal Revenue code. Deferred taxes which remain on the
balance sheet at September 27, 1997 and September 28, 1996 represent
deferred taxes associated with those states which do not recognize S
Corporation status.
7. Concentration of credit risk
Creative Data Services, Inc. sells a majority of its products to customers
in the retail grocery industry. The Company performs ongoing credit
evaluations of its customers and does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been
within management's expectations. As of September 27, 1997 and
September 28, 1996, accounts receivable were concentrated in the retail
grocery industry. During the 52 weeks ended September 27, 1997, twelve
customers accounted for approximately 69% of the Company's consolidated
sales. During the 52 weeks ended September 28, 1996, eight customers
accounted for approximately 71% of the Company's sales. During the 53 weeks
ended September 30, 1995, eight customers accounted for approximately 69%
of the Company's sales.
8. Leases
Operating leases
The Company leases certain equipment and operating facilities under
noncancelable operating leases. In addition, the Company leases certain
equipment under month-to-month operating leases. Management expects that in
the normal course of business, leases will be renewed or replaced by other
leases. Annual future lease commitments are as follows:
1998 $ 537,018
1999 201,567
________
$ 738,585
<PAGE>
Total rent expense for operating leases amounted to approximately
$1,622,000 and $1,432,000 for the 52 weeks ended September 27, 1997 and
September 28, 1996, respectively and $1,363,000 for the 53 weeks ended
September 30, 1995.
9. Employee benefit plans
Eligible employees participate in a Company-sponsored, non-contributory
profit sharing plan and a 401(k) savings plan. The Company's contributions
to the profit sharing plan are discretionary. No Company contributions were
made for the fiscal years ended September 27, 1997, September 28, 1996, and
September 30, 1995.
The Company matches 100% of the employees' contributions up to 3% of gross
wages and 50% of the next 7% of gross wages in the 401(k) savings plan. The
Company's contributions were approximately $137,000 and $103,000 for the
fiscal years ended September 27, 1997 and September 28, 1996, respectively
and $110,000 for the 53 weeks ended September 30, 1995.
The Company has no liabilities related to post-retirement health care
benefits.
10. Supplemental cash flow information and noncash investing activities
<TABLE>
<CAPTION>
September 27, September 28, September 30,
1997 1996 1995
<S> <C> <C> <C>
Supplemental Cash Flow Information
Cash paid during the 52 weeks ended for:
Interest $ 394,000 $ 315,000 $ 485,000
Income taxes 5,000 9,000 13,000
Supplemental Noncash Investing Activities
Capital asset and lease obligation additions $ 100,230 $ - $ -
Acquisition:
Fair value of assets acquired $(1,737,000)
Liabilities assumed (1,978,000)
Fair value of assets exchanged (174,000)
</TABLE>
11. Commitments
The Company has entered into change in control employment agreements with
certain key employees. According to the agreements, a change in control
occurs when a third party or entity acquires more than 50% of the
outstanding shares and more than 50% of the combined voting power of the
Company. The agreement allows for employment termination within a window
nine months prior to a change in control and up to one year after a change
in control. If the employee's position is terminated, voluntarily or
involuntarily, upon a change in control within the time period, the
employee will receive three times their annual salary, payable in equal
12-month installments.
12. Subsequent event
Acquisition of the Company
On January 20, 1998, Vestcom St. Louis, Inc., a newly-created subsidiary of
Vestcom International, Inc., purchased certain of the assets of Creative
Data Services, Inc. for approximately $9.5 million in cash plus a potential
earnout of $2.5 million. The accompanying
<PAGE>
financial statements have been prepared on a preacquisition basis of
accounting and do not reflect the effects of the acquisition of the Company
by Vestcom St. Louis, Inc.
A portion of the proceeds from the sale of the Company were used to
extinguish the outstanding balances of the Term Loan and Revolving Credit
Agreements referenced in Note 5. Prior to this debt extinguishment, the
Company had received a 90-day extension from its lender on its Revolving
Credit Agreement for D.B. Acquisition, Inc.
<PAGE>
VESTCOM INTERNATIONAL, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give
effect to the acquisition of CDS and BME and are based on estimates and
assumptions set forth below and in the notes to such pro forma financial
statements. Vestcom International, Inc. ("Vestcom" or the "Company") was
incorporated in September 1996. Simultaneously with the consummation of its
initial public offering on August 4, 1997, Vestcom acquired seven founding
companies. Accordingly, the Unaudited Pro Forma Combined Statements of
Operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 contained herein include pro forma information for Vestcom as
if such acquisitions had occurred on January 1, 1996 and 1997, respectively. The
unaudited pro forma combined financial statements have been prepared utilizing
the historical financial statements of Vestcom as of September 30, 1997, and the
pro forma results of operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997 and the historical financial statements of
CDS as of and for the nine months ended June 28, 1997 and for the year ended
September 28, 1996, and should be read in conjunction with such financial
statements and accompanying notes. The unaudited pro forma combined financial
statements do not purport to be indicative of the results which actually would
have been obtained if the acquisition had been effected on the date or dates
indicated or of the results which may be obtained in the future.
The pro forma combined financial statements are based on the purchase
method of accounting for the acquisition. The pro forma combined balance sheet
assumes the acquisition occurred on September 30, 1997. The pro forma combined
statements of operations assume that the acquisition had occurred on January 1,
1996, for the year ended December 31, 1996, and on January 1, 1997, for the nine
months ended September 30, 1997.
Although neither the Company nor CDS has complete current information
as to the fair market values of the assets and liabilities of CDS, a preliminary
estimate of the allocation of the purchase price has been made on the basis of
available information. Accordingly, the actual allocation of the purchase price
may be different from that reflected in the pro forma combined financial
statements.
<PAGE>
<TABLE>
<CAPTION>
VESTCOM INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(unaudited)
Assets &
Sept. 30, Sept. 27, Liabilities
1997 1997 Pro Forma Not Pro Forma ProForma
Vestcom CDS/BME Subtotal Acquired(l) Combined Adjustments Combined
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,770,806 $ 29,783 $ 2,800,589 $ (3,012) $ 2,797,577 $ $ 2,797,577
Marketable securities 23,280,965 23,280,965 23,280,965 (9,500,000)(a) 13,780,965
Accounts receivable, net 11,749,197 3,566,582 15,315,779 (434,783) 14,880,996 14,880,996
Other current assets 5,259,967 2,547,390 7,807,357 (601,958) 7,205,399 7,205,399
---------- --------- ---------- --------- ---------- --------- ----------
Total current assets 43,060,935 6,143,755 49,204,690 (1,039,753) 48,164,937 (9,500,000) 38,664,937
PROPERTY AND EQUIPMENT, net 19,853,238 2,707,096 22,560,334 (589,188) 21,971,146 (250,000)(b) 21,721,146
GOODWILL 44,643,138 407,553 45,050,691 45,050,691 6,353,551(c) 51,404,242
OTHER ASSETS 373,687 265,878 639,565 (177,996) 461,569 ________ 461,569
----------- --------- ----------- ----------- ----------- ----------- ------------
Total assets 107,930,998 9,524,282 117,455,280 (1,806,937) 115,648,343 (3,396,449) 112,251,894
CURRENT LIABILITIES
Short term borrowings 80,585 80,585 80,585 80,585
Current portion of long term
debt and capitalized
lease obligations 2,478,403 537,018 3,015,421 3,015,421 (537,018)(d) 2,478,403
Accounts payable 3,095,048 3,299,869 6,394,917 (1,305,840) 5,089,077 5,089,077
Other liabilities 10,947,647 1,355,790 12,303,437 (173,367) 12,130,070 942,877(d)(e)13,072,947
---------- --------- ---------- ----------- ---------- ------- ----------
Total current liabilities 16,601,683 5,192,677 21,794,360 (1,479,207) 20,315,153 405,859 20,721,012
REVOLVING LINE OF CREDIT 3,408,344 3,408,344 3,408,344 (3,408,344)(d)
LONG TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 8,454,477 201,567 8,656,044 8,656,044 8,656,044
OTHER NONCURRENT LIABILITIES 3,378,825 1,252 3,380,077 (1,252) 3,378,825 3,378,825
--------- -------- --------- ----------- --------- ----------- ---------
Total liabilities 28,434,985 8,803,840 37,238,825 (1,480,459) 35,758,366 (3,002,485) 32,755,881
STOCKHOLDERS' EQUITY
Preferred Stock 2,651,867 2,651,867 2,651,867 2,651,867
Common Stock 81,797,935 7,000 81,804,935 81,804,935 (7,000)(f) 81,797,935
Additional paid in capital 343,000 343,000 343,000 (343,000)(f)
Retained earnings (deficit) (4,960,177) 370,442 (4,589,735) (326,478) (4,916,213) (43,964)(f) (4,960,177)
Cumulative translation adjustment 6,388 6,388 6,388 _______ 6,388
---------- ------- ---------- --------- ---------- --------- -----------
Total stockholders equity 79,496,013 720,442 80,216,455 (326,478) 79,889,977 (393,964) 79,496,013
Total liability and
stockholders' equity $107,930,998 $ 9,524,282 $117,455,280 $(1,806,937) $115,648,343 $(3,396,449) $112,251,894
----------- --------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
VESTCOM INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
Vestcom Creative Data
Pro Forma Services and Adjusted
Combined Busines Mail Creative Data
For the Express for the Services and
year ended 12 months ended Plant Business Mail Pro Forma Pro Forma
31-Dec-96 September 28, 1996 Eliminations(L) Express Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenues $ 65,287,014 $ 19,415,182 $ (2,786,379) $ 16,628,803 $ $81,915,817
Cost of Services 43,422,326 14,956,044 (2,640,900) 12,315,144 366,274(g) 56,103,744
Gross profit 21,864,688 4,459,138 (145,479) 4,313,659 (366,274) 25,812,073
Selling, general and
administrative expenses 15,029,464 3,863,758 (507,685) 3,356,073 (165,000)(h) 18,220,537
Goodwill amortization 1,111,510 ________ _______ ________ 211,785(i) 1,323,295
Income (loss) from
operations 5,723,714 595,380 362,206 957,586 (413,059) 6,268,241
Other income (expense):
Interest expense (466,222) (466,222) 466,222(j) -
Interest and other income 190,339 16,872 ______ 16,872 ________ 207,211
Income before provision
for income taxes 5,914,053 146,030 362,206 508,236 53,163 6,475,452
Provision for income taxes 2,810,225 892 892 (138,953(k) 2,950,070
_________ __________ _________ ________ ________ _________
Net income $ 3,103,828 $ 145,138 $ 362,206 $ 507,344 $ (85,790) $ 3,525,382
Net income per share 0.37
.42
Weighted average shares 8,349,291 8,349,291
used in computing pro ========= =========
forma net income per
share
See accompanying notes to pro forma combined financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VESTCOM INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
Vestcom Pro Forma Creative Data Adjusted
Combined Services and Business Creative
For the Mail Express For the Data Services
Nine Months Ended Nine Months Ended Plant and Business Pro Forma Pro Forma
September 30, 1997 June 28, 1997 Eliminations(l) Mail Express Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenues $ 53,537,123 $ 15,078,801 $(2,009,490) $13,069,311 $66,606,434
Cost of Services 33,965,998 11,084,194 (2,382,653) 8,701,541 $ 527,099(g) 43,194,638
Gross profit 19,571,125 3,994,607 373,163 4,367,770 (527,099) 23,411,796
Selling, general and
administrative expenses 12,603,250 3,117,876 (199,953) 2,917,923 (225,000)(h) 15,296,173
Goodwill amortization 1,090,116 ________ _______ _________ 158,839(i) 1,248,955
Income(loss) from operations 5,877,759 876,731 573,116 1,449,847 (460,938) 6,866,668
Other income (expense):
Interest expense (427,156) (282,065) (282,065) 282,065(j) (427,156)
Interest and other income 323,944 105,610 _______ 105,610 ______ 429,554
Income before provision for
income taxes 5,774,547 700,276 573,116 1,273,392 (178,873) 6,869,066
Provision for income taxes 2,745,865 5,802 5,802 368,470(k) 3,120,137
_________ _________ __________ _________ _________ _________
Net income $ 3,028,682 $ 694,474 $ 573,116 $ 1,267,590 $ (547,343) $ 3,748,929
Net income per share 0.36 0.45
Weighted average shares
used in computing pro
forma net income per 8,349,291 8,349,291
share ========= =========
See accompanying notes to pro forma financial statements.
</TABLE>
<PAGE>
VESTCOM INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
a) Records the cash purchase of the selected assets and liabilities of
CDS/BME.
b) Records the preliminary adjustment to the book value of the
acquired plant, property and equipment.
c) Records the goodwill determined as the difference between the net
assets acquired and the purchase price.
d) Records the elimination of debt not assumed by Vestcom in the
acquisition as well as accrued interest of $57,123.
e) Records the accrual of acquisition expenditures of $1,000,000 as a
result of the purchase. The acquisition expenditures include; investment banking
fees, legal and accounting fees as well as integration costs of businesses
acquired.
f) Records the elimination of the net equity of CDS/BME resulting from
the acquisition of net assets.
g) To adjust prices previously charged for products by CDS' Southaven
Business to CDS' finishing centers to comparable selling prices charged by the
Southaven Business to third parties. The Southaven Business was not acquired by
Vestcom.
h) Reflects the adjustment for owners compensation to conform with the
contractual terms of the post acquisition compensation levels.
i) Records the pro forma goodwill amortization using a 30-year
estimated life.
j) Records the elimination of interest expense for the debt that was
not assumed in the acquisition.
k) Records an adjustment for income taxes at a rate of 40% after
adjusting net income for the tax effect of amortized goodwill.
l) Records the elimination of the assets and liabilities of the
Southaven Business not acquired by Vestcom.
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of January 20, 1998 by and among
Creative Data Services, Inc., a Delaware corporation ("Creative Data"), D.B.
Acquisition Inc., a Missouri corporation doing business as Business Mail Express
("DB") (Creative Data and DB collectively referred to herein sometimes as the
"Seller"), Vestcom St. Louis, Inc., a Delaware corporation (the "Purchaser"),
Vestcom International, Inc., a New Jersey corporation ("Vestcom"), and Douglas
H. Brooking, Jr. and Katherine M. Brooking (collectively, the "Principals") and
Paul D. Brooking, Mary Katherine Sullivan, Martha Ann Burke, Kathleen Brooking
House and Theresa A. Strothcamp (collectively, the "Minority Shareholders" and
with the Principals, the "Shareholders").
W I T N E S S E T H:
WHEREAS, prior to the date hereof, the Seller has engaged in the
business of computer output and document management, mailing and distribution
services (as further defined herein, the "Business"); and
WHEREAS, the Seller desires to sell and transfer to the Purchaser, and
the Purchaser desires to purchase and assume from the Seller, certain of the
assets and liabilities relating to the Business, all as more specifically
provided herein; and
WHEREAS, the Principals own all of the issued and outstanding voting
common stock of Creative Data and approximately eighty-eight percent (88%) of
the issued and outstanding non-voting capital stock of Creative Data, the
Minority Shareholders own the remaining twelve percent (12%) of the non-voting
capital stock and DB is a wholly-owned subsidiary of Creative Data; and
WHEREAS, the Purchaser is a wholly-owned subsidiary of Vestcom, which
is an intended beneficiary of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound, the Seller, the Principals, the
Minority Shareholders, the Purchaser and Vestcom agree as follows:
ARTICLE I
ARTICLE ICertain Definitions
Section 1.1. Certain Definitions. As used in this Agreement, the
following terms have the respective meanings set forth below.
"Accountants" means Price Waterhouse, L.L.P.
<PAGE>
"Affected Property" has the meaning ascribed to such term in Section
3.16.
"Affiliate" means, with respect to any Person, any other Person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. The term "control"
means the 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 securities, by contract or otherwise, and the terms
"controlled" and "controlling" have meanings correlative thereto.
"Agreement" means this Asset Purchase Agreement.
"Assumed Liabilities" means all liabilities, indebtedness and other
obligations of the Seller (other than Excluded Liabilities) arising in the
ordinary course of the Business and existing at the Closing Date including,
without limitation, all liabilities, indebtedness and other obligations under
the agreements, contracts, leases, licenses and other agreements referred to in
the definition of Purchased Assets; provided however, that any and all
liabilities or obligations related to or arising out of the Retained Assets
shall not be Assumed Liabilities hereunder and no bank indebtedness for borrowed
money shall be assumed by the Purchaser.
"Authorizations" has the meaning ascribed to such term in Section
3.11.
"Bank" has the meaning ascribed to such term in Section 2.5.
"Base Purchase Price" has the meaning ascribed to such term in Section
2.3.
"Business" has the meaning ascribed to such term in the first recital
to this Agreement. It includes Seller's laser printing business, its fulfillment
business for Schnucks Markets, Inc. in St. Louis and the business of printing
labels on vinyl, but excludes Seller's Southaven Business.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks in New Jersey are open for the general transaction of business.
"CD Benchmark" and "DB Benchmark" have the meanings ascribed to such
terms in Section 2.6.
"CD Gross Profit" and "DB Gross Profit" have the meanings ascribed by
such terms in Section 2.6.
"Closing" has the meaning ascribed to such term in Section 2.9.
"Closing Balance Sheet" means a balance sheet reflecting the book
value of the Purchased Assets and the Assumed Liabilities as of the Closing Date
prepared in accordance with GAAP consistent with the Seller's historical
financial statements and the computation of Estimated Net Assets, and as further
defined in Section 2.4.
<PAGE>
"Closing Date" has the meaning ascribed to such term in Section 2.9.
"Closing Net Assets" has the meaning ascribed to such term in Section
2.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Continued Employees" has the meaning ascribed to such term in Section
5.9.
"Contracts" has the meaning ascribed to such term in Section 3.21.
"CPA Firm" means Arthur Andersen LLP or such other accounting firm as
is regularly employed by Vestcom from time to time.
"Damages" has the meaning ascribed to such term in Section 8.2.
"Director" has the meaning ascribed to such term in Section 2.7.
"Earn-Out Payment" has the meaning ascribed to such term in Section
2.6.
"Employees" has the meaning ascribed to such term in Section 5.6(a).
"Employment Agreement" means the forms of employment agreement
attached hereto as Exhibit F, to be dated the Closing Date, and entered into
between the Purchaser and each of Douglas H. Brooking, Jr., Paul D. Brooking and
Timothy Rosheim, respectively.
"Employee Benefit Plan" has the meaning ascribed to such term in
Section 3.18.
"Encumbrances" has the meaning ascribed to such term in Section 3.3.
"Environmental Laws" means any federal, state and local law, statute,
ordinance, rule, regulation, license, permit, authorization, approval, consent,
court order, judgment, decree, injunction, code, requirement or agreement with
any Governmental Authority, (x) relating to pollution (or the cleanup thereof or
the filing of information with respect thereto), human health or the protection
of air, surface water, ground water, drinking water supply, land (including land
surface or subsurface), plant and animal life or any other natural resource, or
(y) concerning exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production or
disposal of Regulated Substances, in each case as amended and as now or
hereafter in effect. The term Environmental Law, includes, without limitation,
(i) the Comprehensive Environmental Response Compensation and Liability Act of
1980, the Water Pollution Control Act, the Clean Air Act, the Clean Water Act,
the Solid Waste Disposal Act (including the Resource Conservation and Recovery
Act of 1976 and the Hazardous and Solid Waste Amendments of 1984), the Toxic
Substances Control Act, the Insecticide, Fungicide and Rodenticide Act and the
Occupational Safety and Health Act of 1970, the New Jersey Spill Compensation
and Control Act and the New Jersey Industrial Site Recovery Act ("ISRA") each
<PAGE>
as amended and as now or hereafter in effect, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to or threatened as
a result of the presence of, exposure to, or ingestion of, any Regulated
Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning ascribed to such term in Section
3.18.
"ERISA Plan" has the meaning ascribed to such term in Section 3.18.
"Escrow Agent" means Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
or any successor thereto acting as escrow agent under the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement, among the Seller, the
Purchaser and the Escrow Agent, in the form attached hereto as Exhibit G.
"Estimated Net Assets" means $3,840,308, which is the book value of
the Purchased Assets less the Assumed Liabilities as of September 27, 1997
computed in accordance with GAAP.
"Excluded Liabilities" means any and all of the following liabilities
or obligations of the Seller or its Affiliates:
(a) all amounts due to banks or other financial institutions
(approximately $4,000,000 as of the Closing Date) other than leases of equipment
listed on Schedule 3.21;
(b) all liabilities arising from or related in any way to the
Southaven Assets, the Southaven Business or the Southaven Plant (Schedule 1.1(v)
sets forth the methodology for division of liabilities between Southaven and the
Purchaser);
(c) all liabilities and obligations of any kind existing as of the
Closing of a nature properly characterized under GAAP as an inter-company
liability or otherwise owed or owing by the Business to the Seller, any
Affiliate of the Seller or any of the Principals or Minority Shareholders, other
than those properly accrued for on the Closing Balance Sheet.
(d) all liabilities and obligations relating to current or former
employees, agents, consultants or other independent contractors, whether or not
such Persons are employed by the Purchaser after the Closing, relating to
services performed, benefit accruals or claims accrued or incurred (x) prior to
the Closing or (y) with respect to Employee Benefit Plans, at any time on or
after the Closing Date, including but not limited to, obligations under any
employment agreement or arrangement, compensation, stock options, incentives,
deferred compensation, accrued payroll, accrued vacation pay, sick leave,
severance, worker's compensation,
<PAGE>
unemployment compensation, employee welfare or retirement benefits (including
any liability or obligation of the Seller under any welfare plan or policy for
continuing health coverage); except for and excluding liabilities relating to
employees, agents, consultants or other independent contractors, of Seller who
are hired by the Purchaser as of the Closing Date and then only to the extent
that such liabilities (A) have been properly accrued for on the Closing Balance
Sheet and (B) do not relate to Employee Benefit Plans which are not being
assumed or continued by the Purchaser;
(e) all liabilities under the Worker Adjustment and Retraining
Notification Act and obligations or agreements to rehire or give preferential
treatment to laid-off or terminated employees, except for and excluding any
liability arising on account of any action taken by the Purchaser subsequent to
the Closing Date;
(f) all liabilities and obligations, whether absolute, accrued,
contingent or otherwise, for federal, state, county, local, foreign or other
income taxes (including interest and penalties);
(g) all liabilities and obligations, whether absolute, accrued,
contingent or otherwise for federal, state, county, local, foreign or other
sales, use, real estate, property, excise, employee payroll or other taxes or
assessments other than income taxes (including interest and penalties) of any
kind whatsoever relating to the Business for periods up to and including the
Closing Date except to the extent accrued for on the Closing Balance Sheet;
(h) any income, sales, use or similar taxes resulting from the
transactions contemplated by this Agreement;
(i) any and all damages, losses, liabilities, actions, claims, costs
and expenses (including, without limitation, closure costs, fines, penalties,
expenses of investigation and remediation and ongoing monitoring and reasonable
attorneys' fees) directly or indirectly based upon, arising out of, resulting
from or relating to (i) any violation of any Environmental Law by the Seller or
any Person or entity acting on behalf of the Seller or the Person from or
through which the Seller acquired title on or prior to the Closing Date
(including, without limitation, any failure to obtain or comply with any permit,
license or other operating authorization under provisions of any Environmental
Law), (ii) any and all liabilities under any Environmental Law arising out of or
otherwise in respect of any act, omission, event, condition or circumstance
occurring or existing in connection with the Business or the Purchased Assets on
or prior to the Closing (including, without limitation, liabilities relating to
(X) removal, remediation, containment, cleanup or abatement of the presence of
any Regulated Substance, whether on-site or off-site and (Y) any claim by any
third party, including without limitation, tort suits for personal or bodily
injury, property damage or injunctive relief);
(j) all liabilities and obligations arising out of any lawsuit,
action, proceeding, inquiry, claim, order or investigation by or before any
Governmental Authority related to the Business arising out of events,
transactions, facts, acts or omissions which occurred prior to or on the Closing
Date, including, without limitation, personal injury or property damage, product
<PAGE>
liability or strict liability;
(k) any liabilities or obligations owed to attorneys, accountants or
other professional advisors to the Seller or the Principals, except for such
liabilities or obligations which are properly accrued for on the Closing Balance
Sheet and are unrelated to the transaction contemplated by this Agreement;
(l) any and all liabilities or obligations of the Seller or any of its
Affiliates of any kind or nature, which are unknown or contingent (to the extent
not included in the Closing Balance Sheet) which arise out of events,
transactions, facts, acts or omissions which occurred on, prior to or after the
Closing Date or any and all liabilities which did not arise in the ordinary
course of the Business or are not related to the Business or the Purchased
Assets;
(m) any and all liabilities or obligations of the Seller arising out
of the change in control letter agreements between each of Paul Brooking,
Kathleen House, Timothy Rosheim and Creative Data, respectively, all dated
January 20, 1995, including but not limited to the termination payments detailed
in such letter agreements;
(n) any and all liabilities owed to various third parties on account
of the acquisition of the assets of Business Mail Express, Inc. in January 1997,
except to the extent accrued on the Closing Balance Sheet; and
(o) any and all liabilities or obligations of the Seller or any of its
Affiliates of any kind or nature, whether known or unknown, absolute, accrued,
contingent or otherwise, arising out of events, transactions, facts, acts or
omissions which occur subsequent to the Closing and which are not related to the
Business or the Purchased Assets.
"Financial Statements" has the meaning ascribed to such term in
Section 3.9.
"GAAP" means generally accepted accounting principles, as in effect in
the United States on the date of this Agreement.
"Governmental Authority" means any national, federal, state,
provincial, county, municipal or local government, foreign or domestic, or the
government of any political subdivision of any of the foregoing, or any entity,
authority, agency, ministry or other similar body exercising executive,
legislative, judicial, regulatory or administrative authority or functions of or
pertaining to government, including any court and any authority or other
quasi-governmental entity established to perform any of such functions.
"Indemnified Party" has the meaning ascribed to such term in Section
8.2.
"Indemnifying Party" has the meaning ascribed to such term in Section
8.2.
"Knowledge" means, with respect to an individual, the actual present
knowledge of such individual. A Person (other than an individual) will be deemed
to have "Knowledge" of a
<PAGE>
particular fact or other matter if any individual who serves as a director,
officer, partner, executor or trustee of such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or matter.
"Leases" means leases of Real Property.
"Material Adverse Change" means a material adverse change in the
Business, financial condition, or results of operations of the Seller taken as a
whole.
"Material Adverse Effect" means, with respect to any event or
occurrence of whatever nature), a material adverse effect in the Business,
financial condition or results of operation of the Seller taken as a whole.
"Minority Shareholders" has the meaning given in the preamble of this
Agreement.
"Permitted Encumbrances" means (a) liens for taxes and assessments not
yet due and payable or for taxes the validity of which are being contested in
good faith (and are fully reserved for); (b) mechanic's, materialmen's and
similar Encumbrances that have arisen in the ordinary course of business; and
(c) those liens relating to capital or operating leases disclosed on Schedule
3.6.
"Person" means an individual, partnership, corporation, joint stock
company, limited liability company, unincorporated organization or association,
trust or joint venture, or a governmental agency or political subdivision
thereof.
"Pre-Closing Date" means January 19, 1998.
"Proprietary Rights" means trademarks, service marks, trademark and
service mark registrations and applications, patents and patent applications,
copyrights, copyright applications, trade names, corporate names, technology,
computer software and firmware, data and documentation (including electronic
media), trade secrets, processes, and other intellectual property and
proprietary information or other assets or rights related to or used in the
conduct of the Business; and permits, licenses, distributorships or other
agreements to or from third parties regarding the foregoing and used in the
Business.
"Purchased Assets" means all of the right, title and interest in and
to all assets used in the conduct of the Business, of every kind and
description, wherever located, owned as of the Closing Date, whether tangible or
intangible (including, without limitation, goodwill), real, personal or mixed,
excluding the Retained Assets. The Purchased Assets include, without limitation,
the following:
(a) all of the Seller's petty cash, certificates of deposit,
commercial paper, letters of credit, stock (excluding the stock in DB), bonds
and other investment securities;
(b) the list of customers annexed hereto as Schedule 1.1(i) (the
"Customer
<PAGE>
List"), which Seller and the Principals represent and warrant sets forth all
customers with whom the Seller (a) currently does business, (b) has done
business with since January 1, 1995 or (c) is currently soliciting for business;
and which list includes names, addresses, contact persons, and telephone numbers
(but which excludes entities which were only customers of the Southaven
Business);
(c) all rights of the Seller to conduct the Business with such
current, former or future customers on the Customer List, all rights under any
executory contract, agreement or purchase order form, or contract with, any
customer on the Customer List or supplier, related to the Business to which the
Seller or any of its Affiliates is a party that is designated on Schedule 3.21
including an assignment of any contracts listed on Schedule 3.21 between a
customer on the Customer List or supplier, and the Seller;
(d) all computer equipment and other equipment used in the Business
(including without limitation any leasehold interest in equipment) which Seller
has identified on Schedule 1.1(ii), if any (or assignment of any computer leases
or other equipment leases); and
(e) all Proprietary Rights including but not limited to a license or
assignment of license for all computer software used by Seller in the Business;
(f) all restrictive covenants and obligations of present and former
employees, agents, representatives, independent contractors and others with
respect to the Business (to the extent assignable);
(g) all machinery and equipment (including spare parts) and business
machines, automobiles, trucks, trailers, fork-lift trucks, and other vehicles,
furniture, fixtures, supplies, capital improvements in process, tools and all
other tangible personal property employed in the conduct of the Business,
including those assets listed on Schedule 1.1(ii);
(h) all raw material inventories, paper, warehouse stock, parts,
inventories, material, supplies, work-in-progress and finished products,
including without limitation, packaging and shipping materials used in the
Business (the "Inventory");
(i) all easements, rights of way, servitudes, leases, permits,
licenses or options used or held by the Business (to the extent assignable);
(j) all accounts and notes receivable and all reserves related
thereto, deposits, advances and manufacturer and supplier rebates related to the
Business (the "Accounts Receivable");
(k) all prepaid rentals, deposits, advances and other prepaid expenses
pertaining to the Business;
(l) all right, title and interest of the Seller in mortgages,
indentures, promissory notes, evidences of indebtedness, other debt, deeds of
trust, loan or credit agreements or similar
<PAGE>
agreements or instruments evidencing indebtedness of customers, other than
accounts receivable;
(m) all rights and claims of the Seller, whether mature, contingent or
otherwise, against third parties, whether in tort, contract or otherwise,
including without limitation, causes of action, unliquidated rights and claims
under or pursuant to all warranties, representations and guarantees made by
manufacturers, suppliers or vendors, claims for refunds, rights of off-set and
credits of all kinds and all other general intangibles (excluding claims in
respect of the Retained Assets or Retained Liabilities);
(n) all authorizations, consents, approvals, licenses, orders,
permits, exemptions of, filings or registrations with, any Governmental
Authority related to the Business (to the extent assignable);
(o) Seller's telephone and facsimile numbers and E-mail addresses and
domain names used in the Business;
(p) all Seller's rights in the real property and real estate ("Real
Property") leased by the Seller with respect to the Business and all buildings
and improvements thereto listed on Schedule 1.1(iii);
(q) all rights under any executory contract related to the Business to
which the Seller or any of its Affiliates is a party, including without
limitation, any license agreement, joint venture, marketing agreement, security
agreement, indemnity agreement, subordination agreement, mortgage, equipment
lease or other lease or sublease (whether or not capitalized), conditional sale
or title retention agreement and any purchase order from, or contract with, any
customer or supplier, including the Contracts listed on Schedule 3.21;
(r) all rights of Seller in and to the trade name/trade style Business
Mail Express; and
(s) all other assets (other than Retained Assets) used in the conduct
of the Business, whether or not reflected on the books and records of the
Seller, including without limitation, the Business as a going concern, its
goodwill and franchises, all credit balances of or inuring to the Seller under
any state unemployment compensation plan or fund, its employment contracts, all
books, records, files and papers relating to, or necessary to the conduct of,
the Business, including without limitation, drawings, engineering, manufacturing
and assembly information, operating and training manuals, computer programs,
manuals and data, catalogs, quotations, bids, sales and promotional materials,
correspondence, trade association memberships (to the extent transferable),
research and development records, prototypes and models, lists of present and
former customers and suppliers, customer credit information, customers' pricing
information, business plans, studies and analyses, whether prepared by the
Seller or a third party, relating to the Business, books of account, accounting
records and personnel, employment and other records relating to the Business;
provided, however, that notwithstanding the sale of such books and records, the
Purchaser shall provide the Seller with access to such books and records, at
reasonable times and upon reasonable notice, for its legitimate business
purposes, such as
<PAGE>
preparation of tax returns, defense of third party claims, and operation of the
Southaven Business.
"Regulated Substances" means pollutants, contaminants, hazardous or
toxic substances, compounds or related materials or chemicals, hazardous
materials, hazardous waste, flammable explosives, radon, radioactive materials,
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum and petroleum products (including, but not limited to, waste petroleum
and petroleum products) as regulated under applicable Environmental Laws.
"Restricted Stock" means the shares to be issued to the Seller as the
Stock Portion of the Earn-Out.
"Retained Assets" means the following:
(a) Seller's personal seat licenses for St. Louis Rams tickets and any
and all rights in and to future ticket purchases and related agreements;
(b) Seller's condominium in Disney World, Florida;
(c) the Southaven Assets, the Southaven Business and the Southaven
Plant;
(d) all corporate minute books and stock records of Seller; and
(e) the assets, if any, listed on Schedule 1.1(iv).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders" has the meaning ascribed to such term in the preamble
to this Agreement.
"Southaven Assets" means all assets, including goodwill, used by
Creative Data in connection with the Southaven Business and located in
Southaven, Mississippi or St. Louis, Missouri, other than and excluding the
laser printing finishing equipment, furniture and other assets relating to such
operations located in Southaven, Mississippi which are being transferred to
Purchaser. Schedule 1.1(vi) lists the principal assets currently located at
Seller's Southaven, Mississippi facility, and the division of such assets
between Seller and Purchaser.
"Southaven Business" means Seller's vinyl manufacturing operations and
manufacturing of labels (whether produced on vinyl, card stock or other
material) conducted chiefly at the Southaven Plant and selling printperfect and
other blank vinyl stock.
"Southaven Plant" means the plant where the Southaven Business is
conducted at 8901 First Industrial Drive, Southaven, Mississippi.
<PAGE>
"Stock Portion" has the meaning ascribed to such term in Section 2.4.
"Survival Period" has the meaning ascribed to such term in Section 8.1
"Third Party Claim" has the meaning ascribed to such term in Section
8.3.
"Vestcom Common Stock" means the Common Stock, no par value, of
Vestcom.
Section 1.2. Interpretation. Unless otherwise indicated to the
contrary herein by the context or use thereof: (i) the words, "herein,"
"hereto," "hereof" and words of similar import refer to this Agreement as a
whole and not to any particular Section or paragraph hereof; (ii) words
importing the masculine gender shall also include the feminine and neutral
genders, and vice versa; and (iii) words importing the singular shall also
include the plural, and vice versa.
ARTICLE II
ARTICLE IIPurchase and Sale of Assets; Assumption of Liabilities
Section 2.1. Purchase and Sale of Assets. Upon the terms and subject
to the conditions of this Agreement and on the basis of the representations,
warranties and agreements contained herein, at the Closing, the Seller shall
sell, assign, transfer, convey and deliver to the Purchaser all of the Seller's
right, title and interest in and to the Purchased Assets and the Purchaser shall
purchase such Purchased Assets from the Seller.
Section 2.2. Assumption of Liabilities. In connection with the
purchase and sale of the Purchased Assets as set forth herein, and upon the
terms and subject to the conditions of this Agreement, at the Closing, Buyer is
expressly assuming the Assumed Liabilities.
Section 2.3. Purchase Price. The aggregate purchase price to be paid
by the Purchaser for the Purchased Assets shall be an amount equal to $9,500,000
(the "Base Purchase Price"), plus assumption of the Assumed Liabilities. EXCEPT
FOR THE ASSUMPTION OF THE ASSUMED LIABILITIES, THE PURCHASER IS NOT ASSUMING,
NOR SHALL IT IN ANY MANNER BECOME LIABLE FOR, ANY OTHER LIABILITIES OR
OBLIGATIONS OF ANY KIND OR NATURE WHATSOEVER OF THE SELLER OR ITS AFFILIATES.
The Base Purchase Price shall be paid at Closing, by wire transfer to the
Seller, subject to Sections 2.4 and 2.5.
Section 2.4. Settlement of the Purchase Price. (a) As soon as
practicable, but in no event more than 30 days after the Closing Date ("30-Day
Period"), the Seller and the Purchaser shall agree upon a statement of the book
value of the Purchased Assets less the Assumed Liabilities of the Business
acquired or assumed (the "Closing Net Assets") as of the Closing Date (the
"Closing Balance Sheet"), which Closing Balance Sheet shall be prepared in
conformity with GAAP on a basis consistent with Seller's audited historical
financial statements and the computation of the Estimated Net Assets. If there
is any dispute with respect to the Closing Balance Sheet which cannot be
resolved within the 30-Day Period, then the CPA Firm and the Accountants shall
attempt to resolve the differences, with each party responsible for the fees of
its own accountants.
<PAGE>
If the CPA Firm and the Accountants cannot resolve the dispute and agree upon
the Closing Net Assets within 30 days of the expiration of the 30-Day Period,
then the parties shall endeavor to settle the dispute by mediation under the
then current CPR Model Mediation for Business disputes published by the CPR
Institute for Dispute Resolution in New York. The Purchaser and Seller shall
equally share any expenses of mediation. If the mediation fails to settle the
matter within the periods provided by the CPR Model Mediation rules or if either
party refuses to participate in mediation, then either party may commence
arbitration pursuant to Section 9.14.
(b) (i) If the Estimated Net Assets exceed the Closing Net Assets,
then the Seller shall pay to the Purchaser an amount equal to such excess. (ii)
If the Closing Net Assets exceed the Estimated Net Assets, then the Purchaser
shall retain the excess, unless the Seller's Bank indebtedness prior to the
payoff and as of the Closing Date exceeds $4,002,485 and the Assumed Liabilities
as of the Closing Date are less than the amount of liabilities at September 27,
1997 used in calculating the Estimated Net Assets (the "Estimated Liabilities").
In the latter event, the Purchaser shall pay to the Seller an amount equal to
the lesser of: (1) the excess of the Seller's Bank indebtedness as of the
Closing Date over $4,002,485, (2) the excess of the Estimated Liabilities over
the Assumed Liabilities and (3) the excess of the Closing Net Assets over the
Estimated Net Assets.
(c) Any amount payable pursuant to Section 2.4(b) shall be paid by
wire transfer, no more than five business days following the final determination
of the Closing Net Assets.
Section 2.5. Use of Proceeds. On the Closing Date, the Seller hereby
directs the Purchaser to wire transfer to (a) Bank of America (the "Bank") so
much of the Base Purchase Price as is necessary to satisfy in full all loans by
the Bank to the Company, and (b) to any other secured creditors, such amounts,
if any, needed to satisfy in full all other Encumbrances upon the Purchased
Assets other than Permitted Encumbrances or such Encumbrances included in the
Assumed Liabilities; provided, however, that if the Bank so consents, up to
$500,000 may remain outstanding with respect to the Seller's loan due to the
Bank so long as the Bank releases all Encumbrances on the Purchased Assets and
consents to a lien in favor of Vestcom and the Purchaser with respect to the
Southaven Assets so that Vestcom and the Purchaser can obtain security for the
indemnification obligations of Seller and the Principals hereunder. The security
interest and resulting lien in favor of Purchaser and Vestcom shall be
subordinate (in priority and right of payment) to any lien now or hereafter
granted by the Seller and/or Newco (as defined below) in favor of the Bank
and/or any bank or other financial institution (collectively, "Lender") to
secure up to $500,000 of indebtedness. To confirm said subordination, Vestcom
and the Purchaser hereby agree, upon request of any Lender, to execute and
deliver a subordination agreement reasonably acceptable to such Lender and
containing a standstill provision related exclusively to the Southaven Assets
and such other terms and conditions reasonably required by Lender. The lien
granted in favor of Vestcom and the Purchaser hereunder shall be released two
(2) years from the date hereof so long as no indemnification claims in excess of
the limitations set forth in Section 8.5(a) are then pending which are not fully
covered (i.e., by assets held in escrow with a value of at least 115% of all
pending claims thereunder) by amounts then on deposit with Escrow Agent pursuant
to the Escrow Agreement. Each of Vestcom and the Purchaser agree to execute and
deliver to Seller such documents reasonably requested by Seller to effectuate
said
<PAGE>
release including, without limitation applicable UCC-3 termination statements.
The Seller will have sufficient liquid assets, after payment of all secured debt
required to be paid above, to be able to satisfy all other liabilities of the
Seller (other than the Assumed Liabilities).
Section 2.6. Earn-Out Payment. (a) Creative Data will be entitled to
an earn-out payment if the CD Gross Profit (on a stand alone basis) for the 12
month period beginning on January 1, 1998 and ending December 31, 1998 (the
"Earn-Out Period") exceeds $5,162,000 (the "CD Benchmark"). The earn-out payment
will be equal to the excess of the CD Gross Profit for the Earn-Out Period over
the CD Benchmark, multiplied by 2.5, up to a maximum of $1,250,000. For purposes
of the calculation of the earn-out payment, the CD Gross Profit will be based
upon the operations of Creative Data (without DB) from January 1, 1998 to the
Closing Date and of the Purchaser from the Closing Date to December 31, 1998,
utilizing the assets purchased from Creative Data (and not DB) and the
liabilities of CD assumed hereunder and the integration plan detailed on Exhibit
H hereto (the "CD Gross Profit"), and the parties hereto acknowledge that
reference to CD Gross Profit in connection with a determination of the earn-out
payment refers to such operations, and not the operations of the Seller after
the Closing Date. Both CD Gross Profit and DB Gross Profit will be calculated in
accordance with GAAP on a basis consistent with Seller's audited historical
financial statements and Seller's 1998 budget, subject to the adjustments and
modifications more particularly set forth in Section 2.6(d). The Purchaser and
Vestcom shall not, without the Seller's prior written consent which shall not be
unreasonably withheld or delayed and except as set forth in the Integration Plan
or the other Schedules and Exhibits hereto, sell, merge, consolidate or
otherwise transfer all or any portion of the stock of the Purchaser or all or
any portion of the Purchased Assets (except in the ordinary course of business),
or otherwise engage in any transaction not in the ordinary course of business
prior to expiration of the Earn-Out Period.
Notwithstanding the grant of a security interest to Vestcom and the
Purchaser to secure the indemnification obligations, the Seller and the
Principals agree that Vestcom and the Purchaser are under absolutely no
obligation to foreclose first or to exercise any remedies in any order. It is
acknowledged that due to the subordinated nature of the security interests, it
is unlikely that Vestcom or the Purchaser would exercise those remedies first.
Vestcom and the Purchaser may seek relief under the Escrow Agreement and/or
directly against any or all Indemnifying Parties prior to or simultaneously with
the exercise of remedies under the Security Agreement.
(b) DB will be entitled to an earn-out payment if the DB Gross Profit
(on a stand-alone basis) for the Earn-Out Period exceeds $1,770,000 (the "DB
Benchmark"). The earn-out payment will be equal to the excess of the DB Gross
Profit for the Earn-Out Period over the DB Benchmark, multiplied by 2.5, up to a
maximum of $1,250,000. For purposes of the calculation of the earn-out payment,
DB Gross Profit will be based upon the operations of DB from January 1, 1998 to
the Closing Date and of the Purchaser from the Closing Date to December 31,
1998, utilizing the assets purchased from DB (and not Creative Data) and the
liabilities of DB assumed hereunder and the integration plan detailed on Exhibit
H hereto, and the parties hereto acknowledge that reference to DB Gross Profit
in connection with a determination of the earn-out payment refers to such
operations, and not the operations of the Seller after the Closing Date.
<PAGE>
(c) The payments due under Section 2.6(a) and (b) above (collectively,
the "Earn-Out Payment"), if any, shall be payable 50% in cash and 50% in
unregistered shares of Vestcom Common Stock 15 days after the joint calculation
contemplated in Section 2.6(d) is completed. The shares of Vestcom Common Stock,
if any, issued as part of the Earn-Out Payment (the "Stock Portion") shall be
issued based upon the average of the closing price of the Vestcom Common Stock
for the last 30 trading days in the Earn-Out Period, as adjusted for stock
dividends and stock splits, if any, between the commencement of such 30 day
period and the date the Stock Portion is issued by the Parent. No fractional
interest in any share of Vestcom's Common Stock shall be distributed as part of
the Stock Portion, and the number of shares to be delivered to the Seller shall
be rounded to the nearest whole number of shares. The Seller and the Principals
acknowledge that the shares in the Stock Portion will be restricted securities
under federal and state securities laws, and that they will not sell, dispose of
or otherwise transfer such shares for a period of one (1) year, commencing on
the earlier of (i) the date 15 days after the joint calculation contemplated by
Section 2.6(d) is completed and agreed upon, or (ii) March 31, 1999.
(d) The Earn-Out Payment shall be calculated by mutual agreement of
the parties within 30 days after the end of the Earn-Out Period ("Calculation
Period"), and shall be computed in accordance with GAAP on a basis consistent
with Seller's audited financial statements and the 1998 budgets submitted by
Seller to the Purchaser. If the parties fail to agree upon the calculation of
the Earn-Out Payment within the Calculation Period, then any differences shall
be resolved in the same manner as set forth in Section 2.4(a) hereof with
respect to the Closing Balance Sheet. Intercompany transactions between the
Purchaser and any other subsidiary of Vestcom shall be accounted for
consistently with Vestcom's general accounting policies. Any changes in
accounting after the Closing Date determined by Vestcom shall be excluded from
the calculation of the Earn-Out Payment except for reasonable reserves or
allowances deemed appropriate by Vestcom consistent with past practices of the
Seller. The following costs and expenses shall be excluded from the calculation
of CD Gross Profit and DB Gross Profit: (i) management fees charged and overhead
allocations made by Purchaser or Vestcom with respect to the Southaven Plant;
(ii) any excess costs incurred in connection with the relocation of any existing
production facility into another production facility consistent with the
integration plan in Exhibit H; (iii) any amortization of goodwill created by the
acquisition of the Purchased Assets; (iv) any change in depreciation and/or
amortization expense for equipment and/or other intangible assets owned by
Seller as a result of any write-ups or write-downs in the value of such
equipment or other intangible assets by Purchaser on account of the purchase of
the same or otherwise; and (v) any other costs or expenses associated with, or
incurred in connection with, consummating the transaction contemplated by this
Agreement, including, without limitation, the aggregate, one-time, non-recurring
costs paid or incurred in connection therewith. In computing the CD Gross
Profit, the revenue up to $780,000 from the aggregate management fees charged to
DB and the revenue of up to $60,000 from leasing delivery vehicles (both as
included in the Creative Data budget and consistent with Seller's past
practices) shall be included in the calculations. If another subsidiary of
Vestcom utilizes the facilities of the Purchaser during the Earn-Out Period, or
if Purchaser utilizes the facilities of Vestcom and/or any of its subsidiaries
during the Earn-Out Period, any such services shall be priced or accounted for,
respectively, in accordance with the
<PAGE>
schedule attached hereto as Exhibit K.
(e) The Seller and the Principals hereby grant Vestcom and the
Purchaser a security interest in the entire amount of the Earn-Out Payment. Such
Earn-Out Payment will secure repayment of any indemnification obligations of
Seller or the Principals hereunder, and will be subject to set-off as more
particularly set forth in Section 8.6. Any amount paid or issued as an Earn-Out
Payment will be placed in escrow with Vestcom's attorneys pursuant to the form
of escrow agreement annexed hereto as Exhibit G, to secure the Seller's and the
Principals' indemnification obligations hereunder, and released (with the lien
thereon) as provided in the Escrow Agreement.
(f) Receipt of the Earn-Out Payment by Seller is also subject to the
following:
(i) In the event that the Financial Condition (as defined below)
is not satisfied as of December 31, 1998, the first $500,000 of any cash portion
of the Earn-Out Payment will be placed in escrow with the Escrow Agent and be
subject to forfeiture. If the Financial Condition is satisfied such amount will
remain in escrow, but will no longer be subject to forfeiture. If the Financial
Condition is not satisfied, it will remain subject to forfeiture as detailed
below. In addition, the first $500,000 of the Stock Portion (valued consistently
with Section 2.6(c)) shall be placed in escrow and be subject to forfeiture at
the end of 1999. Furthermore, in the event that the Financial Condition is not
satisfied as of December 31, 1999, such amount placed in escrow, up to $500,000
for any cash portion remaining subject to forfeiture and $500,000 for any Stock
Portion, will then be forfeited. Otherwise, any amount placed in escrow and not
forfeited pursuant to the terms hereof shall be released to the Seller in
accordance with Section 5(b) of the Escrow Agreement provided that no claims in
excess of the limitations set forth in Section 8.5(a) are then pending or if
said claims are pending, the amount placed in escrow over 115% of the pending
claim amounts shall be released and the balance released in accordance with
Section 5(c) of the Escrow Agreement.
(ii) For purposes of determining the conditions to the receipt of
the Earn-Out Payment as set forth in Section 2.6(f)(i) above (which the parties
acknowledge is necessary in order to determine the financial viability of the
Southaven Plant as a supplier), the following factor (the "Financial Condition")
must be satisfied:
(A) The Southaven Business must have positive Pre-tax income
equal to 4% of sales (provided, however, that the foregoing shall be computed
based on CEO salary of $130,000 per annum regardless of the actual compensation
paid to Douglas Brooking).
If there is any dispute with respect to achievement of the Financial Condition,
it shall be resolved by the methodology set forth in Section 2.4(a). The Seller
shall provide Vestcom and the Purchaser throughout 1998 and 1999 with quarterly
income statements and a computation of pre-tax income as a percentage of sales
within 20 days after the end of each fiscal quarter of the Southaven Business
and such other financial statements as Vestcom and the Purchaser may reasonably
request.
<PAGE>
(iii) If Southaven defaults on its supply agreement with
Vestcom's finishing centers, any damages, loss, excess costs or lost profits
arising therefrom may be set-off (in the manner set forth in Section 8.7 hereof)
by Vestcom or the Purchaser against the Earn-Out Payment.
(iv) The form of Escrow Agreement is annexed hereto as Exhibit G.
Any interest earned on the funds placed in escrow will remain in escrow to
secure the indemnification obligations hereunder and thereunder, and will be
released in accordance with the terms thereof.
Section 2.7. Division of Taxation. The Seller shall cooperate with the
Purchaser in giving all required information to the Delaware Division of
Taxation and the Missouri Division of Taxation, if required pursuant to Delaware
law and Missouri law, respectively. The Seller has notified the Director of the
Division of Taxation (the "Director") in the State of Delaware and Missouri of
the transactions contemplated hereby which notice contained the information
required pursuant to Delaware law and Missouri law, respectively. In the event
that either Director informs the Purchaser or the Seller that a possible claim
for taxes exists that is not reflected on the Closing Balance Sheet, Seller
shall indemnify, defend, and hold harmless Purchaser with respect to such taxes
and deposit 100% of the amount claimed in excess of the amounts reflected on the
Closing Balance Sheet with the Escrow Agent pending resolution of such claims
with either or both Directors.
Section 2.8. Allocation of the Purchase Price. The Purchase Price
shall be allocated between Creative Data and DB, as well as among the various
class of assets, as set forth in Exhibit A hereto. The Purchaser and the Seller
shall use such allocation in filing their respective Internal Revenue Service
Form 8594s.
Section 2.9. Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Lowenstein, Sandler,
Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue, Roseland, New Jersey, at
10:00 A.M. one business day after the Pre-Closing Date. The time and date of the
Closing is herein called the "Closing Date". The effective time of the Closing
shall be 11:59 p.m. on the Closing Date.
ARTICLE III
ARTICLE IIIRepresentations and Warranties of the Seller and the
Principals
The Seller and the Principals (and the Minority Shareholders as to
Section 3.1 only and Paul Brooking and Kathleen Brooking House as to the last
sentence of 3.17(c)) jointly and severally represent and warrant to the
Purchaser and Vestcom that the statements contained in this Article III are true
and correct as of the date of this Agreement, except as set forth in the
disclosure schedule delivered by the Seller and the Principals to the Purchaser
contemporaneously with the execution and delivery of this Agreement (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered Sections and paragraphs of this
Agreement, to the extent practical.
<PAGE>
Section 3.1. Organization and Qualification of the Seller. Each of
Creative Data and DB is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and Missouri,
respectively, with full power and authority, corporate and other, to own or
lease its property and assets and to carry on the Business as presently
conducted, and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction listed in Schedule 3.1(a), which
constitute all of the jurisdictions in which the Seller is currently conducting
the Business. The Business is conducted solely through Creative Data and DB.
Creative Data does not own, directly or indirectly, any subsidiaries other than
DB. DB does not own, directly or indirectly, any subsidiaries. The Shareholders
collectively own all of the issued and outstanding capital stock of Creative
Data, each in the amounts reflected on Schedule 3.1(b), and do not own, directly
or indirectly, any interest in any other business affiliated with, or related
to, the Seller or the Business.
Section 3.2. Authorization. The Seller has full corporate power and
authority to execute and deliver this Agreement and the instruments of transfer
and to perform its obligations hereunder and thereunder, all of which have been
duly authorized by all requisite corporate action. Each of this Agreement and
such instruments of transfer has been or, at the time of delivery will be, duly
authorized, executed and delivered by the Seller and constitutes or, at the time
of delivery will constitute, a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms. Each Principal has
the capacity to execute and deliver this Agreement and to perform his or her
obligations hereunder. No Principal is under any impairment or other disability,
legal, physical, mental or otherwise, that would preclude or limit the ability
of such Principal to perform his or her obligations hereunder. This Agreement
constitutes a valid and binding obligation of each Principal, enforceable
against such Principal in accordance with its terms.
Section 3.3. Non-contravention. Neither the execution and delivery of
this Agreement and the instruments of transfer nor the performance by the Seller
or the Principals of their respective obligations hereunder and thereunder will
(i) contravene any provision contained in the Seller's Certificate or Articles
of Incorporation (as the case may be) or by-laws, (ii) violate or result in a
breach (with or without the lapse of time, the giving of notice or both) of or
constitute a default under (A) any contract, agreement, commitment, indenture,
mortgage, lease, pledge, note, license, permit or other instrument or obligation
(other than by reason of a failure to obtain any required consent prior to
Closing with respect to the Contracts and Leases listed on Schedule 3.4(C) or
(D)) or (B) any judgment, order, decree, law, rule or regulation or other
restriction of any Governmental Authority, in each case to which the Seller or
any Principal is a party or by which it is bound or to which any of its assets
or properties are subject, (iii) result in the creation or imposition of any
lien, claim, charge, mortgage, pledge, security interest, equity, restriction or
other encumbrance (collectively, "Encumbrances") on any of the Seller's assets
or properties, or (iv) result in the acceleration of, or permit any Person to
accelerate or declare due and payable prior to its stated maturity, any Assumed
Liability.
Section 3.4. No Consents. (a) No notice to, filing with, or
authorization, registration, consent or approval of any Governmental Authority
is necessary for the execution, delivery or performance of this Agreement or the
instruments of transfer or the consummation of the
<PAGE>
transactions contemplated hereby or thereby by the Seller.
(b) No notice to, filing with or authorization, registration, consent
or approval of any Person (other than a Governmental Agency) is necessary for
the execution, delivery or performance of this Agreement or the instruments of
transfer or the consummation of the transactions contemplated hereby or thereby
by the Seller except (i) consents with respect to the Contracts and Leases, set
forth on Schedule 3.4(A) and (B), all of which have been obtained prior to the
date hereof and (ii) consents with respect to the Contracts and Leases set forth
on Schedule 3.4(C) and (D), which have not been obtained as of the date hereof
but which the Seller and the Principals will continue to use their commercially
reasonable efforts to obtain.
Section 3.5. The Purchased Assets. The Purchased Assets constitute all
of the rights, properties, leaseholds and assets (real, personal or mixed,
tangible or intangible) which are necessary or desirable for the conduct of the
Business in the manner previously conducted by the Seller. No third party
(including any Affiliate) owns or has any interest by lease, license or
otherwise in any of the Purchased Assets except for the lessors under leases
disclosed in the Schedules. The documents of transfer to be executed and
delivered by the Seller at the Closing will be sufficient to convey good and
marketable title to the Purchased Assets to the Purchaser, free and clear of all
Encumbrances (other than Permitted Encumbrances), except for the consents needed
for the Contracts and Leases listed on Schedule 3.4(C) and (D).
Section 3.6 Personal Property. The Seller has good and marketable
title to (or valid leasehold or contractual interests in) all personal property
comprising the Purchased Assets, free and clear of any Encumbrances (other than
Permitted Encumbrances), except as disclosed on Schedule 3.6. All machinery,
equipment, furniture, fixtures and other personal property used in the Business
is in reasonably good operating condition and fit for operation in the ordinary
course of business (subject to normal wear and tear) and to the Knowledge of the
Seller or Principals, with no defects that could materially interfere with the
conduct of normal operations of such equipment, furniture, fixtures and other
personal property and are suitable for the purposes for which they are currently
being used.
Section 3.7. Real PropertySection 3.7. Real Property. (a) The Seller
does not own any real property or real estate. The Seller leases the locations,
with the monthly rentals and lease expiration dates as are set forth in Schedule
1.1(iii). Seller has delivered true and complete copies of its leases on such
premises to the Purchaser. Neither Seller nor, to Seller's Knowledge, any
landlord is in default on any such leases, except for defaults arising from
failure to obtain consents to the leases listed on Schedule 3.4(D).
(b) Seller has paid all rents and costs due to the various landlords
listed on Schedule 3.7 through the date hereof and has complied in all material
respects with all other terms and conditions of each lease through the Closing
Date. Seller has obtained all necessary landlord's consents and an estoppel
certificate (or transmittal letter that there are no tenant defaults) from each
landlord except for leases listed on Schedule 3.4(D). To the Seller's Knowledge,
all leased facilities are in compliance with all laws and regulations applicable
to such properties and the operations of the Business at such locations.
<PAGE>
Section 3.8. Predecessor Status. Set forth in Schedule 3.8 is a
listing of all names of all predecessor companies of the Seller, including the
names of any entities from whom within the last five years the Seller previously
acquired significant assets. The Seller has not since 1992, when CDS was a
subsidiary of Schnucks Markets, Inc., been a subsidiary or division of another
corporation or a part of any acquisition which was later rescinded. Set forth on
Schedule 3.8 is a listing of each business name used by the Seller in the last 5
years and its predecessors and by any companies acquired by or merged into it,
and each state and county in which any such trade name is registered, if any.
Section 3.9. Financial Statements. (a) The Seller has previously
furnished to the Purchaser (which are attached to Schedule 3.9) (i) a true and
complete copy of the Seller's balance sheet as of September 27, 1997 and the
related statements of income, cash flows and changes in stockholders' equity for
each of the years in the three (3) year period then ended, in draft audit form
from the Accountants, with the audited statements to be in identical form except
a subsequent event footnote regarding this transaction, (ii) such statements as
listed in (i) above as of September 27, 1997 unaudited and prepared excluding
the Southaven Assets and the related liabilities and the operations associated
with the Southaven Business and (iii) a true and complete copy of the Seller's
unaudited balance sheet (excluding the Southaven Assets and the related
liabilities) as of December 27, 1997, and the related unaudited statements of
income as of and for the three (3) month period then ended (excluding the
Southaven Business), certified by the Seller's chief financial officer
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in conformity with GAAP, applied on a consistent basis (subject, in the
case of unaudited financial statements, to normal recurring and other year-end
adjustments and preparation of footnotes) and present fairly the financial
condition and results of operations of the Seller and the Business as of and for
the periods included therein. Schedule 3.9(a) also sets forth internal pricing
information and other operational data relating to the relationship between the
Southaven Business and the Business which information is true and correct.
Within five (5) business days of the Closing Date, the Seller shall provide the
Purchaser with the final audited financial statements (identical to the draft
except for the subsequent event note which has been approved by Purchaser as
accurate) and a consent from the Accountants to include such statements in any
required filings with the SEC.
(b) Schedule 3.9(b) also sets forth certain expenses of the Seller
incurred during the 12 months ended September 27, 1997. The Seller and the
Principals represent and warrant that such expenses are non-recurring and will
not be incurred by the Purchaser in any material respect in operating the
Business after the Closing Date. Schedule 3.9(b) also sets forth the following:
(1) Seller's overhead costs which will be eliminated as a result of this
transaction; (2) overhead costs transferred to the Southaven Business, and (3)
overhead costs which the Seller will contractually purchase from the Purchaser
until the Southaven Business establishes its own internal capabilities therefor.
The Seller recognizes that the Purchaser will rely on the information in
Schedule 3.9 in making filings with the SEC.
Section 3.10. Absence of Certain Developments. Except as set forth in
Schedule 3.10, since September 27, 1997, there has not been any Material Adverse
Change, or any development
<PAGE>
which could reasonably be expected to result in a Material Adverse Change. Since
September 27, 1997, except as set forth on Schedule 3.10, the Seller has
conducted the Business in the ordinary and usual course consistent with past
practices and has not (i) sold, leased, transferred or otherwise disposed of any
of the assets of the Business (other than dispositions in the ordinary course of
business consistent with past practices), (ii) terminated or amended in any
material respect any contract or lease to which the Seller is a party or to
which it is bound or to which its properties are subject, (iii) suffered any
loss, damage or destruction whether or not covered by insurance, (iv) made any
change in the accounting methods or practices it follows, whether for general
financial or tax purposes, (v) incurred any liabilities, absolute or contingent
(other than in the ordinary course of business) which, individually or in the
aggregate, are material, (vi) incurred, created or suffered to exist any
Encumbrances on the Purchased Assets other than Permitted Encumbrances and those
listed on Schedule 3.6 or created in the ordinary course of business, none of
which, individually or in the aggregate, are material or would have a Material
Adverse Effect, (vii) increased the compensation payable or to become payable to
any of the officers or employees of the Business or increased any bonus,
severance, accrued vacation, insurance, pension or other Employee Benefit Plan,
payment or arrangement made by the Seller for or with any such officers or
employees, other than salary increases to individuals who are not Principals or
officers in the ordinary course of business consistent with past practices,
(viii) suffered any labor dispute, strike or other work stoppage, (ix) made or
obligated itself to make any capital expenditures in excess of $50,000
individually or in the aggregate, (x) entered into any contract or other
agreement requiring the Seller to make payments in excess of $50,000 per annum,
individually or in the aggregate, other than in the ordinary course of business
consistent with past practices, (xi) acquired any assets or rights with an
aggregate value in excess of $50,000, other than in the ordinary course of
business and consistent with past practices, (xii) disposed of any Proprietary
Right material to the Business, or (xiii) entered into any agreement to do any
of the foregoing.
Section 3.11. Governmental Authorizations; Licenses; Etc. The Seller
has operated its businesses in all material respects in compliance with all
applicable laws, rules, regulations, codes, ordinances, orders, policies and
guidelines of all Governmental Authorities ("Laws"), including but not limited
to, those related to: fire, safety, labeling of products, pricing, sales or
distribution of products, antitrust, trade regulation, trade practices,
sanitation, land use, employment or employment practices, energy and similar
laws. To the Seller's Knowledge, the Seller has all permits, licenses,
approvals, certificates and other authorizations, and has made all
notifications, registrations, certifications and filings with all Governmental
Authorities, necessary or advisable for the operation of its businesses as
currently conducted by the Seller ("Authorizations"). There is no action, case
or proceeding pending or, to the Seller's Knowledge, threatened by any
Governmental Authority with respect to (i) any alleged violation by the Seller
or its Affiliates of any Law, or (ii) any alleged failure by the Seller or its
Affiliates to have any Authorization required in connection with the operation
of its businesses. No notice of any violation of such laws has been received by
the Seller or any Affiliate of the Seller and neither the Seller nor any such
Affiliate has received any notice that the products manufactured or sold by the
Business are not in compliance with, or do not meet the standards of, all
applicable laws. Schedule 3.11 sets forth a true and complete list of all
Authorizations relating to the Business. Such Authorizations are in full force
and effect and the Seller has received no notification of the suspension or
<PAGE>
cancellation of any thereof.
Section 3.12. Litigation. Except as set forth in Schedule 3.12, there
are no lawsuits, actions, proceedings, claims, orders or investigations by or
before any Governmental Authority pending or, to the Seller's Knowledge,
threatened against the Seller or its Affiliates relating to the Business, the
Purchased Assets or the Assumed Liabilities or seeking to enjoin the
transactions contemplated hereby and there are no facts or circumstances known
to the Seller that could result in a claim for damages or equitable relief.
Section 3.13. Undisclosed Liabilities. Except for contingent
liabilities reflected in the Financial Statements described in Section 3.9(i) or
arising in the ordinary course of Seller's Business subsequent thereto and
disclosed in this Agreement, Schedule 3.13 or the other Schedules hereto, there
are no liabilities of the Seller of any kind or nature whatsoever, whether known
or unknown, absolute, accrued, contingent or otherwise, or whether due or to
become due, other than liabilities incurred in the ordinary course of business
and consistent with past practices since the date of the Financial Statements
described in Section 3.9(i), and except as disclosed in Schedule 3.13 or in the
other Disclosure Schedules, there exists no facts or circumstances (other than
general economic conditions) that could reasonably be expected to result in any
such liability.
Section 3.14. Taxes. All federal, state, county, local and foreign tax
returns and reports of the Seller or any Affiliate of the Seller required to be
filed prior to or on the Closing Date which relate to or affect the Business or
the Purchased Assets have been duly filed. All federal, state, county, local,
foreign and any other taxes (including all income, withholding and employment
taxes), assessments (including interest and penalties), fees and other
governmental charges with respect to the employees, properties, assets, income
or franchises of the Seller or any Affiliate of the Seller relating to or
affecting the Business or the Purchased Assets have been paid or duly provided
for, or are being contested in good faith by appropriate proceedings as
disclosed on Schedule 3.14 and adequate reserves therefor have been established
pursuant to GAAP on a basis consisted with Seller's historical financial
statements and the Closing Balance Sheet, or have arisen after the date hereof
in the ordinary course of business. There are no tax liens on any of the
Purchased Assets.
Section 3.15. Insurance. Schedule 3.15 sets forth a true and correct
list of all insurance policies or binders maintained by the Seller on the date
hereof relating to the Business or the Purchased Assets showing, as to each
policy or binder, the carrier, policy number, coverage limits, expiration dates,
annual premiums, deductibles or retention levels and a general description of
the type of coverage provided. Copies of such policies have been delivered to
the Purchaser or will be delivered to Purchaser upon request. Such policies and
binders are, and at all times prior to the Closing will be, in full force and
effect. At all times prior to the Closing Date, the Seller has maintained such
insurance policies covering the Purchased Assets and all aspects of the
Business. The Seller has delivered to the Purchaser an accurate list of all
insurance loss runs or worker's compensation claims received for the past five
(5) policy years. No insurance carried by the Seller has ever been canceled by
the insurance carrier prior to its original termination date and the Seller has
never been denied coverage.
<PAGE>
Section 3.16. Environmental Matters. Except as set forth on Schedule
3.16 and to the Seller's or Principals' Knowledge, (i) the Business is being and
has been conducted in compliance with all applicable Environmental Laws in
appropriate jurisdictions, (ii) the real property owned or operated by the
Business (including, without limitation, soil, groundwater or surface water on,
under or adjacent to the properties and buildings thereon) (the "Affected
Property") do not contain any Regulated Substance other than as permitted under
applicable Environmental Laws, (iii) the Business has, and at all times has had,
all permits, licenses and other approvals and authorizations required under
applicable Environmental Laws for the operation of the Business, (iv) the Seller
has not received any notice from any Governmental Authority that the Seller or
any of its Affiliates may be a potentially responsible party in connection with
any waste disposal site or facility used, directly or indirectly, by or
otherwise related to the Business, (v) no reports have been filed, or have been
required to be filed, by the Seller concerning the release of any Regulated
Substance or the violation of any applicable Environmental Law on or at the
properties used in the Business, (vi) no Regulated Substance has been disposed
of, transferred, released or transported from the Affected Property, other than
as permitted under applicable Environmental Law or pursuant to appropriate
regulations, permits or authorizations, (vii) there have been no environmental
investigations, studies, audits, tests, reviews, or other analyses conducted by
or which are in the possession of the Seller or any Affiliate of the Seller
relating to the Business, true and complete copies of which have not been
delivered to the Purchaser prior to the date hereof, (viii) there are no
underground storage tanks on, in or under any Affected Property and no
underground storage tanks have been closed or removed from any Affected
Property, (ix) the Seller has not presently incurred, and the Affected Property
is not presently subject to, any liabilities (fixed or contingent) relating to
any suit, settlement, judgment or claim asserted or arising under any applicable
Environmental Law, (x) all documents filed by or on behalf of the Seller or any
Affiliate of the Seller with any Governmental Authority pursuant to any
applicable Environmental Law in connection with the sale of the Business or the
Purchased Assets were true, correct and complete and did not omit to state any
fact required to be stated therein or necessary to make the statements therein
not misleading, (xi) all applicable Environmental Laws in existence at the time
the Affected Property was acquired were complied with, and (xii) there are no
civil, criminal or administrative actions, suits, demands, claims, hearings,
investigations or other proceedings pending or threatened against the Business
or the Seller or any Affiliate of the Seller with respect to the Business or the
Purchased Assets relating to any violations, or alleged violations, of any
applicable Environmental Law, and neither the Business nor the Seller or any
Affiliate of the Seller have received any notices, demand letters or requests
for information, arising out of, in connection with, or resulting from, a
violation, or alleged violation, of any applicable Environmental Law, and
neither the Business nor the Seller or any Affiliate of the Seller have been
notified by any Governmental Authority or any other Person that the Business or
the Purchased Assets have, or may have, any liability pursuant to any applicable
Environmental Law. The sale of the Business to the Purchaser, and the other
transactions contemplated hereby, do not require any filing or registration
with, notice to, or approval or consent by any Governmental Authority under any
applicable Environmental Law, except as disclosed in Schedule 3.4.
Section 3.17. Employment Matters. (a) Schedule 3.17 contains a true
and complete list
<PAGE>
as of December 31, 1997 of the employees currently employed by the Seller in the
conduct of the Business (the "Employees"), indicating the title of and a
description of any agreement concerning such employees and a listing of the rate
and nature of all current compensation payable by the Seller to each employee.
(b) Except as set forth on Schedule 3.17, (i) the Seller has not
entered into any collective bargaining agreements with respect to the Employees,
(ii) there are no written personnel policies applicable to the Employees
generally, other than employee manuals, true and complete copies of which have
previously been provided to the Purchaser, (iii) there is no labor strike,
dispute, slowdown or work stoppage or lockout pending or, to the Seller's
Knowledge, threatened against or affecting the Business and during the past
three years there has been no such action, (iv) to the Seller's Knowledge, no
union organization campaign is in progress with respect to any of the Employees,
and no question concerning representation exists respecting such Employees, (v)
there is no unfair labor practice, charge or complaint pending or, to the
Seller's Knowledge, threatened against the Seller arising out of the conduct of
the Business and no such charge or complaint has been filed by an employee or
any union with the National Labor Relations Board or any comparable State or
local agency during the past three years, and (vi) the Seller has not entered
into any agreement, arrangement or understanding restricting its ability to
terminate the employment of any or all of its Employees at any time, for any
lawful or no reason, without penalty or liability. The Seller is not bound by or
subject to (and none of its assets or properties are bound by or subject to) any
arrangement with any labor union.
(c) Except for any claim which may arise under the existing employment
agreements with Tim Rosheim, Paul D. Brooking and Kathleen House, which are to
be paid by the Seller and are not Assumed Liabilities nor reflected in computing
Estimated Net Assets, there are no claims for severance pay or accrued vacation
or sick pay, or any like accrued liabilities, including, but not limited to like
claims or liabilities arising from the consummation of this transaction, except
as reflected on the Financial Statements. Any and all change of control or
similar severance agreements contained in any agreement to which the Seller is a
party have been triggered by this transaction, and Seller has paid or shall pay
all such obligations which are not Assumed Liabilities nor were they accrued for
purposes of computing the Estimated Net Assets.
(d) The Principals have read Vestcom's employment policy manual and
Standards of Business Conduct. To the Principals' Knowledge, no employment or
business policies or practices of the Seller violates Vestcom's practices or
policies, or is inconsistent in any material way with the employment policy
manual or Standards of Business Conduct, except that Seller historically has
permitted alcohol to be served at company events.
Section 3.18. Employee Benefit Plans. Schedule 3.18 lists all bonus,
deferred compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
stock option plans, all employment or severance contracts, health and medical
insurance plans, life insurance and disability insurance plans, other material
employee benefit plans, contracts or arrangements which cover employees or
former employees of the Business including, but not limited to, "employee
benefit plans" within the meaning of Section 3(3) of ERISA (the "Employee
Benefit Plans"). Seller is not a party to any
<PAGE>
multiemployer plan. The Employee Benefit Plans which are described in Section
3(3) of ERISA (the "ERISA Plans") are in compliance with all provisions of ERISA
and, if intended to be tax qualified, Sections 401(a) and 501(a) of the Code
except to the extent that the failure to so comply would not have a Material
Adverse Effect. All ERISA Plans which are intended to qualify under Section
401(a) of the Code have been submitted to and approved under Section 401(a) of
the Code by the Internal Revenue Service or, alternatively, the applicable
remedial amendment period with respect to any such ERISA Plan will not have
ended prior to the Closing Date. The Seller does not sponsor or maintain any
plan under Subtitle IV of ERISA and has not sponsored, maintained or
participated in any such plan except for a multi-employer plan, from which the
Seller has completely withdrawn and under which the Seller has no existing or
future liability. All contributions required to be made under the terms of any
Employee Benefit Plan have been timely made or duly provided for.
Section 3.19. Proprietary Rights. (a) All of the Seller's Proprietary
Rights are listed in Schedule 3.19. Except as disclosed therein, the Seller owns
and possesses all right, title and interest in, and upon consummation of the
transactions contemplated hereby, the Purchaser will own all right, title and
interest in, the Proprietary Rights. The Seller has taken all commercially
reasonable action to protect the Proprietary Rights and the transactions
contemplated by this Agreement will not have a Material Adverse Effect on the
Seller's right, title and interest in the Proprietary Rights. True and complete
copies of the written instruments which evidence such Proprietary Rights have
been delivered to Purchaser.
(b) No claim by any third party contesting the validity,
enforceability, use or ownership of any Proprietary Right has been made, is
currently pending or, to the Seller's Knowledge, is threatened. The Seller has
not received any notice of, nor is it aware of any fact which indicates a
likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to any of the Proprietary Rights. The Seller has not
infringed, misappropriated or otherwise conflicted with any rights of any third
parties, nor is it aware of any infringement, misappropriation or conflict which
will occur as a result of the continued operation of the Business as now
conducted.
(c) The Seller has no Knowledge of its having any material "Year 2000"
problems except with respect to software licensed from IBM and Group 1, which
IBM and Group 1 have indicated will be timely cured.
Section 3.20. Accounts Receivable. Schedule 3.20 sets forth a true and
complete listing of all Accounts Receivable and an aging schedule reflecting the
aggregate amount of all Accounts Receivable outstanding as of September 27, 1997
(which will be updated at the Closing) (i) 30 days or less, (ii) more than 30
days but less than or equal to 60 days, (iii) more than 60 days but less than or
equal to 90 days, and (iv) more than 90 days. All of the Accounts Receivable
have arisen in the ordinary and regular course of business, represent bona fide
transactions with third parties and, to the Seller's Knowledge, are not subject
to any counterclaims or offsets (except for those for which adequate reserves
have been established in accordance with GAAP applied consistently with the
Seller's historical financial statements and the Closing Balance Sheet ) and
have been billed.
<PAGE>
Section 3.21. Contracts. (a) Schedule 3.21 describes all contracts
(except for usual and ordinary purchase orders executed in the normal course of
Business), agreements, leases, commitments, instruments, plans, permits or
licenses, whether written or oral, with respect to the Business to which the
Seller is a party or is otherwise bound, of the type described below (the
"Contracts"):
(i) all agreements or commitments for the sale by the Business
of products or services, or the purchase by the Business of raw
materials, products or services, other than those that are for amounts
not to exceed $50,000;
(ii) all agreements or commitments for the purchase by the
Business of machinery, equipment or other personal property other than
those that are for amounts not to exceed $50,000;
(iii) all capitalized leases, pledges, conditional sale or
title retention agreements;
(iv) all employment agreements and commitments and consulting
or severance agreements or arrangements and all covenant against
competition or confidentiality agreements by any present or former
employees;
(v) all agreements relating to the consignment or lease of
personal property (whether the Seller is lessee, sublessee, lessor or
sublessor), other than such agreements that provide for annual payments
of less than $50,000;
(vi) all license, royalty or other agreements relating to the
Proprietary Rights;
(vii) all agreements prohibiting the Seller from freely
engaging in the Business in any geographic area;
(viii) all agreements to provide rebates to customers of
the Business, to the extent not reflected as a liability on the
Financial Statements;
(ix) all indemnification agreements, other agreements or
arrangements where the Seller has agreed to indemnify, hold harmless or
defend any person or entity;
(x) all warranty agreements or guaranteed service or
performance agreements or arrangements;
(xi) any agreement other than those covered by clauses (i)
through (x) above relating to the Business and involving payment or
receipt of more than $100,000 in the aggregate and all agreements which
otherwise materially affect the Business.
(b) Except as disclosed in Schedule 3.4(C) and (D), all of the
Contracts which are intended to be assigned to the Purchaser hereunder are fully
assignable to the Purchaser by the
<PAGE>
Seller without the consent of any third party. Seller will use its commercially
reasonable efforts to obtain the consents of third parties required for the
assignment of such Contracts to the Purchaser prior to or on the Closing Date.
To the Seller's Knowledge, none of the other parties to any such Contracts
intends to terminate or materially alter the provisions of such Contracts either
as a result of transactions contemplated hereby or otherwise.
(c) The Seller is not in, nor has the Seller given or received notice
of, any default or claimed, purported or alleged default, or facts that, with
notice or lapse of time, or both, would constitute a default (or give rise to a
termination right) on the part of any party in the performance of any obligation
to be performed under any of the Contracts.
(d) The Seller has no outstanding bids, sale proposals, contracts or
unfilled orders quoting prices which reflect discounts other than commercially
reasonable discounts given in the ordinary course of business.
(e) True and complete copies of all written Contracts, including any
amendments thereto, have been delivered to the Purchaser and such documents
constitute the legal, valid and binding obligation of the Seller and, to the
Seller's Knowledge, each other party purportedly obligated thereunder.
Section 3.22 Customers and Suppliers. Schedule 3.22 sets forth a list
of (a) the twenty-five (25) largest customers of the Seller in terms of gross
sales during the fiscal year ended September, 30, 1997 (b) all material
outstanding proposals to customers for future work and lists of targeted
potential customers and (c) the fifteen (15) largest suppliers of the Seller in
terms of purchases during the fiscal year ended September 30, 1997. (i) No
customer has notified or otherwise indicated to the Seller that it will stop, or
decrease the rate of, its purchases of materials, products or services from the
Seller, and no customer has, during fiscal 1997, ceased or materially decreased
its purchases of any such materials, products or services from the Seller; and
(ii) no supplier of the Business has notified or otherwise indicated to the
Seller that it will stop, or decrease the rate of, or, other than publicly
announced generally applicable price increases, materially increase the cost of,
its supply of materials, products or services used by the Business, and no
supplier has, during fiscal 1997, ceased, materially decreased the rate of or
materially raised the cost of, any such materials, products or services. The
Seller is not a party to any contract or commitment to purchase products from
any supplier, other than contracts or commitments that are terminable by Seller
in its sole discretion, without cost or penalty, on or prior to March 31, 1998
(except the Supply Agreement being entered into this date with the Purchaser.)
Section 3.23. Key Individuals. The individuals identified on Schedule
3.23 are the sole officers, directors and shareholders of the Seller.
Section 3.24. Ability to Conduct Business. The consummation of the
transactions contemplated hereby will enable the Purchaser to conduct the
Business substantially as it is currently being conducted. The consummation of
the transactions contemplated hereby will also leave the Seller solvent, able to
pay its debts as they come due and with sufficient capital to
<PAGE>
operate the Southaven Business with the Retained Assets.
Section 3.25. Brokers. No person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from the
Seller in connection with this Agreement or any of the transactions contemplated
hereby.
Section 3.26. Absence of Questionable Payments. Neither the Seller nor
any Affiliate, director, officer, employee, agent, representative or other
Person acting on behalf of the Seller has: (i) used any corporate or other funds
for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activities to government officials
or others, or (ii) accepted or received any unlawful contributions, payments,
gifts or expenditures.
Section 3.26. Transactions with Directors, Officers and Affiliates.
Except as listed on Schedule 3.27 annexed hereto, there have been no
transactions since January 1, 1996 between the Seller and any of its directors,
officers, stockholders or affiliates or any of their Family Members (as defined
below) except for payments of dividends to shareholders as disclosed in the
Financial Statements. Each transaction set forth on Schedule 3.27 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To Seller's Knowledge, since January 1, 1996, none of the
officers or directors of the Seller or any spouse or Family Member (as defined
below) of any of such persons, has been a director, officer or consultant of, or
owns directly or indirectly any interest in, any firm, corporation, association
or business enterprise which during such period has been a significant supplier,
customer or sales agent of the Seller or has competed with or been engaged in
any business of the kind being conducted by the Seller except as disclosed on
Schedule 3.27 annexed hereto. Except as disclosed on Schedule 3.27, no Family
Member (which includes all relatives and their spouses in a relationship of
first cousins or closer) of any stockholder, officer or director of the Seller
is currently an employee or consultant receiving payments from the Seller or
otherwise on the payroll of the Seller or has any material claim whatsoever
against or owes any amount to the Seller.
Section 3.27. Full Disclosure. No representation or warranty made by
the Seller or the Principals in this Agreement, any Schedule, any Exhibit or any
certificate delivered, or to be delivered, by or on behalf of the Seller
pursuant hereto contains or will contain any 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 not misleading. There is no fact or circumstance
that the Seller has not disclosed to the Purchaser in writing that the Seller
presently believes has resulted, or could reasonably be expected to result, in a
Material Adverse Change or could reasonably be expected to have a Material
Adverse Effect on the ability of the Seller to perform its obligations under
this Agreement or the instruments of transfer.
ARTICLE IV
ARTICLE IVRepresentations and Warranties of the Purchaser and Vestcom
<PAGE>
The Purchaser and Vestcom jointly and severally represent and warrant
to the Seller as follows:
Section 4.1. Organization. Each of Purchaser and Vestcom is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and New Jersey, respectively, with full corporate power
and authority, to own or lease its property and assets and to carry on its
business as presently conducted.
Section 4.2. Authorization. The Purchaser and Vestcom each has full
corporate power and authority to execute and deliver this Agreement all other
documents contemplated hereby and to perform its obligations hereunder and
thereunder, all of which have been duly authorized by all requisite corporate
action. Each of this Agreement and other documents contemplated hereby has been
or, at the time of delivery will be, duly authorized, executed and delivered by
the Purchaser and Vestcom and constitutes or, at the time of delivery will
constitute, a valid and binding agreement of the Purchaser and Vestcom,
enforceable against the Purchaser and Vestcom in accordance with its terms.
Section 4.3. Non-contravention. Neither the execution and delivery of
this Agreement and the documents contemplated hereby nor the performance of the
Purchaser or Vestcom of their obligations hereunder or thereunder (i) contravene
any provision contained in the Purchaser's and Vestcom's Certificate of
Incorporation or by-laws, (ii) violate or result in a breach (with or without
the lapse of time, the giving of notice or both) of or constitute a default
under (A) any contract, agreement, commitment, indenture, mortgage, lease,
pledge, note, license, permit or other instrument or obligation or (B) any
judgment, order, decree, law, rule or regulation or other restriction of any
Governmental Authority, in each case to which the Purchaser and Vestcom is a
party or by which it is bound or to which any of its assets or properties are
subject, other than a breach or default that would not have a Material Adverse
Effect or (iii) result in the creation or imposition of any Encumbrances on any
of the Purchaser's and Vestcom's assets or properties.
Section 4.4. No Consents. Except for consents required in connection
with the Purchaser's assumption of the Assumed Liabilities which Seller is
required to obtain, no notice to, filing with, or authorization, registration,
consent or approval of any Governmental Authority or other Person is necessary
for the execution, delivery or performance of this Agreement or the consummation
of the transactions contemplated hereby by the Purchaser or Vestcom, other than
those which have been previously obtained.
Section 4.5. Brokers. No person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from the
Purchaser in connection with this Agreement or any of the transactions
contemplated hereby.
Section 4.6. SEC Documents. Vestcom is a corporation subject to the
reporting requirements of the Securities Exchange Act of 1934. Vestcom has filed
all required reports, schedules, forms, statements, and other documents with the
SEC since July 30, 1997 (the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Securities Exchange of 1934, as amended (the
<PAGE>
"Exchange Act"), as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Vestcom included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, as permitted by SEC Form 10-Q) applied on a
consistent basis during the period involved (except as may be indicated in the
notes thereto) and fairly present the financial position of Vestcom and its
subsidiaries as of the date thereof and their statements of operations, changes
in shareholders' equity and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). Except
as set forth in the SEC Documents, to Vestcom's Knowledge, neither Vestcom nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of Vestcom and its subsidiaries or in the
notes thereto, other than liabilities and obligations incurred in the ordinary
course of business consistent with past practice and experience since September
30, 1997.
ARTICLE V
ARTICLE VCovenants and Agreements
Section 5.1. Transfer and Property Taxes. (a) The Seller shall pay any
transfer, sales, purchase, use or similar tax under the laws of any Governmental
Authority arising out of or resulting from the purchase of the Purchased Assets
and the assumption of the Assumed Liabilities. The Seller shall prepare and file
the required tax returns and other required documents with respect to the taxes
and fees required to be paid by it pursuant to the preceding sentence and shall
promptly provide the Purchaser with evidence of the payment of such taxes and
fees.
(b) The Seller shall (i) prepare and file all tax returns reporting
the income attributable to the Purchased Assets or the operation of the Business
for all periods ending prior to or on the Closing Date, (ii) prepare and file
all income tax returns reporting the income of the Seller arising on the Closing
Date from the sale to the Purchaser of the Purchased Assets and the assumption
by the Purchaser of the Assumed Liabilities in accordance with Section 2.2,
(iii) be responsible for the conduct of all tax examinations relating to the tax
returns referred to in (i) and (ii) above, and (iv) pay all taxes attributable
to the Purchased Assets or the operation of the Business due with respect to the
tax returns referred to in (i) and (ii) above. The Purchaser shall prepare and
file all tax returns reporting the income attributable to the ownership of the
Purchased Assets and the operation of the Business for all periods beginning
after the Closing and shall be liable for and pay all taxes due in respect of
such tax returns.
Section 5.2. Change of Name. Promptly after the Closing, Creative Data
shall change its name (and DB shall cancel its fictitious name registration of
Business Mail Express) to new names bearing no resemblance to their present
names and not containing the words Creative Data
<PAGE>
Services or Business Mail Express or any combination or variation thereof or
name similar thereto. After the Closing, the Seller shall not use any such names
or any name similar thereto or which is reasonably believed by the Purchaser to
be confused with any such names or any other names used in the Business, except
that it is understood that Seller will have 30 days after Closing to remove this
name from its stationery, invoices and other like documents used at the
Southaven Plant. The Seller will also remove this name from the Southaven Plant
(or to place its new name on the Southaven Plant in addition to the Creative
Data name) in accordance with a schedule to be negotiated in good faith with the
Purchaser post-closing and consistent with the Purchaser's use of such facility
as a finishing center on a temporary basis. At the Closing, Creative Data shall
deliver to the Purchaser duly adopted and executed copies of a Certificate of
Amendment to its Certificate of Incorporation effectuating such name change, in
form and substance reasonably satisfactory to the Purchaser, the originals of
which will be promptly filed by Seller with the Secretary of State of Delaware,
at the Seller's sole cost and expense. From and after the Closing, the Seller
consents to the use by the Purchaser of the corporate name and any assumed
names, fictitious names, trade names or other similar names of the Seller, each
of which is and shall be included in the Purchased Assets and if requested,
shall assist the Purchaser, at Purchaser's sole cost and expense, in changing
its name to a similar name or adopting a similar trade name or trade style.
Section 5.3. Non-Competition and Confidentiality Agreement. For a
period of five (5) years after the Closing Date or if the Principals or the
Minority Shareholders become employees or directors of the Purchaser, Vestcom or
one of Vestcom's other subsidiaries, for a period of two (2) years following the
termination of such relationship as an employee or director for the Purchaser,
Vestcom or one of Vestcom's other subsidiaries (whichever period is longer),
neither Seller nor its Affiliates nor any Principal or Minority Shareholder
will, (a) directly or indirectly, anywhere in the Territory (as defined below)
engage in the Business or (except for Martha Ann Burke, Theresa A. Strothcamp
and Mary Katherine Sullivan, for whom this next clause does not apply) any other
business now being conducted by Vestcom or the Purchaser; or (b) directly or
indirectly employ, engage, contract for or solicit the services in any capacity
of any Person who is employed by the Seller in the operation of the Business on
the date hereof, unless the employment of such Person is terminated by the
Purchaser prior to any solicitation of employment or employment; or (c) use for
its own benefit or divulge or convey to any third party, any Confidential
Information (as hereinafter defined) relating to the Business. For purposes of
this Agreement, "Confidential Information" consists of all information,
knowledge or data relating to the Business including, without limitation,
customer and supplier lists, formulae, trade know-how, processes, secrets,
consultant contracts, pricing information, marketing plans, product development
plans, business acquisition plans and all other information relating to the
operation of the Business not in the public domain or otherwise publicly
available. Information which enters the public domain or is publicly available
loses its confidential status hereunder so long as neither the Seller nor its
Affiliates nor any of the Principals nor any Minority Shareholder directly or
indirectly cause such information to enter the public domain. For purposes of
this Agreement, the "Territory" shall mean anywhere within 100 miles of where
the Purchaser, Vestcom or any of its other subsidiaries conducts business. The
foregoing shall not prohibit the Seller, the Principals or the Minority
Shareholders from owning the Southaven Plant and the Southaven Assets, from
operating the Southaven Business in the manner currently operated or from
expanding its
<PAGE>
operation consistent with the Southaven Business.
Notwithstanding anything to the contrary contained herein, neither the
Seller nor the Shareholders shall be in violation of this Section 5.3 solely on
account of divulging any Confidential Information if required under any summons,
subpoena or court order, or under any law, rule or regulation promulgated by any
Governmental Authority or in any arbitration, litigation or other legal
proceeding to which either the Seller, the Principals or the Minority
Shareholders is a party, so long as the Purchaser is given advance written
notice of the summons, subpoena, court order or other event requiring disclosure
and an opportunity to contest disclosure.
The Seller and the Shareholders acknowledge that the restrictions
contained in this Section 5.3 are reasonable and necessary to protect the
legitimate interests of the Purchaser and Vestcom that any breach by the Seller
of any provision hereof will result in irreparable injury to the Purchaser and
Vestcom. The Seller and the Shareholders acknowledge that, in addition to all
remedies available at law, the Purchaser and Vestcom shall be entitled to
equitable relief, including injunctive relief, and an equitable accounting of
all earnings, profits or other benefits arising from such breach and shall be
entitled to receive such other damages, direct or consequential, as may be
appropriate.
Without limiting the generality of Section 9.4, the provisions of this
Section 5.3 shall inure to the benefit of any subsequent transferee of the
Business or any substantial portion thereof, whether or not this Agreement is
assigned to such transferee. In the event that the Seller or any Affiliate of
the Seller (i) dissolves, liquidates or winds up the affairs of the Seller, (ii)
sells the capital stock of the Seller, or (iii) merges, consolidates or
otherwise combines the Seller with any other entity and Seller is not the
survivor, whether in one transaction or a series of related transactions, then
as a condition to such transaction or transactions, the Seller or the Affiliate
party to such transaction, as the case may be, shall procure from the subsequent
shareholders of the Seller or any successor to the Seller, as the case may be, a
written agreement (which written agreement shall expressly make the Purchaser
and its successors and assigns a third-party beneficiary thereof) to comply with
the provisions of this Section 5.3, including this paragraph, as if such
successor or purchaser were a party hereto.
Section 5.4. Best Efforts; Further Assurances. Subject to the terms
and conditions herein provided, each of the parties hereto shall use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things reasonably necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement. Each of the Seller and the Purchaser will use their
respective best efforts to obtain consents of all Governmental Authorities and
third parties necessary to the consummation of the transactions contemplated by
this Agreement. In the event that at any time after Closing any further action
is necessary to carry out the purposes of this Agreement, the Seller or the
proper directors or officers of the Seller or the Purchaser, as the case may be,
shall take all such action without any further consideration therefor.
Section 5.5. Compliance with the Securities Act.
<PAGE>
(a) The Seller and the Principals and the Minority Shareholders
acknowledge that the Vestcom Common Stock to be delivered to the Seller pursuant
to this Agreement as part of the Earn-Out Payment (the "Restricted Stock") has
not been and will not be registered under the Securities Act and therefore may
not be resold without compliance with the Securities Act. The Restricted Stock
is being acquired by the Seller and the Principals and Minority Shareholders
solely for their own accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with the distribution of such shares, except that upon dissolution the Seller
may transfer the Restricted Stock to its stockholders, subject to compliance
with applicable securities laws and the Escrow Agreement. The Seller and
Principals and Minority Shareholders covenant, warrant and represent that the
Restricted Stock will not be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except pursuant to the Escrow Agreement and
after full compliance with all of the applicable provisions of the Securities
Act and the rules and regulations of the SEC. The certificates representing the
Restricted Stock shall bear the following legends:
The securities represented hereby were not issued in a
transaction registered under the Securities Act of
1933, as amended ("Securities Act"), or any applicable
state securities laws and may not be sold, pledged,
hypothecated, or otherwise transferred unless such sale
or transfer is covered by an effective registration
statement under the Securities Act and applicable state
securities laws or, in the opinion of counsel to the
holder and the issuer, is exempt from the registration
requirements of the Securities Act and such laws.
The securities represented hereby and the transfer
thereof are subject to the terms of an Agreement dated
as of January 20, 1998 between the issuer, Creative
Data Services, Inc., D.B. Acquisition, Inc. and certain
other parties and an Escrow Agreement executed in
connection therewith.
(b) The Seller and the Shareholders are able to bear the economic risk
of an investment in the Restricted Stock, can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters, including investments in unregistered securities, that they are capable
of evaluating the merits and risks of the proposed investment and/or each
Shareholder has employed a purchaser representative that is qualified by
training and experience in business and financial matters to evaluate the merits
and risks of an investment in Vestcom and therefore have the capacity to protect
their own interests in connection with their acquisition of the Restricted
Stock.
(c) Each Shareholder represents that he or she, or such Shareholder's
purchaser representative, has read and reviewed the information provided
pursuant to this Agreement and the other documentation and information furnished
by the Purchaser or Vestcom (including Vestcom's Form 10-Q for the quarters
ended June 30, 1997 and September 30, 1997 and its Forms 8-K for events in
November 1997 and December 1997) and has had an adequate opportunity to ask
questions and receive answers from the officers of Vestcom concerning, among
other matters, Vestcom, its management, and its plans for the operation of its
business.
<PAGE>
The Purchaser and Vestcom have provided to the Seller and the Shareholders an
opportunity to ask questions and receive answers from the officers of Vestcom
and to obtain any and all additional information necessary for them to verify
the accuracy of the information provided herein or delivered pursuant hereto.
Section 5.6. Employment Matters.
(a) The Purchaser shall offer employment on the Closing Date on an "at
will" basis to those employees listed on Schedule 5.6 ("Employees") who are
employed in connection with the Business and are actively at work on the Closing
Date. Schedule 5.6 also indicates which Employees are family members of the
Principals. All such active Employees who accept an offer of employment are
referred to as "Continued Employees." Seller agrees that following the Closing
Date, neither Seller nor any of its Affiliates shall retain or employ any of the
Continued Employees as an employee or consultant except that it is understood
that Douglas Brooking may continue to be employed by the Seller, as further set
forth in Exhibit F, that Tim Rosheim may continue to spend up to 20% of his time
at the Southaven Business and that certain of the other Continued Employees may
continue to provide services to Seller, so long as all of the foregoing are done
with appropriate allocation of salary and other employee costs to the Seller and
reimbursement by the Seller to the Purchaser for those costs.
(b) As of the Closing Date, all Continued Employees will be eligible
to participate in Vestcom's 401(k) Plan subject to applicable waiting periods
and Plan qualifications and will be granted credit for time employed by Seller
to the extent permitted under the 401(k) Plan. Continued Employees generally
also will be treated similarly with the employees of other companies acquired by
Vestcom with respect to qualification for benefits. Continued Employees will be
granted credit for time employed by the Seller for vacation purposes and to the
extent permitted under Vestcom's other benefit programs. Continued Employees
will continue to be covered under the medical insurance, life insurance and
disability program provided by the Seller (to the extent permitted by the
respective underwriter). When a separate plan is adopted and implemented by the
Company, the Continued Employees then employed shall be covered by the newly
adopted plan with any prior coverage by the respective underwriter of the Seller
to cease.
(c) The Seller shall indemnify the Purchaser for all amounts payable
or alleged to be payable under the Seller's severance program with respect to
any Employee, whether as a result of the transactions contemplated hereby or for
any other reason, except to the extent accrued and included in the calculation
in Section 2.4.
(d) All notices required pursuant to the Federal Worker Adjustment and
Retraining Notification Act of 1988, any successor federal law and any
applicable state or local plant closing notification statute (collectively the
"Notification Acts") on or through the Closing Date shall be the responsibility
of Seller. All notices required pursuant to the Notification Acts for acts taken
by the Purchaser subsequent to the Closing Date shall be the responsibility of
Purchaser.
(e) Although the Purchaser is not assuming any liabilities relating to
severance payments, accrued payroll, accrued vacation pay, sick leave, worker's
compensation, unemployment compensation
<PAGE>
or healthcare contributions owed or relating to employees or consultants of
Seller terminated on or prior to the Closing Date (other than Continued
Employees) or for any contributions to any of Seller's Employee Benefit Plans,
Purchaser agrees to reimburse Seller for such costs and Employee Benefit Plan
contributions when paid by Seller provided that such amounts are accrued for on
the Seller's books and records as of the Closing Date, and provided that such
amounts are included in the calculation of the Closing Balance Sheet to
determine Closing Net Assets and any adjustment to purchase price required under
Section 2.4.
Section 5.7. Repayment of Loans, Advances, Notes, etc. Except for the
employee loans listed on Schedule 5.7, which indicates the name, loan amount and
repayment terms for each permitted employee loan, prior to the Closing, the
Corporation has caused its officers, directors, stockholders and their
Affiliates, associates and family members to repay to the Corporation, in cash
all amounts owed by such persons to the Corporation, and the Sellers hereby
certify to the Purchaser that all such amounts have been repaid. At Closing,
Sellers shall deliver a certificate containing an itemized list of each amount
so repaid by name and amount and shall also describe generally the circumstances
under which such indebtedness arose.
Section 5.8 Stock Options and Bonuses. Key employees of the Seller
(but not the Principals) will be eligible to receive incentive stock options
("ISO's") to purchase an aggregate of 35,000 shares of Vestcom's Common Stock
pursuant to Vestcom's Equity Compensation Program, with an exercise price equal
to fair market value (as defined in such Program) on the date of grant. It is
understood that Tim Rosheim and Paul Brooking will receive fifty percent (50%)
(allocated equally between them) of such ISO's. The remaining ISO's will be
granted to such employees of the Seller as are allocated in consultation with
Douglas H. Brooking, Jr. All options shall be granted within thirty (30) days
after the Closing Date.
Section 5.9 Commercially Reasonable Efforts. Seller and the Principals
will use commercially reasonable efforts after Closing to obtain consents with
respect to the contracts and leases listed on Schedule 3.4(C) and (D).
ARTICLE VI
ARTICLE VIConditions to Closing
Section 6.1. Pre-Closing and Closing Deliveries by the Seller and the
Principals.
(a) The parties agree to a Pre-Closing on the Pre-Closing Date. At the
Pre-Closing, the Seller and the Principals shall deliver the following documents
to Vestcom and the Purchaser:
(i) an integration plan for the Purchaser's business and
locations [Exhibit H hereto] which is mutually agreed to by Vestcom and the
Seller.
(ii) a plan for overhead cost reductions and allocation
methodologies and amounts which is mutually agreed to by Vestcom and the Seller
[unless included in Schedule
<PAGE>
3.9];
(iii) a certification from the President of the Seller that to
his Knowledge, Dean Witter, PSI, Fingerhut and Onsite Printing are expected to
remain as customers of the Purchaser and that he has no Knowledge of any facts
or circumstances that would cause them not to remain as steady customers of the
Purchaser consistent with business levels in Seller's 1998 budget;
(iv) a business plan for Southaven to demonstrate the viability
of the operation as an ongoing printperfect supplier to the finishing centers
acquired by Vestcom, including a plan to transfer substantially all
administrative and support functions to Southaven. Such plan shall include the
pricing model for Southaven's sales to Vestcom's finishing centers. Assumptions
used in the plan will include pricing to Vestcom's finishing centers using the
current Creative Data model, and the parties committing to an ongoing purchase
and supply agreement assuming that the plant remains competitive with potential
alternate suppliers of the needs of Vestcom's finishing centers.
(v) a 12 month "base case" budget for calendar year 1998, to
include quarterly subtotals, will be developed by the Seller, separately
displaying Creative Data and DB, and incorporating items (i) and (iii) above,
(vi) a certificate from the President of the Seller that, to his
Knowledge, (x) all authorizations, consents, waivers, approvals or other actions
required in connection with the execution, delivery and performance of this
Agreement and the instruments of transfer by the Seller and the consummation by
the Seller of the transactions contemplated hereby and thereby have been
obtained and are in full force and effect, except those listed on Schedule 3.4
(C) or (D), (y) any authorizations, consents, waivers, approvals or other
actions required to prevent a material breach or default by the Seller under any
contract to which the Seller is party or for the continuation of any agreement
to which the Seller is a party and which relates and is material to the
Purchased Assets or the Business have been obtained and are in full force and
effect (except for those listed on Schedule 3.4(C) or (D) and (z) all
authorizations, waivers, approvals or other actions necessary to permit the
Purchaser to operate the Business in compliance with all applicable laws
immediately after the Closing have been obtained and are in full force and
effect except where failure to obtain such authorizations would not have a
Material Adverse Effect;
(vii) Assignment of Leases, Landlords Consents and Estoppel
Certificates shall be received from each landlord of the Seller's business
premises except those listed on Schedule 3.4(D), as to which there will be a
sublease but no landlord consent at Closing;
(viii) Pay-off letter and Termination Statements from the Bank
(and holders of any other Encumbrance except Permitted Encumbrances);
(ix) Financing Statements showing Vestcom and the Purchaser as
secured parties with respect to the Southaven Assets; and
(x) any other required third party consents.
<PAGE>
(b) At Closing, the Seller and the Principals shall execute this
Agreement and deliver to the Purchaser and Vestcom all instruments of
assignment, transfer and conveyance identified herein and such other closing
documents as shall be requested by the Purchaser in form and substance
reasonably acceptable to the Purchaser's counsel, including the following:
(i) such instruments of sale, transfer, assignment,
conveyance and delivery (including all vehicle titles), in form and
substance reasonably satisfactory to counsel for the Purchaser
(including without limitation the Bill of Sale set forth as Exhibit B
and the Assignment and Assumption Agreement set forth as Exhibit C),
as are required in order to transfer to the Purchaser good and
marketable title to the Purchased Assets, free and clear of all
Encumbrances;
(ii) a certificate of the Secretaries or Assistant
Secretaries of the Seller, dated the Closing Date, as to the
incumbency of any officer of the Seller executing this Agreement and
the instruments of transfer or any document related thereto and
covering such other matters as the Purchaser may reasonably request;
(iii) a certified copy of (1) the Certificates of
Incorporation and by-laws of the Seller and all amendments thereto and
(2) the resolutions of the Sellers' Boards of Directors and
shareholders authorizing the execution, delivery and consummation of
this Agreement, the instruments of transfer and the transactions
contemplated hereby;
(iv) the Employment Agreement with Douglas H. Brooking, Jr.,
Timothy Rosheim and Paul Brooking;
(v) a Requirements Supply Agreement between Seller and
Purchaser relating to Purchaser's needs for printperfect and blank
vinyl forms in the form attached hereto as Exhibit I ("Supply
Agreement");
(vi) an opinion of Greensfelder, Hemker & Gale, P.C.,
counsel to the Seller and the Principals, dated the Closing Date, and
substantially in the form attached as Exhibit D,
(vii) proof of satisfaction in full of all obligations to
the Bank and delivery of UCC-3 termination statements and other
appropriate releases from the Bank;
(viii) the Articles of Amendment contemplated by Section
5.3;
(ix) a Security Agreement of the Seller in favor of Vestcom
and the Purchaser with respect to the Southaven Assets in the form
attached hereto as Exhibit J;
(x) good standing certificates from Delaware, Missouri and
the states listed on Schedule 3-1 for each of Creative Data and DB;
(xi) tax clearance certificates from Delaware and Missouri;
<PAGE>
(xii) Assignment and Assumption of Third Party Contracts, if
any are necessary; and
(xiii) such other documents or instruments as the Purchaser
reasonably requests to effect the transactions contemplated hereby.
Section 6.2. Pre-Closing and Closing Deliveries by the Purchaser and
Vestcom.
Prior to or at Closing, the Purchaser shall have delivered to the
Seller such closing documents as shall be reasonably requested by the Seller in
form and substance reasonably acceptable to the Seller's counsel, including the
following:
(i) the Assignment and Assumption Agreement executed by the
Purchaser and dated the Closing Date;
(ii) a certificate of the Secretary or Assistant Secretary
of the Purchaser, dated the Closing Date, as to the incumbency of any
officer of the Purchaser executing this Agreement, the instruments of
transfer or any document related thereto and covering such other
matters as the Seller may reasonably request;
(iii) a certified copy of (1) the Certificate of
Incorporation and by-laws of the Purchaser and all amendments thereto
and (2) the resolutions of the Purchaser's Board of Directors
authorizing the execution, delivery and consummation of this
Agreement, the instruments of transfer and the transactions
contemplated hereby and thereby;
(iv) an opinion of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A. counsel to the Purchaser, dated the Closing Date, and
substantially in the form attached as Exhibit E;
(v) the Purchase Price, as set forth in Section 2.3 by check
or a wire transfer (to Seller, or the Bank or otherwise as required
under Section 2.4 or 2.5); and
(vi) the Requirements Supply Agreement duly executed by
Purchaser and Vestcom.
<PAGE>
ARTICLE VII
ARTICLE VIIRIGHTS OF FIRST REFUSAL
In order to protect Purchaser's source of supply of certain raw
materials, the Purchaser and Seller are entering into the Supply Agreement this
date. In addition, the Seller and the Shareholders wish to provide further
protections to the Purchaser with respect to source of supply. The Seller has
represented that, after Closing, it intends to contribute the Southaven Assets
and the Southaven Business to a newly-formed, wholly-owned subsidiary of Seller.
Accordingly, the covenants and agreements of this Article VII are written with
the intent that they bind Seller, the Shareholders and such newly-formed
subsidiary holding the Southaven Assets and Southaven Business ("Newco") and on
the assumption that Seller makes the contribution to Newco contemplated herein.
If Seller shall not make such capital contribution to Newco, this Section shall
be interpreted to nonetheless protect the Purchaser's right of first refusal to
acquire such Southaven Assets and Southaven Business prior to any third party
acquirer.
The Seller and the Shareholders also covenant during the period in
which the right of first refusal is in effect herein that Newco will only
operate the Southaven Business and will incur no liabilities other than those
directly related to the Southaven Business.
Section 7.1 Right of First Refusal for Stock. If Creative Data at any
time between the date hereof and January 20, 2003, wishes to sell any or all of
the shares of the capital stock of Newco then Creative Data shall first give
written notice to Vestcom of the identity, background and financial condition of
the proposed third party purchaser and the price and terms of the offer to or
from the third party purchaser. The notice shall include a true copy of any
written purchase offer or other documentation with respect to terms to or from
the proposed third party purchaser. If Vestcom agrees within thirty (30) days of
its receipt of such notice to acquire Creative Data's shares of capital stock of
Newco, it shall have the right to do so, upon written notice thereof to Creative
Data, within 21 days after delivery of such notice, at the price, and upon the
terms and conditions offered to or by the proposed third party purchaser. If
Vestcom refuses or declines to acquire Creative Data's shares of Newco capital
stock on such terms, then Creative Data may consummate the sale with the third
party purchaser as long as such sale is consummated within ninety (90) days of
the date of Vestcom's rejection of Creative Data's offer, and such sale takes
place on terms no more favorable to the third party purchaser than those
detailed to Vestcom. If the third party's sale is not timely consummated,
Creative Data must again offer to sell its Newco shares to Vestcom, pursuant to
this section prior to consummating a third party sale.
Section 7.2 Right of First Refusal for Assets.
(a) If at any time between the date hereof and January 20, 2003,
Creative Data or Newco wishes to sell all, substantially all or a material
portion of the assets of Newco ("Newco Assets"), then the Seller shall first
give written notice to Vestcom of the identity, background and financial
condition of the proposed third party purchaser and the price and terms of the
offer to or from the third party purchaser. The notice shall include a true copy
of any written purchase offer from the proposed third party purchaser. If
Vestcom agrees within thirty (30) days of its receipt
<PAGE>
of such notice to acquire the Newco Assets (or such of those assets then being
offered for sale), it shall have the right to do so within 21 days of delivery
of such notice, upon written notice to Creative Data thereof, at the purchase
price and on the terms and conditions offered to or by the proposed third party
purchaser. If Vestcom refuses or declines to acquire the Newco Assets on such
terms, then Creative Data may consummate the sale with the third party purchaser
as long as such sale is consummated within ninety (90) days of the date of
Vestcom's rejection of Creative Data's offer, and such sale takes place on terms
no more favorable to the third party purchaser than those detailed to Vestcom.
If the third party's sale is not timely consummated, Creative Data or Newco must
again offer to sell all or the offered portion of the Newco Assets to Vestcom,
pursuant to this section, prior to consummating a third party sale.
(b) If the third party purchase offer states that the consideration
for the shares of the Selling Shareholder will be other than cash, Vestcom may
pay in cash instead of the consideration offered in the purchase offer, with the
amount of cash to be paid by Vestcom being equal to the fair market value of the
consideration offered as of the date of the purchase offer, as determined by an
appraiser selected jointly by the Selling Shareholder and Vestcom (unless the
parties otherwise agree on fair market value). Creative Data shall not, without
the prior written consent of Vestcom, transfer all or any substantial portion of
the Newco Assets prior to January 20, 2003, such as pursuant to a dividend or
distribution to its shareholders or otherwise, except that Creative Data may
contribute the Newco Assets to Newco and Newco may sell the Newco Assets
pursuant to the conditions of this Article.
Section 7.3 Legend. If at any time from the date hereof through
January 20, 2003, the Seller transfers any shares of Newco's capital stock (or
prior to the contribution of the Southaven Assets to Newco, any Shareholder
transfers any shares of Seller's capital stock such assignment, gift, request or
other new shareholder transfer of ownership, whether voluntary or involuntary)
other than pursuant to a sale permitted by Section 7.1, it must first obtain in
writing an agreement to be bound by the provisions of Section 7.1 above.
Further, such shares shall remain subject to this Agreement whether or not a
written agreement is obtained. Transfer shall include any assignment, gift,
bequest or other new shareholder transfer of ownership, whether voluntary or
involuntary. All certificates of stock of the Seller or Newco now or hereafter
outstanding shall be endorsed conspicuously on the face or back hereof as
follows:
Certain provisions with respect to the sale and transfer of these
shares are subject to and restricted by Article VII of an Asset
Purchase Agreement dated January 20, 1998, a copy of which is on file
and may be examined at the principal office of the Company. Any shares
transferred shall remain subject to the terms of such Agreement and
shall also bear this legend.
Copies of all share certificates bearing such legend shall be delivered to the
Purchaser within 15 days of the Closing Date. The legend may be removed from the
Creative Data stock certificates after the Newco Assets are contributed to Newco
and the Newco stock certificate is appropriately legended (with copies delivered
to the Purchaser).
<PAGE>
ARTICLE VIII
Survival of Representations and Warranties; Indemnification
Section 8.1. Survival of Representations and Warranties. Except as set
forth below, the representations and warranties provided for in this Agreement
shall survive the Closing for two (2) years from the Closing Date for the
benefit of the parties hereto and their successors and permitted assigns. The
representations and warranties provided for in Sections 3.5, 3.16 and 3.18 shall
survive the Closing and remain in full force and effect for six (6) years from
the Closing Date. The representation and warranty provided for in Section 3.14
shall survive for the longer of two (2) years or the applicable statute of
limitations period of the applicable tax law. The survival period of each
representation or warranty as provided in this Section 8.1 is hereinafter
referred to as the "Survival Period."
No investigation by the Purchaser or Vestcom heretofore made shall
modify or otherwise affect any representations and warranties of the Seller or
the Principals, which shall survive any such investigation, or the conditions to
the obligation of the Purchaser and Vestcom to consummate the transactions
contemplated hereby.
Section 8.2. Indemnification. (a) The Seller and the Principals jointly
and severally shall indemnify, defend and hold harmless the Purchaser, Vestcom
their Affiliates, officers, directors, employees, agents and representatives,
and any Person claiming by or through any of them, against and in respect of any
and all claims, costs, expenses, damages, liabilities, losses or deficiencies
(including, without limitation, reasonable counsel's fees and other costs and
expenses incident to any suit, action or proceeding) (the "Damages") arising out
of, resulting from or incurred in connection with (i) any inaccuracy of any
representation or the breach of any warranty made by the Seller or the
Principals in this Agreement, in each case, where written notice is given to
Seller and the Principals during the applicable Survival Period, (ii) the breach
by the Seller or the Principals of any covenant or agreement to be performed by
it or them hereunder, and (iii) any Excluded Liability.
(b) The Purchaser and Vestcom jointly and severally shall indemnify,
defend and hold harmless the Seller, its Affiliates, officers, directors,
employees, agents and representatives, and any Person claiming by or through any
of them, against and in respect of any and all Damages arising out of, resulting
from or incurred in connection with (i) any inaccuracy in any representation or
the breach of any warranty made by the Purchaser or Vestcom in this Agreement,
in each case, where written notice is given to the Purchaser and Vestcom during
the applicable Survival Period, (ii) the breach by the Purchaser of any covenant
or agreement to be performed by it hereunder, or (iii) any Assumed Liability.
(c) The Seller shall cause the Purchaser or Vestcom to be dismissed
from any action involving pre-Closing operations of the Seller's business not
involving Assumed Liabilities to which the Purchaser or Vestcom is improperly or
inadvertently named as a party. The Purchaser or Vestcom shall cause the Seller
to be dismissed from any action involving post-Closing operations of the
Purchaser's business to which the Seller is improperly or inadvertently named as
<PAGE>
a party.
(d) In the event that Seller is required to indemnify the Purchaser for
the breach of any Environmental Laws according to Section 8.2, Purchaser agrees
to provide Seller with appropriate access to the property upon which the
Business is located in order to abate any environmental liabilities. In the
event that the abatement of environmental liabilities requires the remediation
of contaminated soil of groundwater, Seller will remediate the contaminated soil
or groundwater to a level deemed acceptable by the applicable federal, state, or
local Governmental Authority, whether or not those levels are set by applicable
law or a less stringent voluntary cleanup, risk based, or similar federal, state
or local program.
(e) Any Person providing indemnification pursuant to the provisions of
this Section 8.2 is hereinafter referred to as an "Indemnifying Party" and any
Person entitled to be indemnified pursuant to the provisions of this Section 8.2
is hereinafter referred to as an "Indemnified Party."
Section 8.3. Procedures for Third Party Claims. In the case of any
claim for indemnification arising from a claim of a third party (a "Third Party
Claim"), an Indemnified Party shall give prompt written notice to the
Indemnifying Party of any claim or demand which such Indemnified Party has
knowledge and as to which it may request indemnification hereunder. The
Indemnifying Party shall have the right to defend and to direct the defense
against any such Third Party Claim, in its name or in the name of the
Indemnified Party, as the case may be, at the expense of the Indemnifying Party,
and with counsel selected by the Indemnifying Party unless (i) such Third Party
Claim seeks an order, injunction or other equitable relief against the
Indemnified Party, or (ii) the Indemnified Party shall have reasonably concluded
that (x) there is a conflict of interest between the Indemnified Party and the
Indemnifying Party in the conduct of the defense of such Third Party Claim or
(y) the Indemnified Party has one or more defenses not available to the
Indemnifying Party. Notwithstanding anything in this Agreement to the contrary,
the Indemnified Party shall, at the expense of the Indemnifying Party, cooperate
with the Indemnifying Party, and keep the Indemnifying Party fully informed, in
the defense of such Third Party Claim. The Indemnified Party shall have the
right to participate in the defense of any Third Party Claim with counsel
employed at its own expense; provided, however, that, in the case of any Third
Party Claim described in clause (i) or (ii) of the second preceding sentence or
as to which the Indemnifying Party shall not in fact have employed counsel to
assume the defense of such Third Party Claim, the reasonable fees and
disbursements of such counsel shall be at the expense of the Indemnifying Party.
The Indemnifying Party shall have no indemnification obligations with respect to
any such Third Party Claim which shall be settled by the Indemnified Party
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed.
Section 8.4. Procedures for Inter-Party Claims. In the event that an
Indemnified Party determines that it has a claim for Damages against an
Indemnifying Party hereunder (other than as a result of a Third Party Claim),
the Indemnified Party shall give prompt written notice thereof to the
Indemnifying Party, specifying the amount of such claim and any relevant facts
and circumstances relating thereto. The Indemnified Party shall provide the
Indemnifying Party with reasonable access to its books and records for the
purpose of allowing the Indemnifying Party
<PAGE>
a reasonable opportunity to verify any such claim for Damages. The Indemnified
Party and the Indemnifying Party shall negotiate in good faith regarding the
resolution of any disputed claims for Damages. Promptly following the final
determination of the amount of any Damages claimed by the Indemnified Party, the
Indemnifying Party shall pay such Damages to the Indemnified Party by wire
transfer or check made payable to the order of the Indemnified Party, without
interest. In the event that the Indemnified Party is required to institute legal
proceedings in order to recover Damages hereunder, the cost of such proceedings
(including costs of investigation and reasonable attorneys' fees and
disbursements) shall be added to the amount of Damages payable to the
Indemnified Party. The Purchaser and Vestcom shall also have all rights afforded
to it under the Security Agreement and any Escrow Agreement.
Section 8.6. Limitation on Purchaser or Vestcom's Rights to
Indemnification. (a) No claim for indemnification for breach of a representation
or warranty under Section 8.2(a) hereof may be made by Purchaser or Vestcom
unless the aggregate amount of all Damages for breaches of representations or
warranties exceeds $50,000, and then only for the amount by which such Damages
exceed $50,000. No claim for indemnification for breach of a representation or
warranty under Section 8.2(b) hereof may be made by the Seller or its Affiliates
unless the aggregate amount of all Damages for breaches of representations or
warranties exceeds $50,000 and then only for the amount by which such Damages
exceed $50,000, (b) No party shall be entitled to indemnification hereunder for
amounts in excess of the purchase price, including any Earn-Out Payment.
Section 8.7. Right of Set-Off. Subject to the next sentence, the
Purchaser shall, upon prior written notice to the Seller, have the right to
set-off, against any amount which may be owed by the Purchaser to the Seller
pursuant to this Agreement, whether unpaid or paid into escrow at the time of
such set-off, any amount owed by the Seller to the Purchaser. If any amount owed
by the Seller or the Principals to the Purchaser is unliquidated, then any
amount which shall become due and payable by the Purchaser to the Seller or the
Principals, to the extent of said unliquidated amount, shall be deposited in
escrow with the Escrow Agent pending resolution of the dispute related to such
unliquidated amount. The exercise of such right of set-off by the Purchaser
shall not constitute a breach by the Purchaser of this Agreement or the
agreement underlying such obligation. The Purchaser and Vestcom shall also have
all rights afforded to it under the Security Agreement and any Escrow Agreement.
Section 8.7. Accounts Receivable Guarantee. The Seller and the
Principals jointly and severally agree within 30 days after notice thereof (a)
to purchase the aggregate amount of accounts or notes receivable of the Seller
included in the Closing Net Asset calculation ("Included Receivables") that have
not been paid in full within 120 days after the Closing Date to the extent that
the Purchaser has not collected from account debtors with respect to such
Included Receivables an amount equal to the aggregate amount of Included
Receivables less the amount of the allowance for doubtful accounts as of the
Closing Date as reflected on the Closing Balance Sheet (the "Closing AR Value")
for a purchase price equal to the difference between the amount collected and
the Closing AR Value, and (b) to purchase any debit memos issued by the Seller
that have not been allowed by vendors within 120 days after the Closing (unless
such receivables or debit memos were not included in the Closing Net Asset
calculations). Purchaser and Vestcom
<PAGE>
covenant and agree to cooperate with Seller, in the event Seller is required to
repurchase the same, in collecting said accounts and notes receivable
acknowledging that Seller will be reimbursed for all amounts subsequently
collected that were repurchased.
ARTICLE IX
Miscellaneous
Section 9.1. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered or express air mail, postage prepaid,
and shall be deemed given when so delivered personally, or by facsimile, or if
mailed, five days after the date of mailing, as follows:
If to Vestcom the Purchaser: c/o Vestcom, International, Inc.
1100 Valley Brook Road
Lyndhurst, New Jersey 07071-3687
Telephone: (201) 935-7666
Facsimile: (201) 935-4354
Attention: Sheryl Bernstein Cilenti, Vice
President and General Counsel
With a copy to: Lowenstein, Sandler, Kohl,
Fisher & Boylan, PA
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (973) 992-8700
Facsimile: (973) 992-5820
Attention: Alan Wovsaniker, Esq.
<PAGE>
If to the Seller or the
Principals: Creative Data Services, Inc.
13748 Shoreline Court East
Earth City, Missouri 63045
Telephone: 314-291-0699
Facsimile: 314-291-3986
Attention: Douglas H. Brooking, Jr.
With a copy to: Greensfelder, Hemker, & Gale P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102-1774
Telephone: 314-241-9090
Facsimile: 314-241-3483
Attention: Daniel J. Schwartz, Esq.
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
Section 9.2. Expenses. Regardless of whether the transactions provided
for in this Agreement are consummated, except as otherwise provided herein, each
party hereto shall pay its own expenses incident to this Agreement and the
transactions contemplated herein. The obligation to pay Seller's and the
Principals' counsel and other professional fees incurred in connection with the
transaction contemplated by this Agreement shall not be an Assumed Liability.
Section 9.3. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without reference to the choice of law principles thereof.
Section 9.4. Assignment; Successors and Assigns; No Third Party
Rights. This Agreement may not be assigned by operation of law or otherwise, and
any attempted assignment shall be null and void. This Agreement shall be binding
upon and inure to the sole benefit of the parties hereto and their respective
successors, permitted assigns and legal representatives and is not intended, nor
shall be construed, to give any Person, other than the parties hereto and their
respective successors, permitted assigns and legal representatives, any legal or
equitable right, remedy or claim hereunder.
Section 9.5. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original agreement, but all of
which together shall constitute one and the same instrument. This Agreement may
also be executed by facsimile signature.
<PAGE>
Section 9.6. Titles and Headings. The headings and table of contents
in this Agreement are for reference purposes only, and shall not in any way
affect the meaning or interpretation of this Agreement.
Section 9.7. Entire Agreement. This Agreement, all documents and
certificates to be executed and/or delivered in connection herewith, and the
Schedules and Exhibits attached hereto, constitute the entire agreement among
the parties with respect to the matters covered hereby and supersedes all
previous written, oral or implied understandings among them with respect to such
matters.
Section 9.8. Amendment and Modification. This Agreement may only be
amended or modified in a writing signed by the party against whom enforcement of
such amendment or modification is sought.
Section 9.9. Public Announcement. Except for the Form 8-K to be filed
by Vestcom and otherwise as may be required by law, neither the Seller or the
Principals, on the one hand, nor the Purchaser or Vestcom, on the other hand,
shall issue any press release or otherwise publicly disclose this Agreement or
the transactions contemplated hereby or any dealings between or among the
parties in connection with the subject matter hereof without the prior approval
of the other. In the event that any such press release or other public
disclosure shall be required, the party required to issue such release or other
disclosure shall consult in good faith with the other party hereto with respect
to the form and substance of such release or other disclosure prior to the
public dissemination thereof.
Section 9.10. Waiver. Any of the terms or conditions of this Agreement
may be waived at any time by the party or parties entitled to the benefit
thereof, but only by a writing signed by the party or parties waiving such terms
or conditions.
Section 9.11. Severability. The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If it
is ever held that any restriction hereunder is too broad to permit enforcement
of such restriction to its fullest extent, such restriction shall be enforced to
the maximum extent permitted by law.
Section 9.12. No Strict Construction. Each of the Purchaser and the
Seller acknowledge that this Agreement has been prepared jointly by the parties
hereto, and shall not be strictly construed against either party.
Section 9.13. Bulk Sales. Each of the Purchaser and the Seller hereby
waives compliance with Article 6 of the Uniform Commercial Code as adopted by
each of the jurisdictions in which the Purchased Assets are located to the
extent, if any, that it is applicable to the transactions contemplated by this
Agreement. The Seller shall indemnify and hold harmless the Purchaser, Vestcom
and their respective directors, officers, shareholders, employees, agents and
representatives from and against any Damages arising out of such waiver. The
Purchaser shall have the right to offset against the Purchase Price any amount
it is required to pay to any creditors of the Seller (other than in respect of
Assumed Liabilities) because of the requirements of such
<PAGE>
laws.
Section 9.14. Arbitration. Any dispute, controversy or claim arising
out of, or relating to, this Agreement, or the breach hereof, shall be settled
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a panel of three arbitrators in New York City or Dover, Delaware,
which panel shall be comprised of one arbitrator selected by Purchaser, one
arbitrator selected by Seller and one arbitrator selected by the other two
arbitrators, or if they fail to agree, an arbitrator selected by the American
Arbitration Association. The prevailing party in any such arbitration shall be
entitled to recover an award for attorney's fees in any such arbitration
proceeding and in connection with the collection and enforcement of any award
rendered therein but no award for punitive damages may be made. The decision of
the arbitrators shall be final and judgment upon any award rendered may be
entered in any court having jurisdiction. Notwithstanding the foregoing, any
party seeking an injunction or other equitable remedy may commence an action in
a court of proper jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES HERETO.
CREATIVE DATA SERVICES, INC.
By:/s/___________________________
Name:
Title:
D.B. ACQUISITION, INC.
By:/s/___________________________
Name:
Title:
VESTCOM ST. LOUIS, INC.
By:/s/___________________________
Name:
Title:
<PAGE>
VESTCOM INTERNATIONAL, INC.
By:/s/________________________
Name:
Title:
PRINCIPALS:
/s/Douglas J. Brooking, Jr.
______________________________
Douglas J. Brooking, Jr.
/s/Katherine M. Brooking
_______________________________
Katherine M. Brooking
<PAGE>
The following individuals join in the execution
of this Agreement solely to evidence their
respective obligations under Section 3.1,
3.17(c), 5.3, 5.5 and Article VII of this
Agreement.
/s/Paul D. Brooking
_____________________________________
Paul D. Brooking
/s/Kathleen Brooking House
______________________________________
Kathleen Brooking House
<PAGE>
The following individuals join in the execution
of this Agreement solely to evidence their
respective obligations under Section 3.1, 5.3,
5.5 and Article VII of this Agreement.
/s/Martha Ann Burke
______________________________
Martha Ann Burke
Theresa A. Strothcamp
______________________________
Theresa A. Strothcamp
Mary Katherine Sullivan
______________________________
Mary Katherine Sullivan
<PAGE>
ASSET PURCHASE AGREEMENT
DATED
JANUARY 20, 1998
BY AND BETWEEN
CREATIVE DATA SERVICES, INC.,
D. B. ACQUISITION, INC.
DOUGLAS H. BROOKING, JR.,
CERTAIN OTHER INDIVIDUAL SHAREHOLDERS
AND
VESTCOM ST. LOUIS, INC.
AND
VESTCOM INTERNATIONAL, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I Certain Definitions..................................................1
Section 1.1. Certain Definitions............................................1
ARTICLE II Purchase and Sale of Assets; Assumption of Liabilities..........11
Section 2.1. Purchase and Sale of Assets...................................11
Section 2.2. Assumption of Liabilities.....................................11
Section 2.3. Purchase Price................................................11
Section 2.4. Settlement of the Purchase Price..............................11
Section 2.5. Use of Proceeds...............................................12
Section 2.6. Earn-Out Payment..............................................13
Section 2.7. Division of Taxation..........................................16
Section 2.8. Allocation of the Purchase Price..............................16
Section 2.9. Closing.......................................................16
ARTICLE III Representations and Warranties of the Seller and the Principals..17
Section 3.1. Organization and Qualification of the Seller..................17
Section 3.2. Authorization.................................................17
Section 3.3. Non-contravention.............................................17
Section 3.4. No Consents...................................................18
Section 3.5. The Purchased Assets..........................................18
Section 3.6 Personal Property.............................................18
Section 3.7. Real Property.................................................19
Section 3.8. Predecessor Status............................................19
Section 3.9. Financial Statements..........................................19
Section 3.10. Absence of Certain Developments...............................20
Section 3.11. Governmental Authorizations; Licenses; Etc....................21
Section 3.12. Litigation....................................................21
Section 3.13. Undisclosed Liabilities.......................................21
Section 3.14. Taxes.........................................................21
Section 3.15. Insurance.....................................................22
Section 3.16. Environmental Matters.........................................22
Section 3.17. Employment Matters............................................23
Section 3.18. Employee Benefit Plans........................................24
Section 3.19. Proprietary Rights............................................24
Section 3.20. Accounts Receivable...........................................25
Section 3.21. Contracts.....................................................25
Section 3.22 Customers and Suppliers.......................................26
Section 3.23. Key Individuals...............................................27
Section 3.24. Ability to Conduct Business...................................27
Section 3.25. Brokers.......................................................27
Section 3.26. Absence of Questionable Payments..............................27
Section 3.27. Transactions with Directors, Officers and Affiliates...27
Section 3.28. Full Disclosure...............................................28
ARTICLE IV Representations and Warranties of the Purchaser and Vestcom...28
Section 4.1. Organization..................................................28
Section 4.2. Authorization.................................................28
Section 4.3. Non-contravention.............................................28
Section 4.4. No Consents...................................................29
Section 4.5. Brokers.......................................................29
Section 4.6. SEC Documents.................................................29
ARTICLE V Covenants and Agreements..........................................30
Section 5.1. Transfer and Property Taxes...................................30
Section 5.2. Change of Name................................................30
Section 5.3. Non-Competition and Confidentiality Agreement.................31
Section 5.4. Best Efforts; Further Assurances..............................32
Section 5.5. Compliance with the Securities Act............................32
Section 5.6. Employment Matters............................................33
Section 5.7. Repayment of Loans, Advances, Notes, etc......................34
Section 5.8 Stock Options and Bonuses.....................................35
Section 5.9. Best Efforts..................................................34
ARTICLE VI Conditions to Closing.............................................35
Section 6.1. Pre-Closing and Closing Deliveries by the Seller and
the Principals..............................................35
Section 6.2. Pre-Closing and Closing Deliveries by the Purchaser and
Vestcom.......................................................38
ARTICLE VII RIGHTS OF FIRST REFUSAL..........................................39
Section 7.1 Right of First Refusal for Stock..............................39
Section 7.2 Right of First Refusal for Assets.............................39
Section 7.3 Legend........................................................40
ARTICLE VIII Survival of Representations and Warranties; Indemnification...41
Section 8.1. Survival of Representations and Warranties....................41
Section 8.2. Indemnification...............................................41
Section 8.3. Procedures for Third Party Claims.............................42
Section 8.4. Procedures for Inter-Party Claims.............................43
Section 8.5. Limitation on Purchaser and Vestcom's Rights to
Indemnification...............................................43
Section 8.6. Right of Set-Off..............................................43
Section 8.7. Accounts Receivable Guarantee.................................44
ARTICLE IX MISCELLANEOUS.....................................................44
Section 9.1. Notices.......................................................44
Section 9.2. Expenses......................................................45
Section 9.3. Governing Law.................................................45
Section 9.4. Assignment; Successors and Assigns; No Third Party Rights....45
Section 9.5. Counterparts..................................................45
Section 9.6. Titles and Headings...........................................46
Section 9.7. Entire Agreement..............................................46
Section 9.8. Amendment and Modification....................................46
Section 9.9. Public Announcement...........................................46
Section 9.10. Waiver........................................................46
Section 9.11. Severability..................................................46
Section 9.12. No Strict Construction........................................46
Section 9.13. Bulk Sales....................................................46
Section 9.14. Arbitration...................................................47
<PAGE>
Schedules
Schedule 1.1(i) Customer List
Schedule 1.1(ii) Personal Property
Schedule 1.1(iii) Leased Properties
Schedule 1.1(iv) Other Retained Assets
Schedule 1.1(v) Division of Liabilities-Southaven/Purchaser
Schedule 1.1(vi) Division of Assets-Southaven/Purchaser
Schedule 3.1(a) Organization and Qualification of Seller
Schedule 3.1(b) Shareholders
Schedule 3.4 Consents
(A) Customer Consents Obtained
(B) Lease Consents Obtained
(C) Customers/Best Efforts
(D) Leases/Best Efforts
Schedule 3.6 Encumbrances
Schedule 3.8 Predecessor Names
Schedule 3.9 Financial Statements
Schedule 3.9(a) Pricing Model
Schedule 3.9(b) Non-Recurring Expenses
Schedule 3.10 Certain Developments
Schedule 3.11 Authorizations
Schedule 3.12 Litigation
Schedule 3.13 Undisclosed Liabilities
Schedule 3.14 Tax Contests
Schedule 3.15 Insurance
Schedule 3.16 Environmental Matters
Schedule 3.17 Employee Matters
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Proprietary Rights
Schedule 3.20 Accounts Receivable
Schedule 3.21 Contracts
Schedule 3.22 Customers and Suppliers
Schedule 3.23 Key Individuals
Schedule 3.28 Related Party Transactions
Schedule 5.6 Employees
1Schedule 5.7 Employee Loans
<PAGE>
Exhibits
Exhibit A Purchase Price Allocation 2
Exhibit B Bill of Sale 3
Exhibit C Assignment and Assumption Agreement 2
Exhibit D GHG Opinion 2
Exhibit E LSK Opinion 2
Exhibit F Forms of Employment Agreements 2
Exhibit G Form of Escrow Agreement 2
Exhibit H Integration Plan 4
Exhibit I Supply Agreement 2
Exhibit J Security Agreement 2
Exhibit K Pricing for Inter-company Services 3
- --------
1
2 To be mutually agreed upon post-closing.
3 Separately signed at closing-not attached.
4 An outline of keypoints is attached. To be further enhanced by mutual consent
post-closing.
Company Press Release
Source: Vestcom International, Inc.
Vestcom International, Inc. Announces Strategic Acquisitions:
Discusses Short Term Prospects
LYNDHURST, N.J., Jan. 26/PRNewswire/--Vestcom International, Inc. (Nasdaq: VESC
- - news) announced today that it has completed the acquisition of substantially
all of the assets of two related companies: Creative Data Services Inc., a
privately owned company that specializes in retail shelf label printing and
related services, and Business Mail Express, a privately owned company that
specializes in expedited print and mail services. The combined purchase price
for both entities was $9.5 million in cash with a potential earn-out payment,
based upon certain financial benchmarks being attained, payable in cash and
shares of Vestcom International's common stock.
Both companies are based in St. Louis, Missouri. Their combined revenue for the
fiscal year ended September 27, 1997, which includes revenues from Business Mail
Express for only the first 9 months of calendar year 1997, was approximately $21
million.
For over 26 years, Creative Data Services has been laser printing vinyl labels
for major retail grocery chains and drug chains. The company also produces other
value added vinyl products, such as insurance cards, and currently operates in 5
locations.
Joel Cartun, the Chief Executive Officer of Vestcom International, said "The
combination of the vinyl label laser printing capabilities of Creative Data
Services, with the paper laminated label laser printing services offered by
Electronic Imaging Services, one of Vestcom's seven founding companies,
strengthens Vestcom International's presence in the marketplace by making us the
first nationwide supplier to provide customers with both vinyl and paper
laminated services." Further, he said, "We are excited about the benefits that
can be obtained through the integration of Creative Data Services with the
Vestcom companies and the addition of strategic production facilities located
near major retail markets."
Business Mail Express, through an integrated network of seven facilities,
provides a print and mailing service for customers requiring expedited first
class delivery of time sensitive documents, including brokerage transaction
confirmation statements, invoices, product recall notices and collection
notices. In addition to its St. Louis, Missouri headquarters, Business Mail
Express has printing and distribution sites at various locations in the United
States, including, Northern and Southern California, Tampa, Florida, Dallas,
Texas, Charlotte, North Carolina, Lansing, Michigan, and northern New Jersey.
"The strategic acquisition of Business Mail Express is important to Vestcom for
two main reasons," said Joel Cartun, the Chief Executive Officer of Vestcom,
"first, it provides Vestcom with an opportunity to provide customers with a
technology platform to centrally transmit information and to print and
distribute it on an expedited delivery basis at various distribution centers,
and second, it gives us a presence in key markets which Vestcom has targeted,
including California, Florida and Texas."
Doug Brooking, President of Creative Data Services and Business Mail Express
said, "by joining Vestcom International, both Creative Data Services and
Business Mail Express will be able to expand their business opportunities,
including providing an increased array of products to a broader customer base,
and will be able to capitalize on the resources of Vestcom to support such
growth."
Brendan Keating, the Chief Operating Officer of Vestcom International,
commented, the effective integration of these companies will occur over an
estimated six to nine month time period. The integration program, whose
objectives include providing greater value to customers, will include,
consolidation of certain facilities, combining certain sales and administrative
functions, optimizing the utilization of production capacity and effecting a
financial turnaround of Business Mail Express, which incurred operating losses
in 1997."
Vestcom International believes that these strategic acquisitions and other
current initiatives, including, the opening of a new facility in New York City,
are designed to promote long term shareholder value. However, they will increase
expenses in the short term. In addition, the company currently is incurring
costs for and experiencing delays in achieving certain anticipated consolidation
synergies, is expanding its corporate capabilities and personnel, and the
operating performance of certain of its subsidiaries is below plan. Accordingly,
while the company generally does not comment on analyst's projections, subject
to the results of the company's ongoing acquisition program, the company
anticipates that earnings will be lower than analysts expectations over the next
six to nine months. The company is taking various actions to minimize this
potential impact and is committed to its goals of growing shareholder value.
Vestcom has scheduled a conference call for January 26, 1998 at 1:00 PM Eastern
Standard Time to address matters discussed in this press release. Please call
Harvey Goldman at the contact number listed below for details regarding
participation.
Vestcom International, Inc. was formed to create a leading provider of computer
output and document management services. The Company provides a number of
value-added services including (a0 the production and distribution of
time-sensitive computer-generated documents on paper, compact disc, microfiche,
microfilm and labels, (b) demand publishing, (c) mailing services, (d) marketing
materials fulfillment and (e) forms management. Applications of Vestcom's
services include printing and mailing of computer-generated brokerage
statements, invoices, cellular telephone bills, management reports and
supermarket point-of-purchase shelf labels.
Statements in this press release regarding future performance constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. Future results could differ materially from such statements as a result of
a number of factors referred to in the Company's prospectus dated July 30, 1997
and the Company's Quarterly Reports on Form 10-Q.
