<PAGE>
================================================================================
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: March 3, 1999
CUTCO INDUSTRIES, INC.
-------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
New York 000-5223 11-1771806
------------------ --------------------- -----------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification
incorporation) Number)
6900 Jericho Turnpike, Syosset, New York 11791
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 677-0320
--------------
================================================================================
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
------------------------------------
On February 16, 1999, Registrant sold 30 of 41 retail hair care salons
owned and operated by Registrant to Regis Corporation ("Regis"), a Minneapolis
based owner/franchiser of hair care and retail product salons, pursuant to the
terms of an Agreement for Purchase and Sale of Assets dated as of February 12,
1999 by and between Regis and Registrant.
The total purchase price was approximately $1.8 million, subject to
reduction in the event sales of individual salons are not completed due to the
inability to obtain a landlord's consent to assignment of the relevant lease to
Regis. Under the terms of the sale arrangements, Registrant has agreed, subject
to specified exceptions, not to compete with Regis in the ownership or
management of hair care salons located within a 10 mile radius of the respective
salons sold to Regis.
Registrant intends to use the net proceeds from this sale for the
development of new franchises and working capital.
ITEM 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Pro forma condensed consolidated balance sheet (unaudited) of
Registrant as of December 31, 1998.
Pro forma condensed consolidated statement of operations (unaudited)
of Registrant for the year ended June 30, 1998.
Pro forma condensed consolidated statement of operations (unaudited)
of Registrant for the six months ended December 31, 1998.
Notes (unaudited) to pro forma financial statements.
(b) Exhibits:
Exhibit No. Description
----------- -----------
7.1 Agreement for Purchase and Sale of Assets dated as of
February 12, 1999 between Regis and Registrant.
2
<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.
Dated: March 3, 1999 CUTCO INDUSTRIES, INC.
(registrant)
By: /s/Marvin Marcus
-------------------------
Marvin Marcus
Chairman
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION> CONSOLIDATED
HISTORICAL PRO FORMA PRO FORMA
AMOUNTS ADJUSTMENTS AS ADJUSTED
---------- ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $642,342 $1,823,000 (1) $2,465,342
Marketable securities 157,689 157,689
Notes and accounts receivable, net 343,091 343,091
Merchandise inventory 376,462 (201,000)(1) 175,462
Deferred income taxes 130,000 130,000
Prepaid expenses, taxes and miscellaneous receviables 32,972 32,972
----------- ----------- ----------
Total current assets 1,682,556 1,622,000 3,304,556
----------- ----------- ----------
Property and equipment:
Furniture, fixtures and equipment 1,732,081 (1,064,000)(1) 668,081
Leasehold improvements 62,956 (43,000)(1) 19,956
----------- ----------- ----------
1,795,037 (1,107,000)(1) 688,037
Less accumulated depreciation and amortization 1,076,197 (668,000)(1) 408,197
----------- ----------- ----------
718,840 (439,000) 279,840
----------- ----------- ----------
Other assets:
Notes receivable, non-current, net 325,997 325,997
Deferred charges and other 58,783 58,783
Deposits 63,821 (22,000)(1) 41,821
----------- ----------- ----------
448,601 (22,000) 426,601
----------- ----------- ----------
$2,849,997 $1,161,000 $4,010,997
=========== =========== ==========
</TABLE>
See notes to unaudited pro forma statements
(Continued)
F-1
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA BALANCE SHEET - (CONTINUED)
DECEMBER 31, 1998
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> CONSOLIDATED
HISTORICAL PRO FORMA PRO FORMA
AMOUNTS ADJUSTMENTS AS ADJUSTED
------------ ------------ -----------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $343,940 $100,000 (2) $518,940
75,000 (3)
Current portion of long-term debt - - -
Accrued and withheld taxes, other than income taxes 144,748 144,748
586 72,000 (4) 72,586
-------------- --------------- --------------
Total current liabilities 489,274 247,000 736,274
-------------- --------------- --------------
Long-term debt - - -
-------------- --------------- --------------
Deposits payable 16,966 16,966
-------------- --------------- ---------------
Deferred income 38,397 38,397
-------------- --------------- ---------------
Deferred income taxes 130,000 130,000
-------------- --------------- ---------------
Shareholders' equity:
Common stock, $.10 par value, authorized
5,000,000 shares, issued 1,909,206 shares 190,921 190,921
Additional paid-in-capital 4,223,575 4,223,575
Retained earnings 1,242,456 914,000 (1,2,3,4) 2,156,456
--------------- ------------ -------------
5,656,952 914,000 6,570,952
Less common stock held in treasury, at cost,
1,103,081 shares (3,481,592) (3,481,592)
------------- --------------
2,175,360 914,000 3,089,360
--------------
$2,849,997 $1,161,000 $4,010,997
============== ============== =============
</TABLE>
See notes to unaudited pro forma statements
F-2
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
HISTORICAL PRO FORMA PRO FORMA
AMOUNTS ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Owned retail stores $3,343,620 ($2,650,000)(1) $ 693,620
Sales of equipment and products 111,140 111,140
Royalties, service fees and franchise income 830,091 830,091
--------------- ---------- -----------
$4,284,851 ($2,650,000)(1) $1,634,851
--------------- ---------- -----------
Costs and expenses:
Direct costs of owned retail stores $3,197,207 ($2,432,000)(1) $ 765,207
Costs of equipment and products sold 95,102 95,102
Depreciation and amortization 126,583 (75,000)(1) 51,583
Selling, general and administrative expenses 900,426 (122,000)(1) 778,426
Provision for doubtful accounts and notes receivable 30,000 30,000
--------------- ---------- -----------
$4,349,318 ($2,629,000) $1,720,318
--------------- ---------- -----------
Other income (loss) 189,546 189,546
--------------- -----------
Income (loss) before income taxes 125,079 104,079
--------------- -----------
Income taxes 1,593 1,593
--------------- -----------
Net income (loss) $123,486 $102,486
=============== ===========
Earnings (loss) per common share $0.16 $0.13
=============== ===========
Diluted Earnings (loss) per common share $0.15 $0.12
=============== ===========
Weighted average number of common shares outstanding 795,454 795,454
=============== ===========
</TABLE>
See notes to unaudited pro forma statements
F-3
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
HISTORICAL PRO FORMA PROFORMA
AMOUNTS ADJUSTMENTS AS ADJUSTED
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Owned retail stores $6,896,700 ($5,258,000)(1) $1,638,700
Sales of equipment and products 199,542 199,542
Royalties, service fees and franchise income 1,663,193 1,663,193
Franchise fee income 10,793 10,793
------------ ------------ ------------
$8,770,228 ($5,258,000) $3,512,228
------------ ------------ ------------
Costs and expenses:
Direct costs of owned retail stores $6,512,973 ($4,911,000)(1) $1,601,973
Costs of equipment and products sold 149,440 149,440
Depreciation and amortization 466,412 (171,000)(1) 295,412
Selling, general and administrative expenses 2,169,554 (236,000)(1) 1,933,554
Provision for doubtful accounts and notes receivable (14,946) (14,946)
----------- ------------
$9,283,433 ($5,318,000) $3,965,433
----------- ------------ ------------
Loss from operations (513,205) (453,205)
----------- ------------
Other income (loss) 122,795 122,795
-------------
-----------
Income (loss) before income taxes (390,410) (330,410)
Income taxes 16,847 16,847
-------------
----------
Net income (loss) ($407,257) ($347,257)
========== ============
Earnings (loss) per common share $0.52 $0.44
========== ============
Diluted Earnings (loss) per common share $0.52 $0.44
========== ============
Weighted average number of common shares outstanding 780,625 780,625
========== ============
</TABLE>
F-4
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO UNAUDITED CONSOLIDATED PRO FORM FINANCIAL STATEMENTS
-------------------------------------------------------------
A. UNAUDITED PRO FORMA ADJUSTMENTS
A description of the adjustments included in the unaudited pro forma
financial statements are as follows:
Pro Forma Consolidated Balance Sheet-December 31, 1998:
- -------------------------------------------------------
(1) Reflects the proceeds from the sale of thirty (30) company owned salons
(2) Reflects an accrual for estimated servance
(3) Reflects an accrual for estimated closing costs of the disposition
transaction.
(4) Reflects an accrual for estimated state income taxes applicable to the
disposition transaction
Consolidated Pro Forma Statement of Operations for the Six Months Ended
- -----------------------------------------------------------------------
December 31, 1998:
- -----------------
(1) Reflects the sales, direct costs, depreciation and selling, general, and
administrative expenses applicable to the sale of thirty (30) company
owned salons for the six months ended December 31, 1998.
Material non recurring charges and credits which result directly from the
transaction and which will twelve months were not forma consolidated
statement of impact the income considered and have not operations. Such
charges statement during the next been reflected in the pro and credits
are:
a) Employers severance pay in the amount of $100,000
b) Gain on sale of salons of $1,161,000
c) Estimated charges for closing costs and state income
taxes of the disposition of $147,000.
F-5
<PAGE>
Consolidated Pro Forma Statement of Operations for the Year Ended June 30,
- --------------------------------------------------------------------------
1998:
- -----
(1) Reflects the sales, direct costs, depreciation and selling, general, and
administrative expenses applicable to the sale of thirty (30) company
owned salons for the six months ended June 30, 1998.
F-6
<PAGE>
Exhibit 7.1
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
-----------------------------------------
THIS AGREEMENT is made and entered into as of the 12th day of February,
1999, by and among Regis Corporation, a Minnesota corporation ("Buyer"), and
CutCo Industries, Inc., a New York corporation ("CutCo"), and its wholly owned
subsidiaries which own the Stores referenced below ("Sellers").
RECITALS
--------
A. Among other activities, Sellers own and operate forty-two (42) stores
furnishing hair care services and selling hair care products, of which thirty-
one (31) are being purchased by Buyer (the "Stores") (as described in Exhibit A)
and Sellers own the rights to use the trade names Haircrafters(TM), Great
Expectations(TM), FreeStyle(TM), and Natisse(TM). Sellers also own certain
inventory, furniture, fixtures, equipment, and leasehold improvements located
at, or related to the operation of the Stores, which inventory, furniture,
fixtures, equipment, leasehold improvements and non-exclusive rights to the use
of said trade names (limited to Buyer's use for a period not to exceed one year
from the Closing Date (as hereinafter defined)), in accordance with the terms of
the License Agreement attached as Annex A hereto, are hereinafter referred to as
the "Assets". Sellers' cash (except for the cash drawer at the Stores) and
accounts receivable derived from the operation of the Stores are excluded from
the Assets. The landlords for the Stores are hereinafter referred to as the
"Landlords". The leases for the premises where the Stores are located are
hereinafter referred to as the "Leases".
B. Sellers desire to sell the Assets to Buyer and Buyer desires to
purchase the Assets from Sellers, all on the following terms and conditions.
NOW, THEREFORE, in consideration of mutual covenants, agreements and
considerations set forth herein, the parties agree as follows:
1. Purchase and Sale.
-----------------
1
<PAGE>
1.1 Assets. On and subject to the terms and conditions of this Agreement,
------
Buyer agrees to purchase the Assets from Sellers and Sellers agree to sell the
Assets to Buyer on the Closing Date.
1.2 Purchase Price. The purchase price for the Assets (exclusive of
--------------
amounts payable for inventory as set forth below and the cash in the drawers)
shall be $1,600,000.00 ("Purchase Price") payable as follows:
(a) $300,000.00 of the Purchase Price shall be placed on the Closing
Date in a dual signature escrow account (the "Escrow Fund"), which shall be an
interest bearing account with LaSalle National Bank, Chicago, Illinois (the
"Escrow Agent"). This amount, plus all accrued interest, less any deductions
provided for herein, shall be released to CutCo, for the account of Sellers,
ninety (90) days after the Closing Date.
(b) The balance of the Purchase Price shall be allocated to each Store
based on the percentage set forth in Schedule 1.2, attached hereto. With regard
to each Store for which the landlord's consent to an assignment of lease has
been obtained on or before the Closing Date, the indicated portion of the
Purchase Price shall be paid to CutCo for the account of Sellers on the Closing
Date. The remaining balance of the Purchase Price shall be deposited with the
Escrow Agent. On the first day of each month thereafter, additional funds will
be released from the Escrow Agent to CutCo for the portion of the Purchase Price
allocable to each Store for which a landlord's consent to lease assignment has
been obtained. The foregoing notwithstanding, Buyer agrees that a minimum of
$1,000,000 will be paid to CutCo, for the account of Sellers, on the Closing
Date. The difference between $1,000,000, and the amount which would have
otherwise been payable to Sellers on the Closing Date (based on the number of
consents received), will be treated as an advance against future payments. To
the extent the amount paid on the Purchase Price is less than $1,300,000, the
difference shall be added to the $300,000 in the Escrow Fund.
2
<PAGE>
Buyer and Sellers shall diligently pursue obtaining landlords' consents to
assignments of leases with respect to all Stores until all such consents have
been obtained. In the event that a landlord consent is not obtained, and in the
event that the landlord with regard to such Store commences any action to
terminate the lease because of an assignment without consent, then Buyer may
rescind this Agreement with respect to that particular Store, and receive a
refund of the allocable portion of the Purchase Price for the Store in an amount
equal to the percentage shown for the Store in Schedule 1.2, multiplied by the
Purchase Price ("Refund Amount"). Buyer and Sellers agree that in the event all
of the assignments of Leases are not received within nine (9) months after the
Closing Date, Buyer shall have the option to (i) pay CutCo for the account of
Sellers, from the Escrow Fund the allocable portion of the Purchase Price and
continue operating the Store(s), or (ii) exclude the Store(s) for which
assignments of leases have not been received, from the sale and receive the
Refund Amount and return the Store(s) to Seller immediately thereafter. All
interest earned on the Escrow Fund shall be the property of Sellers, except any
interest allocable to any Refund Amount on a rescinded Store(s) as set forth
above shall be allocable to the Buyer.
The obligations set forth in Section 1 of the Non-Competition
Agreement shall not apply with reference to any Store(s) for which the purchase
has been rescinded as provided above.
(c) In addition, Buyer shall purchase the saleable inventories located
at the Stores on the Closing Date and pay for such saleable inventories on the
Closing Date, which inventories shall be valued at Sellers' cost. Such amount
shall be determined by a physical count, performed by Sellers' employees and
paid for by Sellers on the evening prior to the Closing Date, of all inventory
on hand on the Closing Date. Upon determination of the actual inventories on
hand, such amount shall be calculated based on the Sellers' cost of purchasing
such items. The calculated amounts shall be provided to Buyer within ten (10)
days after the Closing Date. For purposes of the Closing, the value of saleable
inventories shall be estimated at the amount of inventories at the Stores as of
December 31, 1998. Subsequent to the Closing Date, the estimated inventory
value and the actual
3
<PAGE>
or calculated inventory value shall be compared and the difference, as
applicable, shall either be paid to CutCo for the account of Sellers (where
actual value exceeds estimated value) or returned to Buyer (where estimated
value exceeds actual value).
1.3 Allocation of Purchase Price. Buyer and Sellers agree that the
-----------------------------
purchase price shall be allocated as follows:
Inventory $ (to be determined)
Furniture, Fixtures, Leasehold
Improvements and Equipment $
Goodwill and other Intangibles $
----------------------
TOTAL: $ 1,600,000.00 (plus inventory amount)
1.4 Obligations of Sellers.
----------------------
(a) All liabilities of Sellers, whether disclosed or undisclosed,
including, but not limited to, any liability arising from, or related to,
Sellers' failure to obtain shareholder approval from the shareholders of CutCo
Industries, Inc. for this transaction, those accruing under the Leases up to the
Closing Date, including year end adjustments to the extent said adjustments
relate to any period of time prior to the Closing Date, and outstanding gift
certificates or store credits, if any, shall be paid by Sellers and Sellers
shall indemnify and hold Buyer harmless against all such liabilities, including
all tax liabilities in accordance with and subject to the procedures set forth
in Section 8.3. Buyer shall assume no liabilities or obligations of Sellers for
periods prior to the Closing Date.
4
<PAGE>
(b) Sellers shall contact the telephone company and utility companies
for the Stores immediately on or after the Closing Date regarding change of
ownership and the transfer to Buyer of all accounts and telephone numbers as of
the Closing Date.
1.5 Obligations of Buyer. Except as set forth on the attached Exhibit B,
--------------------
Buyer agrees to assume, pay and perform each and every obligation of Sellers
which accrues on or after the Closing Date, in connection with the operations of
the business conducted at the Stores including, without limitation, all
obligations under the Leases and all liabilities for telephone and utility
services and the change of name of the persons responsible for the payment of
telephone and utility service (collectively, "Assumed Obligations"). Buyer
shall indemnify and hold Sellers harmless against all such obligations and
liabilities in accordance with and subject to the conditions set forth in
Section 8.3. The parties agree that Buyer shall not assume any liability for
obligations which accrue or relate to any period of time prior to the Closing
Date.
In addition, on the Closing Date, Buyer shall reimburse CutCo, for the
account of Sellers, for all security deposits held by the Landlords with respect
to the Stores.
1.6 Prorations. All operating costs relating to the business conducted at
----------
the Stores, including, but not limited to, rent, utilities, and accrued
vacation, shall be allocated between Sellers and Buyer based upon the Closing
Date, such that Sellers shall pay that portion of the operating costs and
receive that portion of the income pertaining to that period of time up to and
including the day prior to the Closing Date and Buyer shall pay that portion of
the operating costs and receive that portion of the income on and after the
Closing Date. In addition, a payment to Sellers shall be made by Buyer in an
amount equal to the cash on hand at the Stores on the Closing Date. The parties
will attempt to make the necessary adjustments within sixty (60) days after the
Closing Date, and make such necessary payments within the same time period.
5
<PAGE>
2. The Closing. The transaction provided for herein shall be closed on
-----------
February 16, 1999, at a mutually agreeable location or by overnight delivery of
documents and by wire transfer of funds, or by such other means as the parties
may agree upon.
3. Instruments of Transfer; Further Assurances.
-------------------------------------------
(a) At the Closing, the Sellers shall deliver to Buyer:
(i) A Bill of Sale and Assignment(s) transferring to Buyer
ownership of the Assets free and clear of all liens, security
interests and other encumbrances other than the liens of Landlords;
(ii) A Certificate of Good Standing for CutCo from the New York
Secretary of State;
(iii) Certified resolutions of the Board of Directors of CutCo
approving this transaction;
(iv) An opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.,
special counsel to CutCo Industries, Inc., to the effect that, based
on the reasoning set forth in such opinion, it is more likely than not
that New York courts would conclude that approval by the shareholders
of CutCo Industries, Inc. is not required for the purchase and sale of
the Assets pursuant to the terms of this Agreement;
(v) The Non-Competition Agreement pursuant to Section 9 herein, duly
executed by Sellers and the President and Chairman of Sellers; and
(vi) Such other and further instruments of transfer as shall in the
opinion of Buyer's counsel be necessary or appropriate to consummate
the purchase and sale.
(b) At the Closing, Buyer shall deliver (i) an amount to Sellers equal
to the sum of (x) the amount set forth in Section 1.2(b) herein (in no event
less than $1,000,000), plus (y) security deposits on the Leases plus (z)
estimated inventory amount in cash to Sellers, and (ii) $300,000 to
6
<PAGE>
the Escrow Agent plus (if applicable) any difference between $1,300,000 and the
amount payable pursuant to Section 1.2(b). Payment of amounts specified in (i)
shall be effected by wire transfer of funds to an account designated by CutCo.
4. Representations and Warranties of Sellers. Sellers represent and
-----------------------------------------
warrant to Buyer as follows:
(a) Financial Statements. Sellers have delivered to Buyer copies of the
--------------------
following internally prepared financial statements of the Stores ("Financial
Statements"):
(i) Asset Summaries for the Stores as of December 31, 1998.
(ii) Statement of Income for the Stores for the six months ended
December 31, 1998.
The Financial Statements fairly present in all material respects the
financial condition and assets and liabilities of the Stores as of the date
indicated, and the results of operations of the Stores for the period then
ended. The Financial Statements were prepared accurately and on a basis
consistent with the Financial Statements of the Stores prepared in previous
years.
(b) Absence of Undisclosed Liabilities. Except to the extent
----------------------------------
reflected, reserved, or otherwise provided for in the Financial Statements,
Sellers do not have any material liabilities or obligations of any nature
relating to the operations or business conducted at the Stores, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, other than
those incurred in the ordinary course of business since December 31, 1998.
There is no basis for assertion against Sellers of any claim or liability
relating to said operations or business in any amount in excess of $10,000 not
fully reflected or provided for in the Financial Statements or covered by
insurance policies of Sellers.
(c) No Adverse Changes. Since December 31, 1998, there have not been
------------------
(i) any material adverse changes in the financial condition or in the
operations, business, properties of the Stores from that shown on the Financial
Statements, or (ii) any damage, destruction or loss to any of the Assets,
whether or not covered by insurance, which have materially adversely affected or
7
<PAGE>
impaired or which does or may reasonably be expected to materially adversely
affect or impair the ability of Sellers to conduct the business conducted at the
Stores, or (iii) any negotiation, or request for negotiation, for any
representation or any labor contract or any event or condition relating to the
Stores of any character which has materially adversely affected or which does or
may reasonably be expected to materially adversely affect or impair the business
conducted at the Stores.
(d) Tax Returns and Payments. Except for returns which are not yet due
------------------------
(provided they are filed on or prior to their due date), Sellers will have at
Closing duly filed all federal, state and local tax returns and reports required
to be filed with respect to the Stores prior to Closing and now have and will
have at Closing fully paid or established adequate reserves for the proper
payment of all taxes (whether or not shown on any tax return) and other
governmental charges upon it or its properties, assets, licenses or sales
(excluding income taxes based on Sellers' net income). All monies required to be
withheld by Sellers from employees of the Stores for income taxes, Social
Security and unemployment insurance taxes have been collected or withheld, and
either paid to the respective governmental agencies or set aside in accounts for
such purpose, or accrued, reserved against, and entered upon the books of
Sellers. Any and all Internal Revenue Service adjustments to Sellers' taxes
have been reported to all applicable states and all state taxes relating to such
adjustments have been paid.
(e) Title to Property and Assets. Sellers have good title to all the
----------------------------
Assets, subject to no mortgage, pledge, lien, security interest, lease, charge,
encumbrance or conditional sale or other title retention agreement other than
Permitted Liens (as hereinafter referred). "Permitted Liens" means:
(i) liens for taxes, assessments, or similar charges, incurred in
the ordinary course of business that are not yet due and payable;
(ii) liens of mechanics, materialmen, warehousemen, carriers, or
other like liens, securing obligations incurred in the ordinary course
of business that are not yet due and payable; and
8
<PAGE>
(iii) Leases.
(f) Leases and Licenses. A list of all leases of real or personal
-------------------
property and all license agreements (except for the lease agreements described
in Exhibit A) to which Sellers are a party, and related to the Assets, are set
forth in Exhibit C. All such leases and licenses are in good standing, valid and
effective in accordance with their respective terms, and there are no existing
events of default or events which with notice or lapse of time or both would
constitute events of default. Sellers have received no notice of any claimed
existing default with respect to any leases and licenses. There are presently
no negotiations pending between Sellers and the Landlords of such leases for the
modification of any such lease except as contemplated herein. Sellers have no
commitments or understandings, oral or written, relating to such leases or
licenses, except as contained in the particular leases or licenses, listed on
Exhibit C. Sellers have provided Buyer with a copy of all leases and amendments
thereto.
(g) Condition of Property. The Assets will be, at Closing, in good
---------------------
operating condition and repair, subject to normal wear and maintenance, and in
conformity in all material respects with all applicable ordinances and
regulations, and environmental, building, zoning or other laws.
(h) Insurance. All the insurable Assets are insured for Sellers'
---------
benefit, in amounts deemed adequate by Sellers' management, against all risks
usually insured against by persons operating similar properties in the
localities where such properties are located, under valid and enforceable
policies issued by insurers of recognized responsibility.
(i) Trademarks. Sellers own or possess the right to use all
-----------
trademarks, service marks and trade names (all of which are set forth in Exhibit
D) necessary for the conduct of Sellers' business at the Stores as now conducted
and as proposed to be conducted prior to the Closing Date, without any known
conflict with the rights of others, and Sellers have not received notice of any
claimed conflict with respect to any of the foregoing.
9
<PAGE>
(j) Litigation, etc. There is no suit, action or litigation, or
----------------
administrative, arbitration or other proceeding or, any governmental
investigation or any change known to Sellers in the environmental, zoning or
building laws, regulations or ordinances affecting the Assets or business
operations at the Stores, pending or threatened, that might, severally or in the
aggregate, reasonably be expected to materially adversely affect the financial
condition, business, property or assets of the Stores. Sellers have complied in
all material respects with and are not in default in any material respect under
or in violation of any laws, ordinances, requirements, regulations or orders
applicable to their business and Sellers have not received notice of any claimed
default or violation with respect to any of the foregoing.
(k) Compliance with Other Instruments, etc. Neither the execution nor
---------------------------------------
the delivery of this Agreement nor the consummation of the transaction
contemplated hereby will conflict with or result in any violation of or
constitute a default under any agreements of Sellers (other than Leases where
the consent of Landlords is necessary), or any agreement, mortgage, indenture,
license, permit or other instrument, judgment, decree, order, law or regulation
by which Sellers are bound.
(l) Environmental Compliance. Sellers are not in violation in any
------------------------
material respect of any United States federal, state or local law, ordinance or
regulation relating to the environmental conditions ("Environmental Law") on,
under or about any real property owned or leased by Sellers in the operation of
the Stores including, but not limited to, soil and groundwater conditions.
Sellers have not used, generated, manufactured, produced, stored, treated or
disposed of, whether temporarily or permanently, on, under or about any real
property leased by Sellers in the operation of the Stores or transported to or
from any real property owned or leased by Sellers in the operation of the Stores
any Hazardous Substance (as defined below) in violation of any Environmental
law, except for hair care products customarily used in the business conducted at
the Stores. There is no proceeding or investigation by any governmental entity
with respect to the presence of such Hazardous Substance on any real property
leased by Sellers in the operation of the Stores or the migration thereof from
or to other property. Sellers have not been required or ordered by any
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governmental entity to treat, clean-up or otherwise dispose, remove or
neutralize any Hazardous Substance from or on any real property leased by
Sellers. For purposes of this Agreement, "Hazardous Substances" shall mean
substances defined or listed as "hazardous wastes" or "toxic substances", or any
variation thereof, in or determined at any time to be such pursuant to
applicable laws, and regulations adopted and publications set forth in or
promulgated pursuant to such laws, including, without limitation: (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Sections 9601 et seq.; Hazardous Materials Transportation
-------
Act, 49 U.S.C. Section 1801 et seq.; and (ii) pesticides, fungicides, solvents,
-------
herbicides, flammable explosives, asbestos, polychlorinated biphenyls,
radioactive materials; and petroleum, and drilling fluids, produced waters and
other wastes associated with the exploration, development, or production of
crude oil, natural gas or geothermal energy.
(m) Defaults, etc. To Sellers' knowledge, there is no actual or
--------------
claimed default or state of facts that with notice or lapse of time or both
would constitute a default on the part of Sellers in the performance or payment
of any obligation to be performed or paid by Sellers under any contracts, plans
or other instruments or arrangements relating to the operation of the Stores
referred to in or to be submitted as provided herein, and Sellers have not
received or given notice of any actual or claimed default or state of facts that
with notice or lapse of time or both would constitute a default on the part of
Sellers in the performance or payment of any obligation to be performed or paid
by Sellers under any contracts, plans or other instruments or arrangements
referred to or submitted as provided herein. Other than Sellers' 401(k) plan,
there are no benefit plans of Sellers covering employees at the Stores subject
to the Employee Retirement Income Security Act ("ERISA").
(n) Books of Account and Records. Sellers' books of account relating
----------------------------
to the Stores fairly reflect all of the Sellers' items of income and expense,
assets, liabilities and accruals, and are prepared, maintained and compiled on a
basis consistent with prior years.
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(o) Suppliers. Sellers' relationships with suppliers to the Stores are
---------
continuing and satisfactory. Sellers have no knowledge of any plans of any
supplier to discontinue providing products to the Stores.
(p) Inventories. All inventory of Sellers held for sale at the Stores
-----------
to customers is of merchantable quality and saleable in the ordinary course of
business. The merchandise inventory of Sellers is valued at Sellers'
[customary] cost on a first-in, first-out basis.
(q) Labor Controversies; Collective Bargaining Agreements. There are
-----------------------------------------------------
no controversies pending or threatened between Sellers and (i) any union, or
(ii) Sellers' employees at the Stores. Sellers' operations at the Stores are
not currently subject to (i) any threats of strikes or work stoppages, or (ii)
any organizational efforts or demands for collective bargaining or any union
organization. Sellers are in substantial compliance with applicable labor laws.
Sellers are not a party to any collective bargaining agreement with any labor
union or other representative of any of their employees.
(r) Brokers. No broker or finder has been employed by Sellers in
-------
connection with this transaction.
(s) Not All Assets. The Assets do not constitute substantially all the
--------------
Assets of CutCo.
5. Representations and Warranties of Buyer. Buyer represents and warrants
---------------------------------------
to Sellers as follows:
(a) Organization; Good Standing. Buyer is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Minnesota with all requisite power and authority to perform its obligations
hereunder.
(b) Compliance with Other Instruments, etc. Neither the execution nor
---------------------------------------
the delivery of this Agreement nor the consummation of the transaction
contemplated hereby will conflict with or result in any violation of or
constitute a default under any agreements of Buyer, or any agreement,
12
<PAGE>
mortgage, indenture, license, permit or other instrument, judgment, decree,
order, law or regulation by which Buyer is bound.
(c) Brokers. No broker or finder has been employed by Buyer in
-------
connection with this transaction.
(d) Authorization. The execution, delivery and performance of this
-------------
Agreement by Buyer has been duly authorized by the Board of Directors of Buyer
and the Agreement constitutes the legal, valid and binding obligation of Buyer.
6. Covenants of Sellers. Sellers agree that prior to the Closing:
--------------------
(a) Cooperation. Sellers will use their commercially reasonable best
-----------
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, will use
commercially reasonable efforts to obtain all consents and authorizations of
third parties and to make all filings with and give all notices to third parties
which may be necessary or reasonably required in order to effect the
transactions contemplated hereby. Sellers will use their commercially
reasonable best efforts to preserve Sellers' business organizations at the
Stores intact and to keep available the services of their employees and
representatives at the Stores and will preserve the goodwill of their employees,
customers, suppliers and others having business relations with the Stores.
(b) Landlords' Consents. Sellers will use commercially reasonable
--------------------
efforts to obtain the written consents from the Landlords to assignments of the
Leases with no increase in rent, but with such modifications as Buyer, in its
sole, but commercially reasonable, discretion, may deem necessary and
reasonable, including but not limited to the right to use the trade name
"StyleAmerica", "Supercuts" or "Regis Salon", as the case may be, and the
modification of any radius restriction clauses so that the scope is reasonable
and the restrictions are limited to the existing trade name only.
(c) Transactions Out of Ordinary Course of Business. Sellers will not,
-----------------------------------------------
except with the prior written consent of Buyer, enter into any transaction out
of the ordinary course of business
13
<PAGE>
relating to operations at the Stores, including, but not limited to, the
execution of any new lease or the modification of any existing lease.
(d) Maintenance of Properties, etc. Sellers will maintain the Assets
-------------------------------
in good repair, order and condition, reasonable wear and use, damage by fire or
other casualty excepted, and will maintain insurance upon the Assets with
respect to the conduct of their business at the Stores, in such amounts and of
such kinds comparable to that in effect on the date of this Agreement.
(e) Maintenance of Books and Records. Sellers will maintain their
--------------------------------
books, accounts and records relating to the Stores in the usual manner on a
basis consistent with prior years. Sellers will duly comply in all material
respect with all laws and decrees applicable to them and to the conduct of their
business at the Stores.
(f) Debts. All debts and trade payables of Sellers relating to
-----
operations at the Stores will be paid as they become due in the normal course of
business.
(g) Agreements Delivered, etc. Prior to the Closing Date, Sellers will
--------------------------
furnish to Buyer complete and accurate lists of the following: (i) all
agreements or arrangements of Sellers relating to operations at the Stores that
are to be performed in whole or in part on or after the date hereof, other than
leases or licenses listed in Exhibit C; (ii) all bonus, incentive, death benefit
or other fringe benefit plans, deferred compensation and post-termination
obligations, trust agreements of Sellers relating to operations at the Stores in
effect or under which any amounts remain unpaid on the date hereof or are to
become effective after the date hereof; and (iii) all employment and consulting
contracts relating to operations at the Stores not terminable at will without
penalty to which Sellers are a party.
7. Covenants of Buyer. Buyer will faithfully perform on a timely basis
------------------
all of its obligations required herein. Buyer will use its commercially
reasonable best efforts to assist Sellers in obtaining all consents and
authorizations of third parties necessary for consummation of the transactions
contemplated by this Agreement including, without limitation, consents of
Landlords to assignment of the Leases to Buyer (with a release of Sellers from
liability subsequent to
14
<PAGE>
assignment). Buyer shall provide to Sellers for forwarding to Landlords all
information regarding Buyer and its financial condition as Sellers may
reasonably request.
8. Indemnification.
---------------
8.1 Indemnification by Sellers.
--------------------------
(a) Except as otherwise provided in Section 8.1(b), each of the
Sellers, jointly and severally, agrees to indemnify, defend and hold the Buyer
harmless from and against all demands, suits, claims, actions or causes of
action, assessments, losses, damages, liabilities, liens, settlements,
penalties, interest and forfeitures, and reasonable costs and expenses incident
thereto (including reasonable attorneys' fees) (collectively, the "Indemnity
Losses"), asserted against or suffered or incurred, directly or indirectly, by
the Buyer and resulting from:
(i) the breach or violation of any representation, warranty or
covenant made by the Sellers herein, or in any certificate furnished by
the Sellers pursuant to this Agreement; or
(ii) any other claim or liability, known or unknown, arising out
of, or by virtue of, or based upon the operation of the Stores or
Sellers' ownership of the Assets prior to the Closing Date.
(b) Notwithstanding the provisions of Section 8.1(a) and except as set
forth below, Sellers shall not be liable under this Section 8.1 unless and until
the aggregate Indemnity Losses of the Buyer exceeds $10,000, at which time the
Sellers shall be liable for all Indemnity Losses of the Buyer (including the
first $10,000).
8.2 Indemnification by the Buyer. The Buyer hereby agrees to indemnify,
----------------------------
defend and hold the Sellers harmless from and against any Indemnity Losses
asserted against or suffered or incurred, directly or indirectly, by the Sellers
and resulting from:
(a) the breach or violation of any representation, warranty or covenant
made by the Buyer herein or in any certificate furnished by the Buyer pursuant
to this Agreement; or
(b) the Assumed Obligations; or
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<PAGE>
(c) any other claim or liability, known or unknown, arising out of, or
by virtue of, or based upon the operation of the Stores or ownership of the
Assets after the Closing Date; or
(d) Notwithstanding the provisions of Section 8.2(a) or 8.2(c) and
except as set forth below, Buyer shall not be liable under this Section 8.2
unless and until the aggregate Indemnity Losses of the Sellers exceeds $10,000,
at which time the Buyer shall be liable for all Indemnity Losses of the Sellers
(including the first $10,000).
8.3 Procedure. Any Indemnified Party shall within thirty (30) days after
---------
the service of process in a lawsuit or promptly after it receives notice from
any third party that such party intends to assert a claim that could result in
indemnification hereunder, give the party from whom indemnification is sought
(the "Indemnifying Party") written notice of such claim and provide the
Indemnifying Party with a copy of such process or claim; provided that any
failure to timely give such notice shall not relieve the Indemnifying Party of
any of its obligations under Section 8.1 or 8.2 (as applicable) except to the
extent that such failure prejudices or impairs in a material respect any of the
rights or obligations of the Indemnifying Party. The Indemnifying Party shall
have the right to assume the defense of any such claim or lawsuit asserted
against the Indemnified Party by a third party, with counsel reasonably
satisfactory to the Indemnified Party, and in such event, Indemnifying Party
will not be liable to the Indemnified Party for any further legal expenses
incurred by the Indemnified Party in connection with the defense thereof. The
Indemnified Party may, however, participate actively, at its sole expense, in
any such lawsuit. If the Indemnifying Party so assumes the defense of any such
claim or lawsuit, all costs of the defense thereof shall thereafter be borne by
such Indemnifying Party and it shall have the authority to compromise and settle
such claim or lawsuit or to appeal (or cause the Indemnified Party to appeal)
any adverse judgment or ruling with the cost of such appeal to be paid by such
party; provided, however, that if any such compromise or settlement would divest
the Indemnified Party of any Assets transferred pursuant to this Agreement or if
the Indemnified Party may have any unindemnified liability arising out of such
claim or lawsuit, such party shall have the authority to compromise or settle
such claim or lawsuit
16
<PAGE>
only with the written consent of the Indemnified Party, which consent shall not
be unreasonably withheld. The Indemnifying Party shall have the right to approve
any out-of-court settlement (which approval shall not be unreasonably withheld)
of any claim or lawsuit for which it does not assume the defense, if the
Indemnifying Party is to be liable to the Indemnified Party hereunder for
indemnification with respect thereto. The Indemnified Party and the Indemnifying
Party will cooperate fully with each other with respect to discovery, inquiries
or investigations, including the furnishing of required employee witnesses, in
connection with any claim or lawsuit for which indemnity is sought hereunder.
The parties agree that if Buyer is the Indemnified Party, the Escrow Fund
will be continued with respect to the amount of any properly asserted claim
which has been initially asserted within nine (9) months after the Closing Date
until such time as the claim is resolved.
9. Employees.
---------
(a) Effective on the Closing Date, for all Sellers' employees who are
offered employment by Buyer, such employees shall be offered the opportunity to
elect to become active participants in Buyer's group medial plan as of the
Closing; provided, however, nothing herein shall preclude amendment or
termination of any such group medical plan or any other plan without notice to
such employees except as may be required by applicable law.
(b) Sellers shall terminate the employment of all employees employed at
the Stores effective as of the Closing, all such employees shall be deemed to be
fully vested in their Sellers' benefits (including, without limitation, accrued
vacation) and the Sellers shall promptly discharge, or cause to be promptly
discharged, all amounts owing to any employees thereunder. The Sellers shall
retain and shall assume, bear and discharge all liabilities for claims incurred
prior to the Closing under its welfare benefit plans (as that term is defined in
Section 3(1) of ERISA) that then covered employees (and their dependents) (the
"Sellers' Welfare Plans"), and the Sellers shall continue to retain and assume,
bear and discharge all liabilities incurred after the Closing Date with respect
to any health expenses incurred for continuation coverage under Section 4980B of
the
17
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Internal Revenue Code of 1986, as amended (the "Code") or Part 6 of Title I
of ERISA with respect to "qualifying events" (within the meaning of Section
4980B(f)(3) of the Code or Section 603 of ERISA) occurring on or before the
Closing with respect to the employees (or their dependents), if any. After the
Closing, Sellers shall cause appropriate notifications regarding availability of
such continuation coverage to be issued to the employees and any "qualified
beneficiary" (within the meaning of Section 4980B(g)(1) of the Code or Section
607 of ERISA) with respect to such qualifying events and shall cause those
individuals who elect continuation coverage to be covered under the Sellers'
group health plan for the period of continuation coverage.
(c) After the Closing, the Buyer shall be responsible and liable for
payments of any health care expenses for continuation coverage as required by
law (i) that are incurred by employees who are hired by Buyer, and subsequently
terminate employment with or retire from the Buyer after the Closing, and (ii)
that are covered and payable under any group health plan of the Buyer in which
the hired employees participate. The Buyer shall bear and discharge all
liabilities for claims incurred on and after the Closing under its welfare
benefit plans (as that term is defined in Section 3(1) of ERISA) covering the
hired employees (and their dependents and beneficiaries) (the "Buyer Welfare
Plans"). The Sellers also shall provide all information reasonably requested by
the Buyer which is available to the Sellers concerning the claim histories of
employees under the Sellers' Welfare Plans for purposes of the Buyer considering
such prior claim histories in the administration of the deductible and required
maximum benefit provisions under the Buyer's Welfare Plans.
10. Non-Competition Agreement. At the Closing, Sellers and Sellers'
-------------------------
executive officers will enter into a Non-Competition Agreement in the form set
forth in Exhibit E attached hereto.
11. Conditions Precedent to the Obligations of Sellers. All obligations
--------------------------------------------------
of Sellers under this Agreement are subject to the fulfillment, at the option of
Sellers, at or prior to the Closing Date, of the following condition: The
representations and warranties of Buyer herein contained shall be true on and as
of the Closing Date with the same force and effect as though made on and as of
said date, except as affected by the transaction contemplated hereby.
18
<PAGE>
12. Conditions Precedent to the Obligations of Buyer. All obligations of
------------------------------------------------
Buyer under this Agreement are subject to the fulfillment, at the option of
Buyer, at or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of Sellers herein contained
shall be true on and as of the Closing Date with the same force and effect as
though made on and as of said date, except (i) to the extent such
representations and warranties expressly relate to a prior date, and (ii) as
affected by the transactions contemplated hereby.
(b) Sellers shall have performed all of their obligations and
agreements and complied with all of their covenants contained in this Agreement
to be performed and complied with by Sellers prior to the Closing Date.
13. Survival of Representations. All statements by or on behalf of
---------------------------
Sellers contained in this Agreement or any certificates or other instrument
delivered by or on behalf of Sellers in connection with the transaction
contemplated hereby shall survive the Closing for a period of two (2) years.
The respective covenants and agreements of Sellers and Buyer shall survive the
Closing.
14. Termination. In addition to the termination provisions set forth in
-----------
Section 2, the parties may terminate this Agreement by mutual agreement and
either party, subsequent to the passage of sixty (60) days from the date of this
Agreement, may terminate this Agreement on ten (10) days' advance notice to the
other party if, in the reasonable judgment of the notifying party, it appears
that the conditions set forth in Section 6(b) will not be met within 90 days
after the execution of this Agreement.
15. Press Release. Promptly following the Closing, the parties shall
-------------
issue a mutually agreeable joint press release announcing the Closing. On the
day prior to the Closing, Sellers may advise the employees of the Stores of this
transaction contemplated by this Agreement in connection with this transaction.
16. Bulk Sales Laws Waiver. To the extent the bulk sales laws of any
----------------------
jurisdiction are applicable to the transactions contemplated hereby, the parties
waive compliance with such laws.
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<PAGE>
17. Entire Agreement. This Agreement supersedes all previous agreements
----------------
among the parties and contains the entire understanding and agreement among them
with respect to its subject matter. This Agreement cannot be amended, modified
or supplemented in any respect except by a subsequent written agreement entered
into by all parties.
18. Waivers and Notices. Any failure by any party to this Agreement to
-------------------
comply with any of its obligations, agreements or covenants hereunder may be
waived by Sellers in the case of a default by Buyer and by Buyer in the case of
a default by Sellers. The failure of any party to insist in any instance upon
performance of any term or condition of this Agreement shall not be construed as
a waiver of any future performance. All waivers under this Agreement and all
notices, consents, demands, requests, approvals and other communications which
are required or may be given hereunder of thereunder shall be in writing and
shall be deemed to have been duly given if delivered or mailed certified first
class mail, postage prepaid:
(a) If to Sellers:
CutCo Industries, Inc.
P.O. Box 265
Jericho, New York 11753
Attention: President
With a copy to:
Cooperman Levitt Winikoff Lester & Newman, PC
800 Third Avenue
New York, NY 10022
Attention: Ira I. Roxland, Esq.
[Remainder of page intentionally left blank.]
20
<PAGE>
(b) If to Buyer:
Regis Corporation
7201 Metro Boulevard
Minneapolis, MN 55439
Attention: President
With a copy to:
Regis Corporation
7201 Metro Boulevard
Minneapolis, MN 55439
Attention: Eric A. Bakken
or to such other person or persons at such address or addresses as may be
designated by written notice to the other parties hereunder.
19. Benefits. All the terms of this Agreement shall be binding upon and
--------
inure to the benefit of and be enforceable by the parties hereto and their
successors and assigns.
20. Arbitration. All disputes between the parties relating to this
-----------
Agreement or the transaction contemplated thereby or negotiations leading up to
execution of this Agreement shall be resolved by arbitration in Chicago,
Illinois, pursuant to the rules of the American Arbitration Association then in
effect. The arbitrators shall have the power to award costs, including
reasonable attorneys' fees, as they deem appropriate. This Agreement shall be
construed in accordance with the laws of the State of Illinois.
21. Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, each of the parties hereto shall pay its or his own expenses
incurred in connection with the authorization, preparation, execution or
performance of this Agreement and all transactions contemplated hereby,
including without limitation, all fees and expenses of agents, representatives,
legal counsel and accountants. Sellers and Buyer shall each pay fifty percent
(50%) of all stamp, documentary, transfer or similar taxes which may be payable
as a result of the sale.
21
<PAGE>
22. Facsimile Signatures; Counterparts. The delivery of an executed copy
----------------------------------
of this Agreement or of any amendment hereto, made by facsimile transmission by
any party to the other party hereto shall constitute effective delivery of such
document by such transmitting party to such receiving party, and any executed
facsimile copy so delivered shall be deemed equivalent to an executed original.
This Agreement and any amendments thereto may be signed in two or more
counterparts, and all counterpart signatures, taken together, shall constitute
one executed original. As between Buyer and Sellers, if only one copy of a
Landlord's consent to an assignment of Lease is obtained, Buyer shall retain the
manually signed copy (with a photocopy being provided to Sellers). Buyer
agrees, on request of Sellers, to furnish the manually signed copy to Sellers
when needed by Sellers.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
REGIS CORPORATION
By: /s/ Paul D. Finkelstein
_______________________________________
Paul D. Finkelstein, President
CUTCO INDUSTRIES, INC.
By: /s/ Marvin W. Marcus
---------------------------------------
Marvin W. Marcus, Chairman of the Board
And by: /s/ Don VonLiebermann
-----------------------------------
Don VonLiebermann, President
-22-
