UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 1-12942
VSI HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Georgia 22-2135522
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 North Woodward Avenue 201 West
Bloomfield Hills, MI 48304-2263
(Address of principal executive offices)
(248) 644-0500
Registrant's telephone number, including area code
For information regarding this filing, contact: Peggy Toth (248) 644-0500
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No______
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13, or 14(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No N/A X
There were 32,936,090 shares of Common Stock, par value
$.01 per share, outstanding at December 31, 1998. The Company held an
additional 7,962,855 shares as treasury stock.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31 September 30
1998 1998
__________ ____________
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 451,000 $ 463,000
Cash in escrow 2,175,000 1,797,000
Trade accounts receivable:
Billed 27,638,000 36,081,000
Unbilled 10,579,000 13,485,000
Notes receivable
and advances:
Related party 28,000 319,000
Other 1,258,000 800,000
Inventory 440,000 409,000
Accumulated costs of
uncompleted programs 5,831,000 3,220,000
Deferred tax asset 532,000 1,336,000
Other current assets 1,321,000 1,158,000
________ __________
Total current assets 50,253,000 59,068,000
LONG-TERM PORTION
OF NOTES RECEIVABLE
Related Parties 713,000 804,000
PROPERTY, PLANT AND EQUIPMENT 23,668,000 24,182,000
DEFERRED TAX ASSET 194,000 194,000
INVESTMENTS 6,260,000 1,021,000
GOODWILL-NET 4,211,000 4,286,000
Total assets $ 85,299,000 $ 89,555,000
============ ============
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31 September 30
1998 1998
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of
long term debt $ 498,000 $ 461,000
Trade accounts payable 11,312,000 11,926,000
Notes payable to
related parties 888,000 -
Notes payable to bank 23,941,000 25,139,000
Accrued liabilities 2,197,000 3,817,000
Federal income tax payable - 4,562,000
Advances from customers for
uncompleted projects 4,829,000 4,042,000
___________ ___________
Total current liabilities 43,665,000 49,947,000
LONG-TERM LIABILITIES
Notes payable
Related parties 11,533,000 11,494,000
Long-term debt - Other 5,886,000 6,012,000
Redeemable Common Stock 1,960,000 1,960,000
STOCKHOLDERS' EQUITY
Preferred stock
- $1.00 par value $ - $ -
per share, 2,000,000 shares
authorized, no shares issued
Common stock - $.01 par value 409,000 407,000
per share, 60,000,000 shares
authorized, 40,899,000 shares
issued at December 31, 1998
and 40,741,000 at September
30, 1998
Additional paid-in capital 9,210,000 8,208,000
Stock Subscriptions Receivable (24,000) (25,000)
Translation Account (26,000) (23,000)
Retained earnings 16,726,000 15,218,000
Treasury stock, (at cost)
7,963,000 shares at December
31, 1998, 7,888,000 shares
at September 30, 1998 (4,040,000) (3,643,000)
___________ ____________
Total stockholders' equity 22,255,000 20,142,000
Total liabilities and
stockholders' equity $85,299,000 $89,555,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
December 31 December 31
1998 1997
(Unaudited) (Unaudited)
REVENUE 35,337,000 $ 26,145,000
EXPENSES
Cost of revenue 17,071,000 11,646,000
Operating expenses 15,477,000 11,496,000
__________ __________
Total expenses 32,548,000 23,142,000
OPERATING INCOME 2,789,000 3,003,000
OTHER EXPENSES
Interest and other
income (expense) 180,000 244,000
Interest expense (604,000) (249,000)
__________ ________
Total other expenses (424,000) (5,000)
INCOME - Before income taxes 2,365,000 2,998,000
PROVISION FOR INCOME TAXES 855,000 1,019,000
INCOME FROM CONTINUING
OPERATIONS $ 1,510,000 $ 1,979,000
Discontinued Operations
Loss for Discontinued
Operations - Net of Income
Tax Benefit of $6,000 for
the three months Ended
December 31,1997 - (12,000)
NET INCOME $ 1,510,000 $ 1,967,000
=========== ==========
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - Continued
Three Months Ended
December 31 December 31
1998 1997
(Unaudited) (Unaudited)
EARNINGS PER SHARE:
Basic:
Income from Continuing
Operations $ 0.05 $ 0.06
Loss from Discontinued
Operations - -
_________ __________
Net Income 0.05 0.06
======== =========
Fully Diluted:
Income from Continuing
Operations $ 0.05 $ 0.06
Loss from Discontinued
Operations - -
_________ __________
Net Income 0.05 0.06
======== =========
Weighted Average Shares
Basic 32,822,000 32,635,000
Dilutive 33,448,000 33,198,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
December 31 December 31
1998 1997
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net Income 1,510,000 1,967,000
Adjustments to reconcile net
income to net cash from operating
Activities:
Depreciation and
amortization 1,534,000 939,000
Equity in losses of
unconsolidated investee 61,000 54,000
Non-cash proceeds from
sale of subsidiary
Deferred income taxes 804,000 1,013,000
Bad debt expense - (10,000)
(Increase) decrease in
assets: - -
Net Changes - -
Trade accounts
receivable 11,349,000 9,248,000
Inventory (31,000) (341,000)
Other Current Assets (163,000) 2,130,000
Accumulated costs of
uncompleted programs (2,611,000) (4,609,000)
Increase (decrease)
in liabilities:
Trade accounts payable (614,000) (1,725,000)
Accrued liabilities (5,197,000) (1,305,000)
Advances from
customers for
uncompleted projects 409,000 2,426,000
________ ________
Net cash provided by
(used in) operating
activities 7,051,000 9,787,000
Cash Flows from Investing Activities
Changes notes receivable (458,000) (367,000)
Changes notes receivable
Related 382,000 (645,000)
Changes property and
equipment (945,000) (1,067,000)
Investment in
unconsolidated
investments (5,300,000) -
____________ ____________
Net cash provided by
(used in) investing
activities (6,321,000) (2,079,000)
Cash Flows from Financing Activities
Changes Long Term Debt (89,000) (84,000)
Change to related party
debt 927,000 (59,000)
Net borrowings Notes
Payable (1,198,000) (7,789,000)
Proceeds from exercise
of stock options (1,000) 3,000
Proceeds from issuance of
stock 19,000 61,000
Payment for redemption of
stock (397,000) -
Distributions to
shareholders - (19,000)
__________ __________
Net cash provided by
(used in) financing
activities (739,000) (7,887,000)
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
Effect of Exchange Rate
Changes on Cash (3,000) -
Net Increase (Decrease)in Cash (12,000) (179,000)
Cash - Beginning of Period 463,000 235,000
_______ ________
Cash - End of Period 451,000 56,000
======= =======
See Notes to Consolidated Financial Statements
VSI Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. The consolidated financial statements included herein have been prepared
by the Company without audit pursuant to the rules of the Securities and
Exchange Commission. Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Examples include provisions for bad
debts and the length of product life cycles and buildings' lives. Actual
results may differ from these estimates. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations.
In the opinion of management, the accompanying balance sheets and statements
of income and cash flows include all adjustments (consisting only of normal
recurring items) necessary for a fair presentation of the results for the
interim period, in conformity with generally accepted accounting principles.
2. The interim financial information presented herein should be read in
conjunction with Management's Discussion and Analysis and financial
statements and notes thereto included in the Registrant's Annual Report on Form
10-K for the year ended September 30, 1998. The interim results for the three
months ended December 31, 1998 are not necessarily indicative of the results
that may be expected for the year ended September 30, 1999.
3. Certain reclassifications have been made to the December 31, 1997
financial statements to conform to the classifications used at December
31, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS DESCRIPTION:
VSI Holdings, Inc. (the "Company") is a full service supplier to businesses;
providing imaginative and integrated applications of technology and systems
encompassing marketing initiatives, communications, education and training,
and entertainment.
The Company consists of these wholly-owned subsidiaries in the Marketing
Services and Entertainment business sectors under the following trade names
- - Visual Services, Inc., a broad-based provider of educational curriculums
and product training; interactive technology-based Distance Learning Systems;
product launches; Web site development, internet, intranet, and extranet
solutions; direct-response and site-based marketing; change process and
cultural change consulting: Vispac, Inc., integrated logistics and
Performance Systems Group; in-field consulting and change process sustainment
services: and Advanced Animations, Inc., a manufacturer of product
simulators, animatronic figures and displays for theme parks, casinos, and
retail.
The Company serves its global customers from its Bloomfield Hills, Michigan
headquarters and offices in California, Vermont, and Canada. The Company
employs more than 1,025 professionals.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, consisting of Advanced
Animations, Inc., Vispac, Inc., Visual Services, Inc., and PSG International,
Inc. Inter-company balances and transactions have been eliminated in
consolidation.
Discontinued Operations. In June 1998, the Company decided to sell the
subsidiaries constituting the retail sector. Subsequently, it was sold to
Martin S. Suchik and certain of his affiliated entities in exchange for a
surrender of 143,750 shares of the Company. As a result, the Company no
longer has any involvement in the retailing of women's apparel. The Company
recognized a post-tax loss on discontinued operations of $428,000, and a net
gain on the sale of $271,000 for the year ended September 30, 1998.
The Company does not expect any other operating losses from this activity.
Stock and Stock Options Granted
In the current fiscal quarter, the Company issued options for 100,000 shares of
the Company's common stock. One-half of the options are exercisable two years
from the date of the grant, with the remaining options exercisable three years
from the date of the grant. The options have an exercise price ranging from
$5.75 to $8.20 and expire five years from the date of grant.
OPERATING RESULTS
THREE MONTHS ENDED DECEMBER 31, 1998 VERSUS THE THREE MONTHS ENDED DECEMBER 31,
1997.
Revenues were $35,337,000 for the three months ended December 31, 1998,
compared to $26,145,000 for the same period last year. This increase of 35%
is partially attributable to projects with a new automotive client and to
Internet and E-Commerce business with existing clients. Revenue growth was
negatively impacted due to some program cancellations and schedule slippage
resulting from the General Motors labor strike last year.
Operating Expense. The Company's operating expenses have grown from $11,496,000
for the three months ended December 31, 1997 to $15,477,000 in the three months
ended December 31, 1998. This increase is mainly attributable to personnel
costs to support the workload generated by additional sales. An additional
contributor to the increased expense levels were the wage escalations for
computer-industry professionals and Michigan's extremely tight and
competitive contract labor supply. The Company's future operating results
will depend in part on management's ability to manage any future growth and
control expenses. The Company intends to pursue its continued growth of its
business, however, there can be no assurance that such growth will be achieved.
A decline in revenues, without a corresponding and timely reduction in
staffing and other expenses, or a staffing increase that is not accompanied
by a corresponding increase in revenues, could have a material adverse effect
on the Company's operating results.
Net income for the three months ended December 31, 1998 was $1,561,000 compared
to $1,967,000 for the same period last year. This decrease is attributable to
the following factors: (1) the wage escalations for computer-industry
professionals; (2) Michigan's extremely tight and competitive contract labor
supply; (3) start up costs associated with new projects in the Internet and E-
Commerce areas; (4) growth in fixed costs due to facility and equipment
acquisitions in the prior year.
Because of these factors, while the Company expects to show revenue growth for
the year ending September 30, 1999, net earnings may not similarly increase.
Liquidity and Capital Resources
The Company has various bank lines of credit totaling $45,000,000. At December
31, 1998, the Company had borrowed $23,941,000 against these lines. Two
lines of credit totaling $30,000,000 which had been scheduled to mature
January 31, 1999 have been extended to April 30, 1999. The remaining line
matures June 30, 1999.
The Company has had a long-term relationship with its current bank. Through
the years, it has provided financing and lines of credit for the Company.
There can, however, be no assurances that the lines of credit will be
renewed. If the Company is unable to renew the line of credit, other sources of
financing would be sought, primarily a line of credit from another banking
institution.
Since the Company is a net borrower of funds, minimal cash balances are kept
on hand. At any point in time, the Company may have more money in checks
outstanding than the cash balance. When checks are presented for payment, the
bank notifies the Company, which borrows on its lines of credit to cover the
checks.
The Company believes that cash flows from operations, along with bank
borrowings, will be sufficient to finance the Company's activities in 1999.
On a long-term basis, increased financing may be necessary to fund any large
project awarded to the Company, or any acquisitions the Company may make.
The Company has no current plans to conduct an offering of its shares to the
public in fiscal year 1999.
Accounts Receivable decreased $11,349,000 during the first quarter. Business
historically reaches a peak at new vehicle model year introduction, which
occurs at the end of the Company's fiscal year. These balances are collected
in the first quarter of the following year.
In the summer of 1998, the Company committed to a $4 million investment in a
limited partnership (as a limited partner) which will develop the Wonderful
World Of Oz theme park. In September 1998, the Company invested $400,000.
In the current year, the Company invested an additional $1.8 million in the
theme park. Management expects to invest the remaining $1.8 million during
the current fiscal year.
In December 1998, the Company invested $3.5 million in convertible preferred
stock in a private placement offering of a company engaged in developing
Internet-based education for colleges and universities. No further
investment is currently being considered, with the exception of possible
joint ventures in the future.
During the quarter ended December 31,1998, $4,500,000 was paid in federal
income taxes. This amount was for the year ended September 30, 1998 and is
the first full year of federal income tax paid by the Company compared to
prior years where these subsidiaries were taxed as subchapter S Corporations.
280,000 shares of stock were issued in connection with the purchase of The
Performance Systems Group in February 1998. These shares are subject to a put
option whereby the holder of the shares can sell the shares back to the Company
at a fixed price per share of $7.50 or a total of $2,100,000. This option is
exercisable in a defined period, and management views the payment of this
amount as probable in April 1999.
Year 2000 (Y2K)
Most computer systems were originally designed to utilize a two-character field
(or string of data) to reference any given year in the 20th century. If not
corrected, many computer systems could fail or produce erroneous results. On
January 1, 2000 computer systems may confuse "00" (meant to be 2000) as 1900.
A product defined as being Year-2000 compliant will not produce errors in
date data related to the year change from December 31, 1999 to January 1,
2000.
State of Readiness
The Company's plans for preparing and testing its computer systems for Y2K
compliance have been approved by its management, and the project is being
funded in the normal course of the Company's operations. The Company expects
to complete remediation of the Year 2000 issue for all Information Systems by
June 1999, although no assurance can be given of the timely completion of
this project. The Company estimates that the software remediation phase is
more than 80 percent complete at January 31, 1999, and the remaining
conversions are on schedule to be completed by spring of 1999. The Company
has identified 5 distinct areas for its Year 2000 compliance efforts which
involves all areas of the its business:
Critical Business Computer Systems: These include computer systems and
applications relating to operations such as financial reporting, human
resources, sales, purchasing and new business development.
Suppliers: The Company is taking steps to determine the status of the Y2K
compliance plans of its significant vendors. For instance, surveys have been
sent to all significant vendors with whom the Company interacts, requesting
that they report their respective level of Y2K compliance. The Company is
currently monitoring the progress of those business-critical vendors who are
still working towards achieving compliance.
End-User Computing: The Company's plans include Y2K compliance of desktop and
laptop computers used throughout the Company and replace or repair all non-
complaint computers and related software.
Application Development: The Company is addressing the compliance regarding all
applications development for internal and external clients by modifying or
replacing existing applications.
Technical Infrastructure: The Company has established a testing facility for
testing system infrastructures, internal phone systems, local area networks,
electronic data center, e-mail systems and web hosting. Components are
tested in the lab following Y2K compliance certification with suppliers. This
should be the last step in Y2K verification.
Y2K Programming Timing
Plan Date Present Status
Critical Business Computer Systems 2/99 80%
Suppliers 2/99 95%
End-User computing 1/99 100%
Application Development 3/99 70%
Technical Infrastructure 6/99 45%
Y2K Costs
The Company estimates that it will spend about $400,000 during the current
fiscal year for its Y2K compliance efforts. This estimate is as of January
31, 1999, and excludes the time that may be spent by management and
administrative staff in guiding and assisting the information technology
effort described above. All Y2K related costs are expected to be funded
through operating cash flows. The cost of the project is based on the
Company's estimates.
2K Risks
The most reasonably likely worst case scenario for the Company with respect to
the Y2K problem is the failure of a third parties such as: energy, computer and
component hardware, as well as other potential product or service suppliers
failing to provide products and/or services. The failure to correct a material
Year 2000 problem could result in an interruption in, or a failure of, certain
normal business activities or operations. Such failures could materially and
adversely affect the Company's result of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third-
party suppliers and customers, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material
impact on the Company's result of operations, liquidity or financial
condition. The Year 2000 Project is expected to reduce the Company's level
of uncertainty about the Year 2000 problem, and in particular, about the Year
2000 compliance and readiness of its material third parties. The Company
believes, but can not assure that with the completion of the Project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Readers are cautioned that forward-looking statements contained in the Year
2000 update should be read in conjunction with the Company's disclosures
under the heading: "CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995".
Y2K Contingency Plan:
Currently, the Company does not anticipate the need for a contingency plan. If
necessary, a decision to create and implement a contingency plan is expected to
be made by summer 1999.
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995"
Certain statements in Management Discussion and Analysis of Financial Condition
and Results of Operations and certain other sections of this report are
forward-looking. These may be identified by the use of forward-looking words
or phrases such as "believe," "expect," "anticipate," "should," "planned,"
"estimated," and "potential," among others. These forward-looking statements
are based on the Company's reasonable current expectations. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for such
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results or experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company include but are not limited to: (1)
the complexity and uncertainty regarding the development of new products and
services; (2) the loss of market share through competition; (3) the
introduction of competing products or service technologies by other
companies; (4) pricing pressures from competitors and/or customers; (5) the
Company's inability to protect proprietary information and technology; (6)
the Company's and its significant third parties inability to complete the
implementation of its Year 2000 plans timely; (7) the loss of key employees.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is periodically involved in routine proceedings. There are no
legal matters, existing, pending, or threatened, which management presently
believes could result in a material loss to the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
2.1 AGREEMENT AND PLAN OF REORGANIZATION AND CORPORATE SEPARATION
DATED EFFECTIVE SEPTEMBER 30, 1998.
b. Reports on Form 8-K
None
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VSI Holdings, Inc.
Registrant
February 15, 1999 /S/Steve Toth, Jr.
Steve Toth, Jr., Drector,
President and Chief Executive
Officer
February 15, 1999 /S/Thomas W. Marquis
Thomas W. Marquis, Director,
Treasurer, Chief Accounting
and Financial Officer
EXHIBIT INDEX
Exhibit
Number
2.1 AGREEMENT AND PLAN OF REORGANIZATION AND CORPORATE SEPARATION DATED
EFFECTIVE SEPTEMBER 30, 1998.
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION AND CORPORATE SEPARATION.
AGREEMENT, made as of the thirtieth day of September, 1998 by and among (i) VSI
Holdings, inc., a corporation organized and existing under the laws of the
State of Georgia ("VSI"), (ii) BKNT Retail Stores, Inc. ("RSI"), JD Dash,
Inc. ("Dash") and BKNT, Inc. ("BKNT"), each corporations organized and
existing under the laws of the State of Georgia, (iii) Martin S. Suchik, a
resident of the State of Georgia ('Suchik"), and (iv) each of the trusts
established by Suchik on October 18, 1987 for the benefit of his children
Kendra Lynn ("Kendra Trust"), Steven Eckard ("Steven Trust"), and Kelly Shorb
("Kelly Trust").
WHEREAS, VSI owns all of the issued and outstanding capital stock of RSI, Dash
and BKNT ("the Distributed Companies"); and WHEREAS, it is the desire of VSI to
separate the businesses of the Distributed Companies from the business of VSI.
NOW THEREFORE, in consideration of the mutual covenants herein set forth, the
parties agree as follows:
1. Distribution of Stock
VSI will distribute all its stock in RSI (500 shares), which shall constitute
all such stock outstanding, to the Distributees as follows: Suchik 50 shares,
Kendra Trust 150 shares, Steven Trust 150 shares and Kelly Trust 150 shares.
VSI will distribute all its stock in Dash (500 shares), which shall
constitute all such stock outstanding, to the Distributees as follows: Suchik
50 shares, Kendra Trust 150 shares, Steven Trust 150 shares and Kelly Trust
150 shares. VSI will distribute all its stock in BKNT (6,300 shares), which
shall constitute all such stock outstanding, to the Distributees as follows:
Suchik 630 shares, Kendra Trust 1,890 shares, Steven Trust 1,890 shares and
Kelly Trust 1,890 shares.
2. Surrender of Stock
The Shareholder Distributees shall surrender stock of the distributing
corporation, VSI, as follows: Suchik 14,375 shares, Kendra Trust 43,125 shares,
Steven Trust 43,125 shares and Kelly Trust 43,125 shares.
3. Closing
The closing shall take place at 2100 Woodward Avenue, Bloomfield Hills, MI
48304, on or before January 31, 1999.
4. Procedures for the Corporate Separation
The Corporate Separation shall be consummated and the purposes of this
Agreement accomplished in accordance with the following procedures:
4.1 Authorization by VSI Board to Consummate; Approval by Distributee
Shareholders. This Agreement shall be approved by the affirmative vote of all
of the disinterested directors of VSI, whereupon the officers of VSI shall be
authorized to execute and deliver this Agreement.
4.2 Other Approvals: Closing. VSI and the Distributee Shareholders shall
proceed expeditiously and cooperate fully in the procurement of any other
consents and approvals and in the taking of any other action, and the
satisfaction of all other requirements prescribed by law or otherwise,
necessary for the consummation of the Corporate Separation on the terms
herein provided by the Effective Date. The parties hereto shall proceed in
good faith to complete their due diligence and consummate the Corporation
Separation as soon as practicable following approval of the Agreement by the
Board of Directors of VSI, but in no event later than the Closing Date.
4.3 Effective Time of the Corporate Separation. Subject to the terms and
upon satisfaction of all requirements of law and the conditions specified in
the Agreement, the Corporate Separation shall become effective by operation
of law without further act or deed upon the part of either VSI or the
Shareholder Distributees, and the Effective Time shall be the close of
business of September 30, 1998.
4.4 Other acts. The Shareholder Distributees and the directors and
officers of VSI, RSI, Dash and BKNT, both prior to and following the Effective
Date, shall execute all such other instruments and shall take all such other
actions as may be necessary or advisable to consummate the Corporate Separation
and to cause this Agreement to be carried out in accordance with its terms.
5. Effect of the Agreement
Upon the Effective Date, the respective names; Articles of Incorporation and
Bylaws; and directors and officers of RSI, DASH and BKNT shall continue in
effect. All assets of RSI, DASH and BKNT shall remain each respective
corporation's property and vest without any conveyance or other transfer. All
liabilities of each corporation shall continue to exist and be the
responsibility of such corporation.
6. Representations and Warranties of VSI and Distributed Companies
VSI and each of the Distributed Companies represent and warrant to the
Shareholder Distributees as follows:
6.1 Organization. The Distributed Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia
with power and authority necessary to carry on the business in which it
is engaged, to own the property owned by it, and to enter into and perform its
obligations under this Agreement.
6.2 Capital Stock. As of the date of this Agreement, the issued and
outstanding capital stock of RSI and DASH consists of 500 shares of common
stock, $1.00 par value, and of BKNT consists of 6,300 shares of common stock,
$0.10 par value. There are no outstanding securities of any Distributed
Company which are convertible into, or evidence the right to purchase or
subscribe for, any shares of capital stock of the issuing entity. There are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating any Distributed
Company to issue any shares of its capital stock or any securities convertible
into or evidencing the right to purchase or subscribe for any shares of such
stock. There are no agreements or understandings with respect to the voting,
sale or transfer of any shares of capital stock of any Distributed Company.
6.3 Financial Statements. Each of the Financial Statements of the Distributed
Companies was prepared in accordance with generally accepted accounting
principles applied on a consistent basis, and fairly present the financial
position of each Distributed Company as of the dates thereof and the results
of its operations and changes in its financial position for the periods then
ended.
6.4 Authorization of Agreement; No Breach. The execution and delivery of this
Agreement has been duly authorized by the Board of Directors of VSI, the sole
shareholder of each Distributed Company. This Agreement is thus a legal,
valid and binding obligation of VSI and such Distributed Company, enforceable
against said entity in accordance with its terms. All persons who have
executed this Agreement or who have voted or will act on behalf of the
Distributed Company have been duly authorized to do so by all necessary
corporate action of the Distributed Company. The execution, delivery and
performance of this Corporation Separation will not (i) violate or result
in any breach of, or default and acceleration under, the Articles of
Incorporation or Bylaws of any Distributed Company or any instrument or
agreement to which any Distributed Company is a party or is bound; (ii)
violates any judgment, order, injunction, degree or award against or binding
upon any Distributed Company or upon the securities, property or business of
any Distributed Company; or (iii) to the knowledge of any Distributed Company,
violate any law or regulation of any jurisdiction relating to any Distributed
Company or to its securities, properties or business.
6.5 Litigation and Material Claims. There are no judgments unsatisfied
against any Distributed Company or consent decrees or injunctions to which
any Distributed Company is subject, and there is no litigation, claim or
proceeding pending, or, to the knowledge of any Distributed Company,
threatened against or relating to any Distributed Company, or its properties
or business, which would have a material adverse effect on the Corporate
Separation.
6.6 Tax Matters. Each Distributed Company has filed all foreign, federal,
state and local tax returns (including information returns and reports)
required to be filed, and has paid or made adequate provision for all foreign,
federal, state and local taxes and other income, social security, wage
withholding, excise, withholding, sales and use or similar taxes and taxes of
any kind, together with any related penalties, additions or interest charges
required to be paid therewith. All such taxes and governmental charges levied
or assessed against the property or business of any Distributed Company have
been paid, other than taxes or charges, the payment of which is not yet due
or which, if due, is not yet delinquent or which have not been finally
determined or which are being contested in good faith. To the knowledge of
each Distributed Company, no additional tax has been assessed, discussed or
proposed with respect to taxable periods occurring prior to the Effective
Date by the Internal Revenue Services or other applicable taxing authority.
There are no known tax liens on any property of any Distributed Company.
7. Covenants and Agreements of Distributed Companies
VSI and each Distributed Company covenants and agrees with VSI and the
Shareholder Distributees as follows:
7.1 Changes in Articles of Incorporation or Bylaws. Before the Closing
Date, there will be no changes in the Articles of Incorporation or Bylaws of
any Distributed Company or in the authorized or issued capital stock of any
Distributed Company except with the express written consent of VSI and the
Shareholder Distributees.
7.2 Issuance or Purchase of Securities. Before the Closing Date, there will
be no changes in the Articles of Incorporation or Bylaws of any distributed
Company or in the authorized or issued capital stock of any Distributed
Company except with the express written consent of VSI and the Shareholder
Distributees.
7.3 Maintenance of Properties. Prior to the Closing Date, each Distributed
Company will maintain its properties and assets in good repair, order and
condition, reasonable wear and use excepted, and will maintain its books,
accounts and records in the usual, regular and ordinary manner on a basis
consistent with prior years and in accordance with generally accepted
accounting principles consistently applied throughout the periods covered by
such statements. Prior to the Closing Date, each Distributed Company will not
cancel any insurance policy or other contract or agreement unless such
contract, insurance policy or agreement is replaced in the ordinary course of
business.
7.4 Access to Properties and Records. Prior to the Closing Date, the
Distributed Company will allow access to its properties and as much of its
books and records as may be useful for the Shareholder Distributees to make
such investigation as it may desire of the properties and businesses. Each
Distributed Company will permit the Shareholder Distributees to review and
examine its assets, books and records, and otherwise have general access to its
facilities and key personnel, for the sole purpose of conducting its due
diligence investigation during its normal business hours and days. Each
Distributed Company will also permit the Shareholder Distributees and its
agents to discuss the financial condition, business and affairs of the
Distributed Company with its independent certified public accountants. The
Shareholder Distributees shall use such information solely for the purpose of
their due diligence in connection with the transactions contemplated by this
Agreement, shall keep all such information confidential, provided that such
information may be disclosed to directors, officers, employees, lenders,
attorneys and representatives of VSI who need to know such information, and,
upon termination of this Agreement, the Shareholder Distributees shall return
all copies of such information to the Distributed Company.
7.5 Taxes. Each Distributed Company shall punctually pay and discharge prior
to the Closing Date all taxes, assessments and other governmental charges
lawfully imposed upon it or any of its properties, or upon the income and
profits thereof; provided, however, that nothing herein shall prohibit any
Distributed Company from contesting in good faith and by appropriate
proceedings the validity of any tax, assessment or governmental charge.
7.6 Operation of Business. Before the Closing Date, each Distributed Company
agrees: (I) to operate in the ordinary course of business only; and (II) to
use its best efforts to preserve intact its key employees, and maintain
satisfactory business relationships with vendors, licensors, suppliers,
distributors and others have business relationships with the Distributed
Company.
7.7 Best Efforts. Subject to the terms and conditions herein provided, each
Distributed Company agrees to use its best efforts to take, or cause to be
taken, all action required to be taken and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations
to consummate and effect the Acquisitions.
7.8 Consents. Each Distributed Company will use all reasonable efforts to
obtain consents of all third parties with which it has contractual relations
which might prohibit or otherwise affect the consummation of the Acquisitions.
8. Representations and Warranties of Shareholder Distributees
Each of the Shareholder Distributees represent and warrant to VSI and the
respective Distributed Companies as follows:
8.1 Litigation and Material Claims. There are no judgements unsatisfied
against the Shareholder Distributees or consent decrees or injunctions to
which they are subject, and there is no litigation, claim or proceeding
pending, or, to the knowledge of the Shareholder Distributees, threatened
against or relating to the Shareholder Distributees, or its properties or
business, which would have a material adverse effect on the Corporate
Separation.
9. Covenants and Agreements of Shareholder Distributees
Each of the Shareholder Distributees covenants and agrees with VSI and the
respective Distributed Companies as follows:
9.1 Best Efforts. Subject to the terms and conditions herein provided, each
Shareholder Distributee agrees to use its best efforts to take, or cause to
be taken, all action required to be taken and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations
to consummate and effect the Corporate Separation.
9.2 Consents. Each of the Shareholder Distributees will use all reasonable
efforts to obtain consents of all third parties with which it has contractual
relations which might prohibit or otherwise affect the consummation of the
Corporate Separation.
10. Conditions Precedent To Obligations Of VSI And Distributed Companies
The obligations of VSI and each Distributed Company under this agreement are
subject to the fulfillment prior to or on the Closing Date of the following
conditions:
10.1 Representations and Warranties. Each of the representations and
warranties of the Shareholder Distributees contained in this agreement
shall be accurate in all material respects as of the date hereof and as
of the Closing Date, and the Shareholder Distributees shall have performed
all covenants and agreements on its part required to be performed and shall
not be in default under any of the provisions of this Agreement at the
Closing Date. In the event any representation or warranty of any Shareholder
Distributees contained in this Agreement is not accurate in all material
respects as of the date hereof and as of the Closing Date and such inaccurate
representation or warranty was not known by such Shareholder Distributee to
be inaccurate at such date or if any representation or warranty cannot be
remade at the Closing Date due to changes in facts and circumstances beyond
the control of such Shareholder Distributee, the sole remedy of VSI and the
Distributed Companies against the Shareholder Distributees and their
respective officers, directors and agents hereunder is not to perform the
obligations of VSI and the Distributed Companies hereunder.
10.2 Consents. Each Shareholder Distributee shall have obtained consents
of all third parties with which it has contractual relations which might
prohibit or otherwise affect the consummation of the Acquisitions
contemplated by this Agreement and all such consents shall have been
executed and delivered to VSI and the Distributed Companies.
10.3 Absence of Litigation. No order of any court of competent
jurisdiction shall have been entered and not withdrawn prohibiting consummation
of the Acquisitions, and no action or proceeding shall be instituted or
threatened before any court, governmental agency or regulatory body seeking to
enjoin or modify, or to obtain damages or a discovery order in respect of, the
Acquisitions or any other transaction contemplated by this Agreement.
11. Conditions Precedent To Obligations Of Shareholder Distributees
The obligations of the Shareholder Distributees under this Agreement are
subject to the fulfillment prior to or on the Closing Date of the following
conditions:
11.1 Representations and Warranties. Each of the representations and
warranties of VSI and the Distributed Companies contained in this Agreement
shall be accurate in all material respects as of the date hereof and as of
the Closing Date, and VSI and the Distributed Companies shall have
performed all covenants and agreements on its part required to be performed and
shall not be in default under any of the provisions of this Agreement at the
Closing Date. In the event any representation or warranty of VSI or an
Distributed Company contained in this Agreement is not accurate in all material
respects as of the date hereof and as of the closing Date and such inaccurate
representation or warranty was not known by said entity to be inaccurate at
such date or if any representation or warranty cannot be remade at the
Closing Date due to changes in facts and circumstances beyond the control of
said entity, the sole remedy of the Shareholder Distributees against VSI and
the Distributed Companies and its officers, directors and agents hereunder is
not perform the obligations of the Shareholder Distributees hereunder.
11.2 Certified copies of Resolutions. VSI shall have delivered to the
Shareholder Distributees copies, certified by the duly qualified and acting
Secretary thereof, of resolutions adopted by its Board of Directors with
respect to this Agreement.
11.3 Consents. VSI and the Distributed Companies shall have obtained
consents of all third parties with which it has contractual relations which
might prohibit or otherwise affect the consummation of the Acquisitions
contemplated by this Agreement and all such consents shall have been executed
and delivered to the Shareholder Distributees.
11.4 No Material Adverse Change. Prior to the Effective date, there shall be
no material adverse change in the assets or liabilities the business or
prospects of the Distributed Companies, whether as a result of any
legislative or regulatory change, revocation of any license or rights to do
business, fire, acts of war, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation or act of God or other public force
or otherwise.
11.5 Absence of Litigation. No order of any court of competent jurisdiction
shall have been entered and not withdrawn prohibiting consummation of the
Acquisitions, and no action or proceeding shall be regulatory body seeking to
enjoin or modify, or to obtain damages or a discovery order in respect of,
the Acquisitions or any other transaction contemplated by this Agreement.
11.6 Completion of Due Diligence. The Shareholder Distributees and their
representatives shall have completed to its satisfaction the review of the
Distributed Companies as contemplated by this Agreement, and no fact or
circumstance shall have come to the attention of the Shareholder Distributees
as a result of such review which materially and adversely affects the business,
prospects or financial condition of any of the Distributed Companies or any of
their respective assets or properties.
12. Amendments and Waivers
12.1 Amendments. Before the Closing date, this Agreement may be amended,
modified or supplemented in writing in such manner as may be approved by VSI,
the Distributed Companies and the Shareholder Distributees.
12.2 Waivers. Any party to this Agreement, acting individually or through
its Board of Directors, as applicable, shall have the right at any time to
waive any or all of the conditions precedent to its obligations to the
consummation of the transactions contemplated by this Agreement, except any
condition that, if not satisfied, would result in violating any law or
applicable governmental regulation.
13. Miscellaneous
13.1 Entire Agreement. This agreement embodies the entire agreement and
understanding between the parties hereto with regard to the subject matter
hereof and supersedes all prior agreements and understandings relating to
such subject matter.
13.2 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the state of Georgia regarding
obligations of the VSI, the Distributed Companies and the Shareholder
Distributees.
13.3 Headings. The headings in this Agreement are for convenience only and
shall not affect the construction or interpretation of this Agreement.
13.4 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original instrument, but all of which
together shall constitute one and the same instrument.
13.5 Expenses. Except as set forth herein, each party to this Agreement
shall bear its own costs and shall make no claim for contribution form
any other party.
13.6 Termination. Unless consummated sooner, this Agreement and the parties'
obligations hereunder and be of no further force and effect after the closing
Date except those set forth in Section 6.4 of this Agreement which shall
survive any termination hereunder.
13.7 Time of the Essence. Time shall be of the essence for this Agreement.
13.8 Non-Survival of Representations and Warranties. The representations and
warranties of the parties to this Agreement shall not survive the Closing Date.
In Witness Whereof, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.
VSI Holdings, Inc. JD Dash, Inc., BKNT, Inc.,
a Georgia corporation a Georgia corporation a Georgia corporation
By:__________________ By:_________________ By:________________
Sr. Vice President Vice President President
BKNT Retail Stores, Inc., Martin S. Suchik,
a Georgia Corporation individually
By:__________________ /s/Martin S. Suchik
President
Kendra B. Suchik Trust Steven E. Suchik Trust
By:/s/Michael Augur Kilgore By:/s/Michael Augur Kilgore
Trustee Trustee
Kelly S. Suchik Trust
By:/s/Michael Augur Kilgore
Trustee
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