SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-13121
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HMG WORLDWIDE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3402432
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 Tenth Avenue, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 736-2300
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
(Title of class)
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Indicated by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes..X... No......
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes....... No.........
The number of shares outstanding of the Registrant's common stock is
7,567,517 (as of 3/19/96)
The aggregate market value of the voting stock held by non-affiliated
stockholders of the Registrant is $8,567,666 (as of 3/19/96)
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
PART I
Item 1. Business.
General Development of Business.
HMG Worldwide Corporation ("the Company"), which was incorporated in
1984, is one of the leading companies in the in-store marketing industry. The
Company identifies the in-store marketing objectives of its clients and
integrates research, creative design, engineering, production, package design
and related services to provide point-of-purchase merchandising display
systems intended to meet such objectives. The Company's merchandising systems
are designed to increase retail sales by attracting and influencing consumers
at the point of sale. Such systems frequently incorporate interactive
displays (from basic flip-charts to touchscreen computer systems) to guide
purchase decisions. The Company's merchandising systems are also designed to
improve retail space utilization and product organization, facilitate retail
inventory management and reduce retail labor costs.
The Company's clients include national and multi-national consumer
products companies. The Company is increasingly providing its products and
services to mass merchandisers, as well as chain drugstores and supermarkets.
The Company's operations are conducted through six wholly-owned
subsidiaries being, respectively, HMG Worldwide In-Store Marketing, Inc.
("HMG"), Intermark Corp. ("Intermark"), Creative Displays, Inc. ("CDI"), HMG
Europe B.V. ("HMGBV"), Electronic Voting Systems, Inc. ("EVS") and HMG
Intermark Worldwide Manufacturing, Inc. ("HMG Intermark") with facilities in
New York, New Jersey, Pennsylvania, Illinois and Texas.
Recent Acquisition and Material Agreements
Pursuant to an agreement, dated September 30, 1995, between the Company
and Benson Eyecare Corporation ("Benson"), the Company acquired all of the
outstanding capital stock of Benson's wholly-owned subsidiary Pennsylvania
Optical Company (now known as HMG Intermark) by assuming $3.2 million of its
liabilities comprised principally of under funded pension and employee
benefit obligations of approximately $2.5 million. HMG Intermark had
theretofore been engaged in the fabrication and assembly of in-store
merchandising displays, primarily for Foster Grant Group L.P. ("Foster
Grant"), another of Benson's affiliated companies. The Company's acquisition
of HMG Intermark also included a 131,000 square foot, multi-story production
facility on three acres of property located in Reading, Pennsylvania, as well
as, production equipment and display inventory.
In a concurrent transaction, the Company entered into a seven year
supply contract ("Supply Contract") with Foster Grant which requires Foster
Grant, subject to certain conditions, to purchase at least 70% of its in-store
merchandising display purchases from the Company with average annual purchases
to aggregate no less than $4.5 million. In addition, Benson through
its Foster Grant subsidiary advanced $1.0 million to the Company as a deposit
against shipments of displays to be delivered in the first year of the Supply
Contract, which will be applied against the first 25% of each display
shipment.
Effective October 1, 1995, the Company entered into a three year
marketing support and equipment sale agreement ("European Marketing
Agreement") with Turbo Screen B.V., a wholly-owned subsidiary of Tchai
Holdings B.V. ("Tchai") of the Netherlands. Pursuant to the terms of the
European Marketing Agreement, Tchai will provide the Company with production
and product development support and employ four of HMGBV's five employees.
In addition, Tchai paid the Company $30,000 for certain equipment. The
Company and Tchai have also agreed to supply one another with marketing leads.
Commissions ranging from 2% to 10% of resulting sales will be paid to the
party which supplies the successful introduction. As a consequence of the
European Marketing Agreement the Company (i) retained one employee, (ii)
closed its Holland office, (iii) will coordinate its European marketing
efforts through Tchai and (iv) expects to substantially reduce its operating
expenses in Europe.
<PAGE>
Executive Offices
The Company's executive offices, together with those of its
subsidiaries, are located at 475 Tenth Avenue, New York, New York 10018 and
its telephone number is (212) 736-2300. Unless otherwise indicated, all
references to the Company include all of its subsidiaries.
Industry Overview
The in-store marketing industry is an estimated $15 billion industry.
The Company believes point-of-purchase merchandising systems provide a more
effective, measurable and low-cost means of attracting and influencing
consumers than television, print or other traditional mass advertising media.
While television advertising costs have risen, the number of viewers per
commercial has decreased because cable television has increased the number of
channels available to viewers. Furthermore, remote control units and
videocassette recorders have enabled viewers to avoid commercials. The
growing number of special-interest magazines, which segment reader
demographics, has similarly limited the effectiveness of print advertising
while the cost of such advertising has also increased. The Company believes
that a majority of all consumer brand purchase decisions are made on impulse
at the point of sale. Point-of-purchase merchandising systems thus attract
and influence consumers at the time when the majority of brand purchase
decisions are made.
The Company believes retailers are also driving the growth of in-store
marketing. Computerized bar-coding and scanner systems have enabled retailers
to identify high-margin, high-turnover products and more easily allocate floor
or shelf space to such products. Concurrently, consumer products companies
have been faced with an increasing number of competitive products, including
private-label offerings of retailers. As a result, many consumer products
companies have sought to maximize the appeal and efficiency of their allocated
space in retail stores. In-store merchandising systems are designed to
increase retail sales by attracting and influencing consumers at the point of
sale. Such systems also are designed to improve retail space utilization and
product organization, facilitate retail inventory management and reduce retail
labor costs.
Operations
General
The Company identifies the in-store marketing objectives of its clients
and integrates research, creative design, engineering, production, package
design and related services to provide point-of-purchase merchandising display
systems intended to meet such objectives. The Company's systems are generally
custom designed to fit each client's requirements and specifications.
Typically, at the request of a client, the Company creates a customized
prototype display system, which often includes packaging for the client's
product in addition to the in-store merchandising display. Although clients
occasionally provide the Company's creative design department with specific
merchandising ideas, in most instances clients merely indicate the general
nature of the display they desire and rely upon the Company's creative design
department to conceive and create the merchandising system.
The Company's design and engineering departments work closely from
conception through final assembly and field installation with each client's
marketing and sales representatives and the retailers to facilitate the
development of a merchandising system. The Company's design department, in
concert with the client, develops alternative marketing ideas, which the
Company's engineering department, upon approval by the client, develops into a
prototype system. The Company's design and engineering departments employ
CAD/CAM and Auto-CAD equipment which, among other things, enables the Company
to design stock parts which can be easily incorporated into various projects
as well as change project designs more easily and quickly in response to a
client's needs.
If a client, after reviewing the Company's prototype, decides to test-
market the display, the Company provides in-store research and market
feasibility services to test such prototype. A client is often able to
ascertain from the results of the Company's market studies whether the
Company's merchandising systems are likely to lead to improved sales. If
indicated by the results of its research, the Company will fine-tune or modify
its prototype system for the client. The period from development to a volume
purchase order typically spans 6 to 18 months. There can be no assurances
that the development and test-marketing of a prototype for a client will
ultimately lead to any volume orders.
<PAGE>
Assembly
The Company has the internal capability to assemble its merchandising
systems, as compared to many of its competitors which have no assembly
facilities and must outsource assembly to third parties. Once the Company
enters into a contract with a client to assemble display units for
installation, it makes a determination, generally based upon cost
considerations, whether to undertake the assembly in its own facilities or to
outsource it to others. The Company's assembly facilities are principally
employed for larger orders and facilitate better client service, inventory
management and production controls.
All display systems, whether assembled by the Company or its independent
subcontractors, are delivered to the Company's clients or directly to retail
locations. Typically, there is some simple on-site assembly required, which
is usually performed by the client's own personnel, although the Company will
assist in on-site assembly if requested. The Company often provides clients
with an "800" telephone service number to call for assistance in connection
with on-site assembly.
Suppliers
The Company uses and has available a variety of outside sources to
supply the raw materials and fabricated components used in its display
systems. Such material and components are readily available from a number of
sources. Although the Company designs the software for its interactive
computer systems, it procures hardware components from a variety of third
parties, which are also readily available from a number of sources. The
Company has not experienced any significant disruptions from shortages or
delivery delays, and believes that its present sources of supply are adequate.
International
The Company has entered into the three year European Marketing
Agreement with a wholly-owned subsidiary of Tchai whereby the Company will
receive production and product development support. Each company has agreed
to supply one another with marketing leads. Commissions ranging from 2% to
10% of resulting sales will be paid to the party which supplies the successful
introduction.
Products
The Company's merchandising systems are designed to increase retail
sales by attracting and influencing consumers at the point of sale. Such
systems frequently incorporate interactive displays (from basic flip-charts to
touchscreen computer systems) to guide purchase decisions. The Company's
merchandising systems are also designed to improve retail space utilization
and product organization, facilitate retail inventory management and reduce
retail labor costs.
Custom Displays
The Company designs, assembles and markets in-store custom display
systems for consumer products companies as well as national and regional
retailers. Its systems include in-store fixtures, shelf-management and
category-management systems, freestanding displays and sales promotion
materials. Examples of the Company's systems include the L'eggs(R) hosiery
merchandising systems, the Pillsbury(R) dough display system and the shelf and
pegboard system for Procter & Gamble's Cover Girl(R) and Max Factor(R) cosmetics
line. The Company has also developed several "store-within-a-store" systems,
whereby retail space is specifically devoted to a particular brand or category
and is distinctly identifiable by appearance within the context of the overall
retail environment. An example of a "store-within-a-store" designed and
produced by the Company is the Bali(R) Boutique located in a variety of
department stores.
<PAGE>
Stock Displays
Although many of the Company's clients require custom merchandising
systems, certain components therein can frequently be used in other systems.
As a result, the Company has accumulated tools and molds for component parts
and displays which are included in a catalogue and marketed to existing and
new clients. Since the investment in time and money for the development and
production of the tooling for the components and displays has already been
made, the Company can provide many of its clients with a timely, low-cost
solution to certain of their in-store merchandising needs. For example, the
Company's System 35 is a freestanding display that can be ordered in 30
different size variations with multiple shelf configurations. The System 35
addresses consumer products companies' and retailers' needs for permanent
island displays that, through color, size, number of shelves and header
treatments, can be customized for a multitude of consumer products. The
Company also markets a variety of standardized on-shelf modifications such as
extrusions and dividers. These modifications offer the ability to
differentiate display space by identifying brand or category space and provide
an area for communication of information.
Interactive Systems
The Company's interactive display systems include shelf-edge and
freestanding flip-charts, mechanical demonstration units and battery-powered
and touchscreen computer systems. Computer-based systems are useful both as a
point-of-purchase merchandising tool and an effective means of collecting and
disseminating information. The interactive computer-based systems ask
consumers to respond to a series of questions. After analyzing the consumer's
responses, the system makes recommendations of appropriate products which are
immediately available for purchase on the surrounding display. Computer-based
systems also enable consumer products companies to retrieve market research
information based upon consumers' responses, give consumers comprehensive and
accurate product information and assist consumers when sales personnel are
unavailable. The Company's sales of computer-based systems are directed
toward large consumer products companies and mass merchandisers, which
potentially can use such systems in quantities of 250 or more units.
Clients
The Company's clients include national and multi-national consumer
products companies such as Sara Lee Corporation ("Sara Lee") and Procter &
Gamble Co. ("P&G"), both of which have been clients for more than 19 years, as
well as Clairol Corporation ("Clairol"), Hallmark Cards, Inc. ("Hallmark"),
Kwikset Corporation and The Pillsbury Company. During 1995, the Company has
been able to add such clients as Foster Grant, Meldisco Corporation, Motorola
Cellular, Sony Computer Entertainment and expanded its services supplied to
Wal*Mart Stores, Inc. ("Wal*Mart").
With the greater availability of information regarding in-store product
turnover, the Company is increasingly providing its products and services to
mass merchandisers, as well as chain drugstores and supermarkets. Wal*Mart,
for example, has engaged the Company to design and assemble "store-within-a-
store" systems to provide its stores with visually discreet merchandising
displays that maximize space efficiencies. In addition, the Company works
with certain consumer products companies and retailers which have recently
entered into joint arrangements to develop and purchase their own "store-
within-a-store" display systems with the intention of leasing portions thereof
to yet other consumer products companies.
For the year ended December 31, 1995, Sara Lee, P&G and Wal*Mart
accounted for approximately 24%, 11% and 13%, respectively, of the Company's
net revenues. For the year ended December 31, 1994, Sara Lee, P&G and
Hallmark accounted for approximately 31%, 15% and 11%, respectively, of the
Company's net revenues. For the year ended December 31, 1993, Sara Lee, P&G
and Clairol accounted for approximately 25%, 21% and 20%, respectively, of the
Company's net revenues. Although the Company's relationship with each of
Sara Lee and P&G spans more than 19 years, neither of such concerns is
contractually bound to purchase the Company's products or services. The loss
of either or both of such clients would have a material adverse effect on the
Company.
<PAGE>
Backlog
At December 31, 1995, the Company's aggregate backlog was $23.8 million,
as compared to $19.5 million and $22.9 million at December 31, 1994 and 1993,
respectively. Of such aggregate backlog at December 31, 1995, 66% was
attributable to four clients. The Company anticipates that substantially all
such backlog at December 31, 1995, will be filled during the next twelve
months. In addition to the $23.8 million backlog at December 31, 1995, the
Company's Supply Contract with Foster Grant requires Foster Grant,
subject to certain limitations, to purchase at least 70% of all its in-store
merchandising display purchases from the Company with average annual
purchases to aggregate no less than $4.5 million. The aggregate value of
the Foster Grant Supply Contract at December 31, 1995 is $31.5 million of
which the Company estimates that $4.0 million will be shipped within the
next twelve months. Due to quarter to quarter fluctuations in the Company's
backlog levels due to the timing, nature and size of its merchandising
system programs for its clients, such backlog levels are not necessarily an
indicator of future net revenue levels.
Marketing and Sales
Sales of the Company's merchandising displays and point-of-purchase
services are generated by Michael Wahl, its chief executive officer, and by 22
other sales employees. The Company typically sells its in-store displays and
display systems pursuant to separate purchase orders following customer
approval of a prototype. However, the Company is also paid for its services
in creating, developing and testing in-store merchandising systems and in
assembling prototypes prior to receipt of production run approvals. In recent
years the Company has also begun to enter retainer agreements with its
customers to provide creative design services on an ongoing basis. To a
limited extent, sales are also generated through independent sales
representatives.
Warranties
The Company generally does not warrant its display systems to be free
from defects in materials or workmanship but generally replaces any display
system found to be defective. Such replacement costs historically have been
minimal. The Company generally warrants its interactive point-of-purchase
systems to be free from defects in materials or workmanship for periods
ranging from 3 to 12 months. The particular warranty granted on each sale is
generally determined on a client-by-client, product-by-product basis.
Patents
The Company has been issued numerous United States and foreign patents
relating to certain components of its merchandising display systems and has
several additional patent applications pending. The Company does not regard
patent protection as being of material importance to its ability to
successfully compete in the in-store merchandising display industry. The
Company does not hold any patents or material copyrights with respect to its
computer software. The Company relies upon confidentiality agreements, as
well as restrictions on dissemination of information to employees, to
safeguard its confidential information.
Competition
The custom display segment of the in-store marketing industry in which
the Company primarily competes is very fragmented and highly competitive.
Certain of the Company's competitors, including several diversified companies
that not only design and assemble merchandising systems for their own
products, but also provide such systems and services to unaffiliated concerns,
may have greater financial and other resources than the Company. In addition,
although the Company believes that it has certain creative design,
technological, managerial and other advantages over its competitors, there can
be no assurance that the Company will maintain such advantages.
Most competitors generally operate on a local or regional level.
Additionally, competitors often specialize in only one particular aspect of
the custom display segment. As a result, the Company is one of the largest
participants in this segment. As consumer products companies and retailers
increasingly require vendors to offer comprehensive services and sophisticated
technologies, many smaller operators, which are primarily privately held, may
not have the capital resources, management skills and technical expertise
necessary to compete. Consequently, the Company believes the demand for its
products and services will increase and industry consolidation will occur.
The Company further believes it is well positioned to capitalize on such
consolidation.
<PAGE>
Employees
As of December 31, 1995, the Company employed 261 persons, including 4
executive officers, 145 in assembly, 15 in design, 11 in engineering, 37 in
marketing and sales and 49 in administration. Approximately 70 of the
Company's employees are covered by a collective bargaining agreement between
the Company and Local 2682 of the United Brotherhood of Carpenters and Joiners
of America, AFL-CIO, which expires April 30, 1997. Approximately 50 of the
Company's employees are covered by a collective bargaining agreement between
the Company and Local 241 of the National Federation of Independent Unions,
which expires January 1997. The Company believes that its current labor
relations are good.
Financial Information about Foreign Operations and Export Sales
Reference is made to Note 13 in Notes to Consolidated Financial
Statements included in Item 8 hereof.
Item 2. Facilities.
The Company's executive offices are located at 475 Tenth Avenue, New
York, New York 10018, where it leases 48,000 square feet pursuant to two
leases that expire in October 2002. The aggregate annual base rentals for
such floors is $482,000. The Company also leases approximately 16,000 square
feet of office space at 230 East Ohio Street in Chicago, Illinois at an annual
base rental of approximately $244,000 pursuant to a lease which expires in
June 1997.
The Company operates three assembly facilities, of which two facilities
are located in Kearny, New Jersey and the third facility is located in
Reading, Pennsylvania. In Kearny, the Company leases 155,000 square feet of
space under a lease expiring in December 1996 at an annual base rental of
$863,000. In addition, the Company leases 68,000 square feet of space at a
second facility in Kearny under a lease expiring April 1996 at an annual base
rental of $230,000. The Company's Reading, Pennsylvania facility is owned by
the Company and is comprised of a 131,000 square foot multi-story production
facility on three acres of property.
Item 3. Legal Proceedings.
The Company is subject to certain legal proceedings and claims which
have arisen in the ordinary course of its business. These actions when
ultimately concluded will not, in the opinion of management, have a material
adverse effect upon the financial position, results of operations or liquidity
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1995.
<PAGE>
Part II
<TABLE>
<CAPTION>
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market Information
The Company's Common Stock trades on The Nasdaq National Market
("Nasdaq") under the symbol "HMGC". The following table sets forth the range
of the high and low sales prices for the Common Stock for the periods
indicated.
High Low
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<S> <C> <C>
1995
First quarter $ 3-3/4 $ 2-31/64
Second quarter 3 1-1/4
Third quarter 3-1/4 1-3/4
Fourth quarter 3-1/16 1-15/16
1994
First quarter $ 12 $ 8-1/2
Second quarter 8-1/2 6-1/2
Third quarter 8-3/4 5-3/4
Fourth quarter 6-3/8 3-1/8
At March 19, 1996, there were 361 holders of record and approximately 1,700
beneficial stockholders of the Company's Common Stock and the last reported
sales price of the Common Stock on Nasdaq was $1-5/8 per share.
Dividend Policy
The Company has not paid dividends on the Common Stock since its inception.
The Company intends to reinvest any earnings in its business to finance
future growth. Accordingly, the Board of Directors does not anticipate
declaring any cash dividends in the foreseeable future. In addition, under
the terms of its revolving credit facility, the Company is prohibited from
paying cash dividends. See Note 7 in Notes to the Consolidated Financial
Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Historical Financial Data.
The selected historical financial data presented below as of and for the
years ended December 31, 1995, 1994 and 1993 have been derived from and should
be read in conjunction with the Company's audited Consolidated Financial
Statements and related notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Historical Results of Operations" included
elsewhere herein. The selected financial data of the Company at and for the
years ended December 31, 1995, 1994 and 1993 has been derived from the
Consolidated Financial Statements of the Company, which have been audited by
Friedman Alpren & Green LLP, Independent Certified Public Accountants.
Year Ended December 31,
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1995 1994 1993(a) 1992 1991
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(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $47,641 $55,578 $20,375 $3,750 $3,619
Loss from operations (10,009) (795) (290) (1,007) (568)
Net loss ($10,118) ($963) ($528) ($1,083) ($ 634)
======= ==== ==== ====== ======
Net loss per common
and common
equivalent share ($1.34) ($0.17) ($0.13) ($0.36) ($0.34)
===== ===== ===== ===== =====
Weighted average number of
common and common
equivalent shares
outstanding 7,568 5,643 4,052 3,047 1,884
===== ===== ===== ===== =====
December 31,
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1995 1994 1993(a) 1992 1991
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(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 8,139 $ 6,469 $ 5,205 $ 428 $ 595
Working capital 2,624 14,119 2,579 599 146
Total assets 32,648 36,718 33,022 3,637 2,292
Long-term debt - 3,182 6,330 398 478
Stockholders' equity 10,076 20,223 3,191 1,352 322
</TABLE>
(a) Amounts reflect the consummation of the acquisition of the Acquired
Companies from Saatchi & Saatchi PLC and certain of its subsidiaries on October
1, 1993.
<PAGE>
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
General
Acquisition and Supply Contract
Pursuant to a purchase agreement dated September 30, 1995, the Company
consummated the Benson transactions whereby Benson's Foster Grant subsidiary
entered into a Supply Contract with the Company and the Company acquired
Benson's merchandising display operations, now known as HMG Intermark. HMG
Intermark owns and operates a 131,000 square foot, multi-story production
facility where it principally manufactures and assembles a large portion of the
in-store merchandising displays utilized by Foster Grant.
The Supply Contract, subject to certain conditions, requires Foster Grant
to purchase a minimum of at least 70% of its in-store merchandising display
purchases from the Company with average annual purchases to aggregate no less
than $4.5 million. In addition, Benson advanced through its Foster Grant
subsidiary $1.0 million to the Company as a deposit against shipments of
displays to be delivered in the first year of the Supply Contract, which will be
applied against the first 25% of each display shipment.
The Company's results of operations and cash flows include those of HMG
Intermark for the period October 1, 1995 to December 31, 1995.
European Marketing Agreement
Effective October 1, 1995, the Company entered into the three year
European Marketing Agreement with Turbo Screen B.V., a wholly-owned subsidiary
of Tchai. Pursuant to the terms of the European Marketing Agreement, Tchai
will provide the Company with production and product development support and
employ four of five HMGBV employees. In addition, Tchai paid the Company
$30,000 for certain equipment. The Company and Tchai have also agreed to
supply one another with marketing leads. Commissions ranging from 2% to 10%
of resulting sales will be paid to the party which supplies the successful
introduction. As a consequence of the European Marketing Agreement the
Company (i) retained one employee, (ii) closed its Holland office, (iii) will
coordinate its European marketing efforts through Tchai and (iv) expects to
substantially reduce its operating expenses in Europe.
Acquisition of Acquired Companies
Pursuant to a purchase and exchange agreement with Saatchi & Saatchi PLC
and certain of its subsidiaries, the Company acquired all of the outstanding
capital stock of HMG, CDI and HMGBV (the "Acquired Companies"), effective
October 1, 1993. In exchange for the respective shares of capital stock,
the Company (i) issued to Saatchi 490,000 shares of the Company's Common
Stock, (ii) made an initial cash payment of $3.3 million and (iii) issued a
promissory note ("Acquisition Note") in the principal amount of $11.5 million.
On March 31, 1994, the Company and Saatchi consummated a transaction
("Saatchi Adjustment") whereby Saatchi adjusted the aggregate Company
acquisition consideration provided to Saatchi by reducing the then outstanding
Acquisition Note of $11.2 million, plus accrued interest of approximately
$380,000, to $10.0 million, inclusive of imputed interest of $322,000.
Additionally, the Company elected to prepay and retire the Acquisition Note
effective March 31, 1994. Funds for the payment of the Acquisition Note were
provided by (i) a $7.0 million secured, five-year term loan ("Term Loan") from
the Company's bank lender, (ii) $2.2 million from the Company's cash balance
and (iii) $800,000 from the Company's revolving credit facility with the same
bank lender. The net effect of the Saatchi Adjustment and the $2.2 million
cash payment reduced the cost of the acquisition by $1.6 million. The Company
recorded the effects of the March 31, 1994 Saatchi Adjustment on its December
31, 1993 Balance Sheet by reducing the excess of cost over fair market
value of assets acquired.
<PAGE>
Results of Operations
Year Ended December 31, 1995 as Compared to
Years Ended December 31, 1994 and 1993
Net revenues decreased $8.0 million to $47.6 million for the year ended
December 31, 1995 from $55.6 million for the year ended December 31, 1994. The
decrease in net revenues from 1994 to 1995 was principally due to the net
effect of (i) deferrals and reductions in capital and marketing expenditures
with the Company of two significant clients of $7.1 million, (ii) a reduction
in net revenues from international operations of $1.9 million and (iii) an
increase in net revenues of $1.2 million for the period October 1, 1995
through December 31, 1995 due to the acquisition of HMG Intermark . The
Company believes that the deferrals and reductions in these capital and
marketing expenditures may continue throughout 1996. As a consequence of
this reduction in revenues, the Company has actively sought new clients for
its merchandising systems during 1995 and entered into the Supply Contract
with Foster Grant in an effort to offset these net revenue declines.
Additionally, the Company implemented a cost reduction program in 1995 to
reduce operating costs which resulted in a charge to operations of $3.2
million (see further discussion below). Net revenues for the year ended
December 31, 1993 were $20.4 million. The increase in net revenues from 1993
to 1994 was principally due to the net effect of (i)additional revenues for
the first three quarters of 1994 of the Acquired Companies of $44.4 million,
(ii) a decrease of $6.5 million in net revenues of the Acquired Companies
for the fourth quarter 1994 as compared to the fourth quarter of 1993 and
(iii) a decrease of $2.7 million in year to year net revenues of
pre-acquisition operations.
Gross profit decreased $5.2 million to $9.2 million for the year ended
December 31, 1995 from $14.4 million for the comparable 1994 period due to the
decrease in the Company's net revenues and a decrease in gross margin. For the
year ended December 31, 1995, gross margin was 19.2% as compared to 25.9% for
the comparable 1994 period. The decrease in gross margin was principally due
to (i) unfavorable production revenue mix which resulted in a 5.1% decrease,
(ii) the Company's acceptance and shipment of a new program valued at $807,000
with a new client at a negligible margin in order for the Company to
demonstrate its capabilities which resulted in a 0.4% decrease and (iii) the
underabsorption of fixed overhead expenses as a percent of net revenues of
1.2%. Gross profit for the year ended December 31, 1993 was $5.6 million
with a gross margin of 27.6%. The change in gross margin from 1993 to 1994
was principally due to the difference in the Company's production operations
before the acquisition of the Acquired Companies. Prior to the acquisition,
the Company maintained a small development facility, outsourced its
production requirements to third parties and engaged in a variety of software
development projects where higher margins were realized due to minimal
production costs other than labor. As a consequence of the acquisition of
the Acquired Companies, the Company is directly engaged in the production and
assembly of a wide variety of merchandising systems and products.
Selling, general and administrative expenses ("SG&A") increased to $16.0
million for the year ended December 31, 1995 as compared to $15.2 million for
the comparable 1994 period. The increase in SG&A expenses of $800,000 was
principally due to the net effect of (i) the addition of new senior marketing
personnel, (ii) the expenses attributable to the establishment of a new
marketing office in Detroit, Michigan and (iii) the increase in SG&A
associated with HMG Intermark acquired as of September 30, 1995. For the
year ended December 31, 1993, SG&A was $4.8 million. The $10.4 million
increase from 1993 to 1994 was principally due to the additional expenses of
personnel, facility and other overhead attributable to the operations of
the Acquired Companies.
In December 1995, restructuring costs of $3.2 million were charged to
operations which principally related to the implementation of a cost reduction
program, to be primarily implemented through consolidation and selective
closures of the Company's offices and manufacturing facilities. These
closures and consolidations are a direct result of (i) competitive conditions
in the market place and the corresponding impact on the Company,
(ii) budgetary restraints and/or reductions implemented by some of the
Company's clients and (iii) the acquisition of HMG Intermark's 131,000
square foot manufacturing facility in Reading, Pennsylvania. The
restructuring consists of a series of planned actions including (i) a
reduction in personnel, (ii) the closure and consolidation of plant
facilities into the Company's Reading facility, (iii) the closure or
reduction in offices in New York, Chicago and Detroit and (iv) the disposal
of assets that are no longer required due to the elimination of selected
programs or site consolidations.
The restructuring costs are comprised principally of a $1.1 million non-
cash write-off of property and equipment and $2.1 million of projected
expenditures related to the cost reduction program. The provision for the
reduction of employees was approximately $600,000 which included approximately
50 employees from all areas including manufacturing, development, sales,
marketing and administration. Approximately $1.5 million was provided for the
costs related to the closing and consolidation of production facilities and
offices. The Company expects most of the consolidation to be completed by
June 30, 1996, and the balance to be completed by December 31, 1996.
<PAGE>
For the year ended December 31, 1993, in addition to the consideration
paid to Saatchi for the Acquired Companies, the Company's Compensation
Committee approved a 1993 Stock Option Plan on January 22, 1993 to afford key
employees of the Company and each of the Acquired Companies the opportunity
to acquire Common Stock in the Company through the grant of options to
acquire shares of Common Stock. The Compensation Committee proposed that the
Company's Board of Directors adopt the 1993 Stock Option Plan which provided
for the reservation of 2,000,000 shares of Common Stock and the grant of
options to acquire 1,625,000 of such reserved shares. On February 25, 1993,
the Company's Board of Directors approved the Compensation Committee's
recommendations for the 1993 Stock Option Plan and the related grants.
The Company charged to operations $1.1 million of non-recurring, non-cash
deferred compensation expense related to the grant of options.
The deferred compensation charge resulted from the $0.6875 per common
share difference between the exercise price of the options granted and the fair
market value of the Company's Common Stock at the date of grant.
For the year ended December 31, 1995, the Company generated interest
income of $578,000 as compared to $301,000 and $27,000, for the comparable 1994
and 1993 periods, respectively. The increase from 1994 to 1995 is attributable
to that portion of the net proceeds of the Company's public offering not
immediately required for the Company's operations that were invested in
interest bearing marketable securities and commercial paper. The increase
from 1993 to 1994 is attributable to increased availability of funds based on
the acquisition of the Acquired Companies which were invested in interest
bearing marketable securities and commercial paper.
Interest expense was $793,000 for the year ended December 31, 1995 as
compared to $642,000 and $239,000 for the comparable 1994 and 1993 periods,
respectively. The increase in interest expense of $151,000 for the year ended
December 31, 1995 was principally due to the increased average borrowings for
the year as compared with the average borrowings for the comparable 1994
period. The increase in interest expense of $403,000 for the year ended
December 31, 1994 as compared to the 1993 period was principally due to the
increased average borrowings relating to the acquisition of the Acquired
Companies.
The Company recorded a gain from foreign currency translation of $90,000
for the year ended December 31, 1995 as a consequence of the European Marketing
Agreement and the reduction in the scope of HMGBV's operations.
As a consequence of the foregoing factors, the Company incurred a net loss
of $10.1 million, or $1.34 per share, for the year ended December 31, 1995 as
compared to a net loss of $963,000, or $0.17 per share, for the year ended
December 31, 1994. For the year ended December 31, 1993, the Company
incurred a net loss of $528,000, or $0.13 per share.
Stockholders' Equity
Stockholders' equity decreased $10.1 million to $10.1 million at December
31, 1995 from $20.2 million at December 31, 1994. The net decrease in
stockholders' equity was principally due to the net loss of $10.1 million.
Income Taxes
At December 31, 1995, the Company had available $19.3 million of net
operating loss carryforwards which expire during the years 2001 through 2011.
No benefit from these loss carryforwards are reflected in the consolidated
financial statements.
The Company's income tax provision for the year ended December 31, 1995
was $14,000 as compared to $13,000 and $49,000 for the years ended December 31,
1994 and December 31, 1993, respectively, and resulted principally from
federal, state and local alternative minimum taxes.
<PAGE>
Backlog
At December 31, 1995, the Company's aggregate backlog was $23.8 million,
as compared to $19.5 million and $22.9 million at December 31, 1994 and 1993,
respectively. Of such aggregate backlog at December 31, 1995, 66% was
attributable to four clients. The Company anticipates that substantially all
such backlog at December 31, 1995, will be filled during the next twelve
months. In addition to the $23.8 million backlog at December 31, 1995, the
Company's Supply Contract with Foster Grant requires Foster Grant, subject to
certain limitations, to purchase at least 70% of all its in-store
merchandising display purchases from the Company with average annual
purchases to aggregate no less than $4.5 million. The aggregate value of the
Foster Grant Supply Contract at December 31, 1995 is $31.5 million of which
the Company estimates that $4.0 million will be shipped within the next
twelve months. Due to quarter to quarter fluctuations in the Company's
backlog levels due to the timing, nature and size of its merchandising system
programs for its clients, such backlog levels are not necessarily an
indicator of future net revenue levels.
Inflation
The effect of inflation on the Company's operations has not been
significant to date.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1995, 1994 and 1993 aggregated
approximately $8.1 million, $6.5 million and $5.2 million, respectively. For
the years ended December 31, 1995, 1994 and 1993 the Company's cash flows from
operating, investing and financing activities are summarized below:
<TABLE>
Year Ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
(in millions)
<S> <C> <C> <C>
Net cash provided by (used in)
operating activities ($7.7) ($4.6) $9.3
---- ---- ----
Investing activities:
Redemption (purchase) of
marketable securities 6.8 (6.8)
Acquisition, net of cash acquired (0.2) (4.0)
Capital expenditures (0.4) (0.8) (0.4)
Other 0.2
---- ---- ----
Net cash provided by (used in)
investing activities 6.2 (7.6) (4.2)
---- ---- ----
Financing activities:
Net proceeds from sale of
common stock 17.8
Proceeds from exercise of
stock options 0.1
Proceeds from issuance of
notes, net 0.7 7.0
Net increase (decrease)
in indebtedness 2.5 (11.4) (0.3)
---- ---- ----
Net cash provided by (used in)
financing activities 3.2 13.5 (0.3)
---- ---- ----
Net increase in cash and
cash equivalents $1.7 $1.3 $4.8
==== ==== ====
</TABLE>
<PAGE>
The Company's increase in cash and cash equivalents of $1.7 million for
the year ended December 31, 1995 was principally due to (i) the redemption of
marketable securities of $6.8 million and (ii) net borrowings under the
Company's bank credit facility of $2.5 million, offset by (iii) net cash used
in operating activities of $7.7 million. The Company's negative cash flows
from operations for the year ended December 31, 1995 principally resulted
from (i) the net loss from operations of $10.1 million, offset by (ii)
non-cash charges of $1.3 million for depreciation and amortization and $1.1
million for the write off of property and equipment.
The Company's increase in cash and cash equivalents of $1.3 million for
the year ended December 31, 1994 was principally due to the proceeds from the
public offering of its Common Stock offset in part by (i) net cash used in
operating activities of $4.6 million, (ii) the purchase of marketable
securities of $6.8 million and (iii) net principal payments of $4.4 million
made to reduce the Company's aggregate borrowings under the Company's bank
credit facilities and the Acquisition Note. The Company's negative cash
flows from operations for the year ended December 31, 1994 principally
resulted from the aggregate reduction in $8.4 million of the Company's
general liabilities offset by decreases in current and other assets, other
than cash and marketable securities of $3.6 million.
The Company's increase in cash and cash equivalents of $4.8 million for
the year ended December 31, 1993 was due principally to (i) net cash provided
by operating activities of $9.3 million, (ii) the initial cash paid at
closing to Saatchi, plus closing expenses, in connection with the acquisition
of the Acquired Companies aggregating $4.0 million, (iii) proceeds from
borrowings under the Company's revolving line of credit with its bank lender
to fund the initial cash payment for the acquisition of the Acquired
Companies of $3.3 million and (iv) principal debt payments, including the
repayment of amounts outstanding under the revolving credit facility, of
$3.6 million. The Company's positive cash flows from operations for 1993
principally resulted from the reduction of the Acquired Companies' working
capital levels during the fourth quarter.
Revolving Credit Facility
On July 28, 1995, the Company amended and restated its revolving credit
agreement ("Credit Agreement") and prepaid and retired its Term Loan with a
bank. The Credit Agreement provides for a secured revolving credit facility
which advances up to the lesser of 80% of eligible accounts receivable and the
Company's cash and marketable securities, or $10.0 million. The Company used
funds available under the Credit Agreement to prepay the Term Loan. The Credit
Agreement expires December 31, 1996 and is secured by a pledge of all the
capital stock of the Company's wholly-owned subsidiaries, a guarantee by the
Company and a lien on and a security interest in the Company's cash, cash
equivalents, marketable securities and accounts receivable.
Borrowings under the Credit Agreement bear interest at either the
lending institution's prime rate plus 1% per annum or the Eurodollar rate plus
2% per annum. The average balance outstanding for the years ended December 31,
1995, 1994 and for the three months ended December 31, 1993 was approximately
$5.1 million, $527,000 and $273,000, respectively, at a weighted average
interest rate of 9.8%, 8.2% and 7.0%, respectively, for the same periods.
The Company is required to pay a quarterly commitment fee at a rate of half
of 1% per annum of the average daily unused amount of funds available.
Additionally, the Credit Agreement contains certain customary affirmative and
negative covenants which require the Company to maintain certain financial
ratios, and, among other things, restrict (i) declaration or payment of
dividends, (ii) the incurrence of any additional indebtedness, (iii) capital
expenditures and (iv) aggregated lease payments.
As a result of the budgetary constraints of certain of the Company's
clients and consequent reduced shipments to such clients discussed above, the
Company can give no assurance that net revenues and shipments to these clients
will resume at historical levels while it seeks to diversify its client base.
However, the Company believes that through the implementation of its 1995 cost
reduction program, including the consolidation of its manufacturing facilities,
the effect of the Foster Grant Supply Contract, its current cash and cash
equivalents, its backlog, anticipated future cash flows from operations,
continued management of working capital requirements and availability under
its revolving credit facility will be sufficient to support its debt service
requirements and its other capital and operating needs. However, there can
be no assurance that such belief will prove to be correct, that additional
financing will not be required, or that any such financing will be available
on commercially reasonable terms or otherwise.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES PAGE
Independent Auditors' Report F-2
Consolidated Balance Sheets at
December 31, 1995 and 1994 F-3
Consolidated Statements of
Operations for the Years Ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of
Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of
Changes in Stockholders' Equity
for the Years Ended
December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
HMG WORLDWIDE CORPORATION
We have audited the accompanying consolidated balance sheets of HMG
WORLDWIDE CORPORATION AND SUBSIDIARIES as of December 31, 1995 and 1994, and
the related consolidated statements of operations, cash flows and changes in
stockholders' equity for the years ended December 31, 1995, 1994 and 1993.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HMG
WORLDWIDE CORPORATION AND SUBSIDIARIES as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the years ended
December 31, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.
FRIEDMAN ALPREN & GREEN LLP
New York, New York
March 26, 1996
F-2
<PAGE>
[CAPTION]
<TABLE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
----------------------
1995 1994
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 8,139 $ 6,469
Marketable securities (Notes 1 and 15) 6,828
Accounts receivable - less allowance
for doubtful accounts
of $596 and $773 (Notes 1 and 15) 8,681 7,913
Inventory (Notes 1 and 5) 5,254 4,307
Prepaid expenses 440 840
Other current assets 225 337
------- -------
Total current assets 22,739 26,694
Property and equipment - net
(Notes 1 and 6) 2,143 2,915
Excess of cost over fair market value
of assets acquired, less accumulated
amortization of
$799 and $436 (Notes 1, 2 and 3) 7,360 6,539
Other assets 406 570
-------- -------
$32,648 $36,718
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations (Note 7) $ 7,557 $ 2,054
Note payable (Note 2) 714
Accounts payable 4,331 4,084
Accrued employee compensation
and benefits 1,571 1,371
Deferred revenue (Note 1) 696 1,380
Accrued expenses 1,533 761
Restructuring costs (Note 4) 1,973
Other current liabilities 1,740 2,925
------- -------
Total current liabilities 20,115 12,575
Pension obligation (Notes 1 and 8) 1,965
Long-term obligations (Note 7) 3,182
Other long-term liabilities 492 738
------- -------
22,572 16,495
------- -------
Stockholders' equity:
Common stock, par value $0.01;
50,000,000 shares
authorized; 7,567,517 and 7,557,351 shares
issued and outstanding (Note 10) 76 76
Additional paid-in capital (Note 10) 33,258 33,248
Accumulated deficit (23,258) (13,140)
Foreign currency translation
adjustments (Note 1) 39
-------- --------
10,076 20,223
-------- --------
$32,648 $36,718
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Year Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net revenues (Notes 1 and 12) $47,641 $55,578 $20,375
Cost of revenues 38,479 41,147 14,755
------- ------ ------
Gross profit 9,162 14,431 5,620
Selling, general and administrative
expenses 15,996 15,226 4,793
Restructuring costs (Note 4) 3,175
Deferred compensation (Note 16) 1,117
------- ------ -------
Loss from operations (10,009) (795) (290)
Interest income 578 301 27
Interest expense (Note 7) (793) (642) (239)
Other income 30 186 23
Gain from foreign currency
translation (Note 1) 90
------- ------- -------
Loss before provision for income
taxes (10,104) (950) (479)
Provision for income taxes (Note 9) (14) (13) (49)
------- ------- -------
Net loss ($10,118) ($ 963) ($ 528)
======= ======= ======
Net loss per common and
common equivalent share ($1.34) ($0.17) ($0.13)
===== ===== =====
Weighted average number of common
and common equivalent shares
outstanding 7,567,517 5,642,613 4,052,475
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
[CAPTION]
<TABLE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $46,275 $57,021 $27,064
Interest received 578 301 27
Cash paid to suppliers (42,326) (48,738) (14,167)
Cash paid to Marlboro Marketing, Inc. (154)
Cash paid to employees (11,400) (12,375) (3,432)
Income taxes paid (14) (46) (21)
Interest paid (793) (804) (29)
----- ----- -----
Net cash provided by (used in)
operating activities (7,680) (4,641) 9,288
------ ------ ------
Cash flows from investing activities:
Acquisitions, net of cash acquired (176) (4,013)
Proceeds from sale of stock in Ingleby
Communications Corporation 155
Proceeds from redemption
of marketable securities 6,828
Purchases of marketable securities (6,828)
Capital expenditures (419) (814) (376)
----- ----- -----
Net cash provided by (used in)
investing activities 6,233 (7,642) (4,234)
------ ------ ------
Cash flows from financing activities:
Net proceeds from sale of Common Stock
as part of a public offering 17,818
Net proceeds from exercise of
stock options 10 132 17
Proceeds derived from a
credit agreement 6,483 1,075 3,328
Principal payments under a
credit agreement (3,328)
Principal payment of a
note payable issued in
connection with an acquisition (9,630)
Proceeds from issuance of notes, net 714 7,000
Principal payments of outstanding debt
obligations (4,161) (2,945) (289)
------- ------ ------ Net cash provided by (used in)
financing activities 3,046 13,450 (272)
------- ------- -------
Effect of exchange rate changes 71 97 (5)
------- ------- -------
Net increase in cash and cash equivalents 1,670 1,264 4,777
Cash and cash equivalents at
beginning of year 6,469 5,205 428
------- ------- -------
Cash and cash equivalents
at end of year $ 8,139 $ 6,469 $ 5,205
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
[CAPTION]
<TABLE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
Year Ended December 31,
-----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net loss to net cash
provided by (used in)
operating activities:
Net loss ($10,118) ($ 963) ($ 528)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation and amortization 1,283 1,256 444
Restructuring costs - non-cash 1,146
Deferred compensation 1,117
Other income (94) (17)
Gain on foreign currency translation (90)
Decrease (increase) in assets,
net of effects of acquisitions:
Accounts receivable (760) 1,695 6,604
Inventory 202 2,228 (210)
Prepaid expenses 286 32 (214)
Other assets 285 (402) 202
Increase (decrease) in liabilities,
net of effects of acquisitions:
Accounts payable (46) (2,566) 1,770
Due to Marlboro Marketing, Inc. (159)
Deferred revenue (678) (232) 85
Accrued expenses 810 (5,595) (21)
Accrued interest 215
------- ------ ------
Net cash provided by (used in)
operating activities ($ 7,680) ($4,641) $9,288
======= ====== ======
Supplemental schedule of non-cash
investing and financing activities:
Shares issued to suppliers and
employees for services rendered $ 15
Note payable issued in connection
with an acquisition $ 9,842
Common Stock issued in connection
with an acquisition $ 1,225
Fair value of assets acquired in
connection with an acquisition $ 2,218 $25,196
Fair value of liabilities assumed
in connection with an acquisition $ 3,226 $16,710
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Foreign Total
Additional Currency Stock-
Common Stock Paid-in Accumulated Translation holders'
Shares Amount Capital Deficit Adjustments Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 3,926,947 $39 $12,962 ($11,649) $ 1,352
Issuance of shares
in connection with
an acquisition 490,000 5 1,220 1,225
Deferred compensation
as part of the 1993
Stock Option Plan 1,117 1,117
Issuance of shares to
supplier for services
rendered 6,000 15 15
Issuance of shares as part of
exercise of stock options 16,825 16 16
Foreign currency
translation adjustment ($ 6) (6)
Net loss (528) (528)
--------- --- ------- ------- ----- -----
Balance at December 31, 1993 4,439,772 44 15,330 (12,177) (6) 3,191
Issuance of shares as part of
exercise of stock options 92,925 1 131 132
Shares sold as part of
Public Offering 3,024,654 31 17,787 17,818
Foreign currency
translation adjustment 45 45
Net loss (963) (963)
--------- --- ------- ------- --- -------
Balance at December 31, 1994 7,557,351 76 33,248 (13,140) 39 20,223
Issuance of shares as part of
exercise of stock options 10,166 10 10
Foreign currency
translation adjustment (39) (39)
Net loss (10,118) (10,118)
--------- --- ------- ------- --- -------
Balance at December 31, 1995 7,567,517 $76 $33,258 ($23,258) $ - $10,076
========= === ======= ======= === =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
[CAPTION]
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Significant Accounting Policies
Organization: The Company was incorporated in New York in 1984,
as MarkitStar, Inc. and changed its corporate domicile to Delaware
in 1986. On October 4, 1993, MarkitStar, Inc. effected a name
change to HMG Worldwide Corporation (the "Company").
The Company, using its marketing resources and expertise, is
engaged in the design, development and assembly of in-store, or
point-of-purchase, marketing and merchandising displays and
systems. The Company's operations are conducted through six
operating wholly-owned subsidiaries, being respectively HMG
Worldwide In-Store Marketing, Inc. ("HMG"), Intermark Corp.
("Intermark"), Creative Displays, Inc. ("CDI"), HMG Europe B.V.
("HMGBV"), Electronic Voting Systems, Inc. ("EVS") and HMG
Intermark Worldwide Manufacturing, Inc. ("HMG Intermark"). The
Company conducts its operations in New York, New Jersey, Illinois,
Pennsylvania and Texas.
Pursuant to a purchase agreement dated September 30, 1995, the
Company consummated a series of transactions with Benson Eyecare
Corporation ("Benson") whereby Benson's Foster Grant Group L.P.
("Foster Grant") entered into a seven year supply contract
("Supply Contract") with the Company and the Company acquired Benson's
merchandising display operations, now known as HMG Intermark
(see Notes 2 and 8).
Effective October 1, 1995, the Company entered into a three year
marketing support and equipment sale agreement ("European Marketing
Agreement") with Turbo Screen, B.V., a wholly-owned subsidiary of
Tchai Holdings B.V. (see Note 13).
Pursuant to a Purchase and Exchange Agreement ( the "Purchase
Agreement ") dated April 30, 1993 and supplemented on August 20,
1993, the Company consummated a transaction with Saatchi & Saatchi
Company PLC and certain of its subsidiaries ("Saatchi") on October
1, 1993 whereby the Company acquired all of the outstanding capital
stock of HMG, CDI and HMGBV (collectively known as the "Acquired
Companies", see Note 3).
Principles of Consolidation: The accompanying Consolidated
Financial Statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The acquisitions of HMG Intermark and the Acquired Companies
effective September 30, 1995 and October 1, 1993, respectively,
have been accounted for as purchases. The Consolidated Statements
of Operations and Cash Flows for the year ended December 31, 1995
include the results of operations and cash flows of HMG Intermark
for the period October 1, 1995 through December 31, 1995. Pro
forma financial information for this acquisition has not been
presented because it is not deemed significant to the Consolidated
Financial Statements. The Consolidated Statements of Operations
and Cash Flows for the year ended December 31, 1993 include the
results of operations and cash flows of the Acquired Companies for
the period October 1, 1993 through December 31, 1993.
Use of Estimates: Management uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
revenues and expenses.
Cash and Cash Equivalents: The Company considers all highly
liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
F-8
<PAGE>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1 - Organization and Significant Accounting Policies (continued)
Marketable Securities: Marketable securities included in current
assets consisted of short-term debt securities issued by U.S.
government agencies that mature within 90 days. They were carried
at fair value, which approximates cost.
Inventory: Inventory, consisting principally of merchandising
display components, is stated at the lower of cost or market on an
average cost basis (see Note 5).
Property and Equipment: Property and equipment are stated at
cost. Equipment under capital leases are recorded at the present
value of minimum lease payments at the inception of the lease.
Depreciation is computed based upon the estimated useful lives of
the assets using the straight-line method. Equipment held under
capital leases and leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or
estimated useful life of the asset.
Excess of Cost Over Fair Market Value of Assets Acquired: The
excess of cost over fair market value of assets acquired arising
from acquisitions is amortized on the straight-line method over a
period of twenty years. Related amortization expense was
approximately $363,000, $349,000 and $87,000 for the years ending
December 31, 1995, 1994, and the three months ended December 31,
1993, respectively. The periods of amortization are reviewed on a
quarterly basis to determine whether events and circumstances
warrant revised estimates of useful lives. This evaluation
considers, among other factors, expected cash flows and profits of
the businesses to which the excess of cost over fair market value
of assets acquired relates. The excess of cost over fair market
value of assets acquired will be written off if it becomes evident
that it has been permanently impaired.
Fair Value of Financial Instruments: The fair value of the
revolving credit facility and note payable approximates carrying
value due to the short maturities.
Foreign Currency Translation: The functional currency of HMGBV
is the Dutch Guilder. Assets and liabilities are translated into
U.S. dollars using the current exchange rate at the Balance Sheet
date. Translation adjustments resulting from fluctuation in
exchange rates are recorded as a separate component of
stockholders' equity. Income and expense items are translated at
the average exchange rates during the respective periods. As a
consequence of the European Marketing Agreement and the reduction
in the scope of HMGBV's operations, all translation adjustments
realized by the Company were charged to operations.
Revenue recognition: Revenue is recognized when a display or
system is shipped and when services are performed.
Reclassification: Certain reclassifications have been made to
conform the presentation of prior years to the current year
presentation.
Research and Development: Research and development costs are
charged to operations as incurred.
Income Taxes: Income taxes are provided on the liability method
on all revenues and expenses included in the Consolidated
Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items
representing a permanent difference between pre-tax accounting
income or loss and taxable income or loss (see Note 9). Under the
liability method of accounting for income taxes, deferred taxes are
based on rates that are expected to be in effect when temporary
differences are scheduled to reverse.
F-9
<PAGE>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1 - Organization and Significant Accounting Policies (continued)
Earnings per Share: Earnings per share amounts are based on the
weighted average number of common shares outstanding during each
period. Common shares issuable upon exercise of stock options are
included in the earnings per share computation unless they are
immaterial in amount or anti-dilutive.
Employee Benefit Plans: The Company and its subsidiaries sponsor
a series of defined benefit and defined contribution plans for its
union and non-union employees. For the defined benefit plans, the
Company has adopted Statement of Financial Accounting Standards
("SFAS") 87 "Employers' Accounting for Pensions" and SFAS 106
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (see Note 8).
Recently Issued Accounting Standards: The Financial Accounting
Standards Board ("FASB") has issued SFAS No. 121, "Accounting For
The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be
Disposed Of", which is effective for years beginning after December
15, 1995. The provisions of this statement are not expected to
have a material impact on the Company's results of operations or
financial position.
The FASB has also issued SFAS No. 123, "Accounting for Stock-
Based Compensation", which is also effective for years beginning
after December 15, 1995. The impact of this statement, if any, on
the Company's required financial statement disclosures has not been
determined.
Note 2 - Acquisition of HMG Intermark and Long-Term Supply Contract
with Foster Grant
Pursuant to a purchase agreement dated September 30, 1995, the
Company consummated a series of transactions with Benson whereby
Benson's Foster Grant subsidiary entered into the in-store merchandising
display Supply Contract with the Company and the Company acquired Benson's
merchandising display operations, now known as HMG Intermark.
The Supply Contract requires Foster Grant, subject to certain
conditions, to purchase at least 70% of its in-store merchandising
display purchases from the Company with average annual purchases to
aggregate no less than $4.5 million. The Supply Contract contains
provisions which include (i) Foster Grant's right to competitively
bid its merchandising display purchases with comparable suppliers
of the Company, (ii) the Company must meet certain price criteria
with its services and (iii) the Company has the right of last
refusal on all merchandising display programs on which it has
placed a bid with Foster Grant.
In addition, Benson advanced through its Foster Grant subsidiary
$1.0 million to the Company as a deposit against the first year's
in-store merchandising display purchases. The Company issued to
Benson a corresponding, non-interest bearing note payable of $1.0
million. Throughout the first year of the Supply Contract, the
Company shall apply a 25% credit against the cost of all display
shipments to Foster Grant up to an aggregate of $4.0 million in
merchandising display shipments as repayment of the note payable.
In the event that the 25% credits issued to Foster Grant do not
aggregate to $1.0 million prior to October 31, 1996, the Company
shall remit the shortfall, if any, to Benson to retire the note
payable. At December 31, 1995, the Company's note payable to
Benson was approximately $714,000.
In addition to the Supply Contract, the Company acquired from
Benson the merchandising display assembly operations, located in
Reading, Pennsylvania, by acquiring all of the outstanding shares
of capital stock of HMG Intermark. The Company recorded HMG
Intermark's assets and liabilities based upon their estimated fair
market value as of the acquisition date. Additionally, the Company
recorded $1.2 million as the excess cost over fair market value of
assets acquired.
F-10
<PAGE>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3 - Acquisition of Acquired Companies
Pursuant to the terms of the Purchase Agreement, the Company
consummated a transaction with Saatchi on October 1, 1993 whereby
the Company acquired all of the outstanding capital stock of the
Acquired Companies. In exchange for the respective shares of
capital stock, the Company (i) issued to Saatchi 490,000 shares of
the Company's Common Stock ("Acquisition Stock"), (ii) made an
initial cash payment of $3.3 million and (iii) issued a promissory
note ("Acquisition Note") in the principal amount of $11.5 million.
During September 1993, the Company obtained a three-year revolving
credit facility (see Note 7) with a bank lender and used this
facility for the initial cash payment. Additionally, the Company
incurred approximately $1.1 million in acquisition costs related to
the transaction.
On March 31, 1994, the Company and Saatchi consummated a
transaction ("Saatchi Adjustment") whereby Saatchi adjusted the
aggregate Company acquisition consideration provided to Saatchi by
reducing the then outstanding Acquisition Note of $11.2 million,
plus accrued interest of approximately $380,000, to $10.0 million,
inclusive of imputed interest of $322,000. Additionally, the
Company elected to prepay and retire the Acquisition Note effective
March 31, 1994. Funds for the payment of the Acquisition Note were
provided by (i) a $7.0 million secured, five-year term loan ("Term
Loan") from the Company's bank lender, (ii) $2.2 million from the
Company's cash balance and (iii) $800,000 from the Company's
revolving credit facility with the same bank lender. The net
effect of the Saatchi Adjustment and the $2.2 million cash payment
reduced the cost of the acquisition by $1.6 million and reduced the
Company's acquisition debt to $7.8 million. The Company recorded
the effects of the March 31, 1994 Saatchi Adjustment on its
December 31, 1993 Balance Sheet by reducing the excess of cost over
fair market value of assets acquired.
The Company recorded the Acquired Companies' assets and
liabilities based on their estimated fair market values as of the
acquisition date. Additionally, the Company recorded $7.0 million
as the excess of cost over fair market value of assets
acquired.
Note 4 - Restructuring Costs
In December 1995, restructuring costs of $3.2 million were
charged to operations which principally related to the
implementation of a cost reduction program to be primarily implemented through
consolidation and selective closures of the Company's offices and
manufacturing facilities. These closures and consolidations are a direct
result of (i) competitive conditions in the market place and the
corresponding impact on the Company, (ii) budgetary restraints
and/or reductions implemented by some of the Company's clients and
(iii) the acquisition of HMG Intermark's 131,000 square foot
manufacturing facility in Reading, Pennsylvania. The restructuring
consists of a series of planned actions including (i) a reduction
in personnel, (ii) the closure and consolidation of plant
facilities into the Company's Reading facility, (iii) the closure
or reduction in offices in New York, Chicago and Detroit and (iv)
the disposal of assets that are no longer required due to the
elimination of selected programs or site consolidations.
The restructuring costs are comprised principally of a $1.1
million non-cash write-off of property and equipment and $2.1
million of projected expenditures related to the cost reduction
program. The provision for the reduction of employees was
approximately $600,000 which includes approximately 50 employees
from all areas including manufacturing, development, sales,
marketing and administration. Approximately $1.5 million was
provided for the costs related to the closing and consolidation of
production facilities and offices. The Company expects most of the
consolidation to be completed by June 30, 1996 and the balance to
be completed by December 31, 1996.
F-11
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Inventory
Inventory consisted of the following components at December 31,
1995 and 1994:
December 31,
------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Finished goods $1,000 $ 698
Work-in-progress 1,353 604
Raw materials 2,901 3,005
------ ------
$5,254 $4,307
====== ======
Note 6 - Property and Equipment
The following is a summary of property and equipment, estimated
useful lives and accumulated depreciation and amortization at
December 31, 1995 and 1994:
December 31,
--------------------
Description 1995 1994 Estimated Useful Life
- ----------- ---- ---- ---------------------
(in thousands)
<S> <C> <C> <C>
Land $ 103
Buildings 813 32 years
Equipment 854 $1,002 3-7 years
Furniture and fixtures 192 367 5 years
Leasehold improvements 539 1,334 Lesser of lease term or
eight years
Product masters 792 Product by product basis
Tooling 726 868 3-5 years
------ ------
3,227 4,363
Less: accumulated
depreciation and
amortization 1,084 1,448
------ ------
$2,143 $2,915
====== ======
Depreciation and amortization expense for property and equipment
for the years ended December 31, 1995, 1994 and 1993 was
approximately $920,000, $907,000 and $270,000, respectively.
Note 7 - Credit Facilities
Long-term obligations at December 31, 1995 and 1994 are as
follows:
December 31,
-------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Revolving credit facility $7,557 $1,075
Term Loan (Note 3) 4,161
------ ------
7,557 5,236
Less: current maturities 7,557 2,054
------ ------
$ - $3,182
====== ======
</TABLE>
F-12
<PAGE>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7 - Credit Facilities (continued)
Revolving Credit Facility
On July 28, 1995, the Company amended and restated its revolving
credit agreement ("Credit Agreement") and prepaid and retired its
Term Loan with a bank. The Credit Agreement provides for a secured
revolving credit facility which advances up to the lesser of 80% of
eligible accounts receivable and the Company's cash and marketable
securities, or $10.0 million. The Company used funds available
under the Credit Agreement to prepay the Term Loan. The Credit
Agreement expires December 31, 1996 and is secured by a pledge of
all the capital stock of the Company's wholly-owned subsidiaries, a
guarantee by the Company and a lien on and a security interest in
the Company's cash, cash equivalents, marketable securities and
accounts receivable.
Borrowings under the Credit Agreement bear interest at either the
lending institution's prime rate plus 1% per annum or the
Eurodollar rate plus 2% per annum. The average balance
outstanding for the years ended December 31, 1995, 1994 and for
the three months ended December 31, 1993 was approximately $5.1 million,
$527,000 and $273,000, respectively, at a weighted average interest rate
of 9.8%, 8.2% and 7.0%, respectively, for the same periods. The Company
is required to pay a quarterly commitment fee at a rate of half of 1%
per annum of the average daily unused amount of funds available.
Additionally, the Credit Agreement contains certain customary affirmative
and negative covenants which require the Company to maintain certain financial
ratios, and, among other things, restrict (i) declaration or
payment of dividends, (ii) the incurrence of any additional
indebtedness, (iii) capital expenditures and (iv) aggregated lease
payments.
Term Loan
The Term Loan was payable in twenty equal quarterly installments
over five years and required interest at either the bank lender's
prime rate plus 1-1/2% or the London Interbank Offered Rate
("LIBOR") plus 3-1/4%. The Term Loan was secured by a pledge of
all of the capital stock of each of the Company's wholly-owned
subsidiaries, a guaranty by the Company and a lien on and security
interest in, all the assets of the Company including, cash,
accounts receivable, contract rights, inventory, general
intangibles and proceeds thereof.
Note 8 - Employee Benefit Plans
The Company and its subsidiaries sponsor a series of defined
benefit and defined contribution employee benefit plans covering
both union and non-union personnel. A summary of each of these
sponsored plans is as follows:
HMG Intermark Pension and Health Care Plans
HMG Intermark sponsors a defined benefit plan ("Pension Plan")
and a post retirement plan for certain health care benefits
("Health Care Plan") covering all union employees pursuant to
agreements between HMG Intermark and Local 241 of the National
Federation of Independent Unions.
Pursuant to the terms of the Pension Plan, HMG Intermark union
employees generally become eligible for retirement benefits after
reaching age 55 with 10 years of continuous service or after
reaching age 65. Retirees are entitled to receive pension
benefits, based upon date of retirement, of between $4.00 and
$13.50 per month for each year of credited service. HMG Intermark
funds the actuarially determined costs of the Pension Plan,
including the amortization of prior service costs over 30 years.
HMG Intermark's actuarial assumptions are based upon an expected
return on assets of 8% and a discount rate of 7%.
F-13
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Employee Benefit Plans (continued)
The following is a summary of the components of pension costs and
the accumulated pension obligation of HMG Intermark at December 31,
1995:
For the Period October 1, 1995
(date of acquisition) through
December 31, 1995
------------------------------
<S> <C>
Net periodic cost:
Service cost - benefits earned during
the period with interest $ 9
Interest cost on accumulated
benefit obligation 89
Actual return on assets (102)
Net amortization and deferral 52
----
Net periodic pension cost $ 48
====
December 31, 1995
-----------------
<S> <C>
Accumulated pension obligation:
Vested benefits obligation ($5,073)
Non-vested benefit obligation (2)
------
Accumulated benefit obligation
and projected benefit obligation (5,075)
Fair market value of plan assets 2,899
Funded status of projected benefit
obligation (2,176)
Unrecognized net loss 231
Adjustment to recognized minimum
liability (231)
------
Accrued pension benefit obligation (2,176)
Less: current portion 211
------
Pension obligation - long-term ($1,965)
======
Pursuant to the terms of the Health Care Plan, HMG Intermark
union employees become eligible for retirement health care benefits
after the years of credited service plus their age at the time of
retirement is equal to or greater than 85 (Rule of 85). If any
employee, at the time of their retirement, meets the Rule of 85
prior to reaching age 65, HMG Intermark shall continue to provide
health care benefits under the Health Care Plan until the retiree
reaches age 65. HMG Intermark does not pre-fund the cost of the
Health Care Plan. At December 31, 1995, the Company has included
as a component of other long-term liabilities approximately
$325,000 relating to the unfunded Health Care Plan obligation.
The accrued post retirement obligation under the Health Care Plan
is actuarially determined based upon the following significant
assumptions, (i) retirement age of 63, (ii) a discount rate of 7%
and (iii) a gross medical cost increase of an average of 9% for the
next five years and 6% increase thereafter.
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Employee Benefit Plans (continued)
The following is a summary of the components of the Health Care
Plan costs and the accumulated health care obligation of HMG
Intermark at December 31, 1995:
For the Period October 1, 1995
(date of acquisition) through
December 31, 1995
-----------------------------
<S> <C>
Service cost - benefits earned during
the period $13
===
Net premiums paid during the period $12
===
Net periodic cost:
Service cost - benefits earned during the
the period with interest $ 2
Interest cost on accumulated benefit
obligation 9
Actual loss on benefit payments 2
---
Net periodic health care cost $13
===
December 31, 1995
-----------------
<S> <C>
Accumulated health care obligation:
Accumulated benefit obligation and
projected benefit obligation ($489)
----
Funded status of projected benefit
obligation (489)
Unrecognized net loss 99
----
Health care obligation (390)
Less: current portion 65
----
Health care obligation - long-term ($325)
====
Multi-Employer Benefit Plans
HMG participates in two multi-employer benefit plans covering all
union employees pursuant to agreements between HMG and Local 2682,
United Brotherhood of Carpenters and Joiners. These plans are
defined benefit plans; however, specific benefit levels are not
negotiated with, or known by the employer. The pension plan
requires HMG to contribute 6% of each employee's wages, excluding
overtime, on a monthly basis. Pension plan contributions of
approximately $99,000, $119,000 and $34,000 were made and charged
to operations for the years ended December 31, 1995, 1994 and the
three months ended December 31, 1993, respectively. The welfare
plan requires HMG to make a specified contribution for each
employee per month and for each hour for all regular and overtime
hours worked. Welfare plan contributions of approximately
$187,000, $235,000 and $65,000 were made and charged to income
during the periods noted above.
Capital Accumulation Plan
The HMG Worldwide Corporation Capital Accumulation Plan and Trust
is a defined contribution plan qualifying under IRC section 401(k)
covering all employees not participating in a collective bargaining
agreement. The plan permits all employees who are 21 years of age
and who have one year of service to contribute up to 10% of their
salary to the plan. Effective January 1, 1994, the Company merged
the HMG Worldwide In-Store Marketing, Inc. Capital Accumulation
Plan & Trust and the Creative Display, Inc. Profit Sharing
Retirement Plan, with the HMG Worldwide Corporation Capital
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Employee Benefit Plans (continued)
Accumulation Plan. The provisions of the HMG Worldwide Corporation
Capital Accumulation Plan survived the merger except that the plan
now has an employer matching provision whereby the Company matches
fifty cents for every dollar of employee contribution up to 6% of
base compensation. The previous plan provision for matching was
fifty cents for every dollar of employee contribution up to 4% of
total compensation. Company contributions of approximately
$114,000, $161,000 and $78,000 were made and charged to operations
for the years ended December 31, 1995, 1994 and 1993, respectively.
In addition, the merged plan added a fixed contribution provision
whereby the Company annually contributes 3% of base compensation
for any plan participant employed on December 31. Company
contributions of approximately $155,000, $175,000 and $43,000, were
made and charged to operations for the years ended December 31,
1995, 1994, and the three months ended December 31, 1993,
respectively. The plan also allows the Company to make
discretionary contributions at the end of each plan year. The
Company did not make any discretionary contributions for these
years.
Note 9 - Income Taxes
The components of the provisions for income taxes are as follows:
Year Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ - $ - $201
State and local 14 13 70
--- --- ----
14 13 271
--- --- ----
Deferred:
Federal - - (187)
State and local - - (35)
--- --- ----
- - (222)
--- --- ----
$14 $13 $ 49
=== === ====
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying value of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes as well as operating loss carryforwards.
The following is a summary of the significant components of the
Company's deferred taxes:
December 31,
--------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Deferred taxes:
Net operating loss
carryforwards $7,232 $4,464
Accruals not currently
deductible 1,390 326
Inventory capitalization (61) 174
Depreciation 869 298
Other 89
------ ------
Subtotal 9,519 5,262
Less: Valuation allowance (9,519) (5,262)
------ ------
Net deferred taxes $ - $ -
====== ======
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9 - Income Taxes (continued)
At December 31, 1995, the Company has net operating loss
carryforwards ("NOL") of approximately $19.3 million which expire
during the years 2001 through 2011.
A reconciliation of the tax provisions and amounts computed by
applying the federal income tax rate of 34% to the loss before
income taxes is as follows:
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Computed tax benefit $ - $ - ($163)
Utilization of NOL (benefit),
increase in valuation allowance 127
State and local income taxes 14 13 35
Federal alternative minimum taxes 14
Other non-deductible expenses 36
--- --- ----
$14 $13 $ 49
=== === ====
Note 10 - Common Stock
In August 1994, the Company, in an underwritten offering pursuant
to a registration statement with the Securities and Exchange
Commission, sold 3,024,654 shares of its common stock at $6.75 per
share from which it derived net proceeds of $17.8 million.
Pursuant to the Purchase Agreement, the Company issued the
Acquisition Stock to Saatchi on October 1, 1993. The Acquisition
Stock may not be sold or transferred except pursuant to (i) an
effective registration statement under the Securities Act of 1933
covering such securities; or (ii) any applicable exemption under
the Securities Act of 1933. However, under the terms of an
agreement between the Company and Saatchi (the "Registration Rights
Agreement"), the Company has agreed to register the Acquisition
Stock upon Saatchi's demand as well as at any time that the Company
proposes to register any of its securities under the Securities Act
of 1933, subject to certain exceptions. In August 1994, in
connection with the Company's registration statement of a public
offering, Saatchi registered and sold 264,657 shares of common
stock.
The Company maintains four stock options plans which have been
adopted by the Board and subsequently approved by its stockholders.
Three of the stock option plans are comprised of two option
categories; incentive stock options for full-time employees and
consultants, including officers and directors, and nonstatutory
stock options for full-time employees and non-employee directors.
The one additional plan provided for incentive stock options for
full-time employees, officers and directors and non-statutory
stock options for employees and consultants and non-employee
directors. The total number of shares reserved and available under
the four plans are 2,727,584 shares.
The following is a summary of transactions for the years ended
December 31, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Options outstanding at January 2,157,225 2,330,600 347,500
Incentive options granted at $1.625 1,625,000
Incentive options granted at $7.625 375,000
Options exercised (10,166) (92,925) (16,825)
Options canceled (115,609) (80,450) (75)
--------- --------- ---------
Options outstanding at December 31 2,031,450 2,157,225 2,330,600
========= ========= =========
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 10 - Common Stock (continued)
At December 31, 1995, the Company has 222,450, 23,500, 38,600,
1,512,700 and 234,200 options outstanding exercisable at $0.9375,
$1.00, $1.56, $1.625 and $7.65 per share, respectively. Pursuant
to the terms of one plan, 356,563 options are subject to holding
and vesting periods ranging from one year to five years depending
upon the number of options received by the optionee.
Note 11 - Lease Commitments
The Company leases manufacturing, warehousing and office
facilities and production and office equipment, under leases
expiring at various dates. Certain facility leases contain renewal
provisions and generally require the Company to pay increases over
base period amounts for taxes and other operating expenses. At
December 31, 1995, future minimum payments under noncancellable
operating leases are as follows:
Year Amount
---- ------
(in thousands)
<S> <C> <C>
1996 $ 582
1997 567
1998 498
1999 482
2000 482
Thereafter 884
------
$3,495
======
Rent expense for the years ended December 31, 1995, 1994 and 1993
was approximately $2.1 million, $1.9 million and $401,000,
respectively.
At December 31, 1995, the Company had letters of credit
outstanding totaling approximately $170,000, to guarantee
obligations under certain leases.
Note 12 - Significant Clients
Net revenues from individual clients of the Company accounting
for 10% or more of net revenues for the years ended
December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sara Lee Corporation 24% 31% 25%
Procter & Gamble Co. 11% 15% 21%
Wal*Mart Stores, Inc. 13%
Hallmark Cards, Inc. 11%
Clairol Corporation 20%
Note 13 - Foreign Operations
HMGBV, headquartered in the Netherlands, entered into the European
Marketing Agreement on October 1, 1995 with Turbo Screen B.V., a wholly-
owned subsidiary of Tchai Holdings B.V. ("Tchai") of the Netherlands.
Pursuant to the terms of the European Marketing Agreement, Tchai will
provide the Company with production and product development support and
employ four of HMGBV's five employees. In addition, Tchai paid $30,000
for certain equipment owned by HMGBV. The Company and Tchai have also
agreed to supply one another with marketing leads. Commissions ranging
from 2% to 10% of resulting sales will be paid to the party which
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 13 - Foreign Operations (continued)
supplies the successful introduction. As a consequence of
the European Marketing Agreement, the Company (i) retained one employee,
(ii) closed its Holland office, (iii) will coordinate its European marketing
efforts through Tchai and (iv) expects to substantially reduce its operating
expenses in Europe. There were no commissions earned or paid by the Company
pursuant to terms of the European Marketing Agreement for the three months
ended December 31, 1995.
Financial information for HMGBV is as follows:
For the Period
October 1, 1993 (date
of acquisition) through
1995 1994 December 31, 1993
---- ---- -----------------------
(in thousands)
<S> <C> <C> <C>
Net revenues $390 $2,331 $ 796
==== ====== ======
Operating income (loss) ($631) $ 4 $ 74
==== === ====
Identifiable assets $173 $1,130 $1,664
==== ====== ======
In addition to the net revenues noted above, other subsidiaries of the
Company have sales to various foreign countries, principally to customers
in Europe and the Far East. For the years ended December 31, 1995, 1994
and 1993 the Company has included in its Consolidated Statements of
Operations, net sales, exclusive of HMGBV revenues, of approximately
$624,000, $708,000 and $922,000, respectively, relating to the export of
products to Europe and the Far East.
Note 14 - Related Party Transactions
Prior to the acquisition of HMG, pursuant to the Purchase Agreement
(see Note 3), the Company had two written agreements with HMG ("HMG
Agreements"), whereby HMG provided the Company with various market
research, production and design, development services and sales and
marketing services. HMG charged the Company an aggregate of $106,000 for
the nine months ended September 30, 1993, for such services. Subsequent
to the acquisition, such services are allocated at cost and have been
eliminated in consolidation.
For the years ended December 31, 1995, 1994, and 1993, the Company
incurred a total of approximately $142,000, $482,000 and $305,000,
respectively, for various legal and consulting services provided by firms
whose members or officers are stockholders or directors of the Company.
Note 15 - Commitments and Contingent Liabilities
The Company is subject to certain legal proceedings and claims which
have arisen in the ordinary course of its business. These actions when
ultimately concluded will not, in the opinion of management, have a
material adverse effect upon the financial position, results of
operations or liquidity of the Company.
In April 1984, HMG entered into an agreement with one of its sales
representatives, Howard Displays, Inc. ("HDI"), whereby HMG is required
to make contingent consideration payments to the former principal
shareholder of HDI. Such payments are based upon the net revenues
derived from sales to active HDI clients. These payments continue until
one year after the death of this individual. For the years ended
December 31, 1995, 1994, and the three months ended December 31, 1993
approximately $525,000, $733,000, and $170,000, respectively, were
charged to operations.
</TABLE>
F-19
<PAGE>
HMG WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15 - Commitments and Contingent Liabilities (continued)
The Company is potentially subject to significant concentrations of
credit risk on its cash and short-term investments (cash equivalents and
marketable securities) and accounts receivable. Short-term investments
are in commercial paper of corporations with high credit ratings and
securities of U.S. Government agencies and are held by one financial
institution with a high credit standing. Receivables, which under normal
trade terms are not secured, are from a large number of consumer products
companies. The three customers with the largest balances account for 45%
of accounts receivable at December 31, 1995.
Note 16 - Deferred Compensation Expense
In addition to the consideration paid to Saatchi for the Acquired
Companies, the Company's Compensation Committee, in conjunction with the
then pending acquisition, approved a 1993 Stock Option Plan on January
22, 1993 to afford key employees of each of the Acquired Companies and
the Company the opportunity to acquire an equity interest in the Company
through the grant of options to acquire shares of the Company's Common
Stock. Consequently, the Compensation Committee proposed that the
Company's Board of Directors (the "Company Board") adopt the 1993 Stock
Option Plan and provide for the grant of 1,625,000 ten-year options at
the then market price of the Company's Common Stock, $1-5/8 per share.
On February 25, 1993, the Company Board approved the Compensation
Committee's recommendations for the 1993 Stock Option Plan and the
related grants. The Company charged to operations approximately $1.1
million in deferred compensation expense relating to the grant of
options. The deferred compensation charge is derived from the $0.6875
per common share difference between the exercise price of options granted
and the fair market value of the Company's Common Stock at the date of
grant.
F-20
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in accountants due to disagreements on
accounting and financial disclosure during the 24 months prior to December 31,
1995.
<PAGE>
PART III
<TABLE>
Item 10. Directors and Executive Officers of the Registrant.
The executive officers and directors of the Company are as follows:
Associated
with the
Company
Name Age Offices Held Since
<S> <C> <C> <C>
Michael Wahl 58 Chairman of the Board and 1984
Chief Executive Officer
Andrew Wahl 35 President and Director 1984
Robert V.
Cuddihy, Jr. 36 Chief Operating Officer, 1987
Chief Financial Officer
and Director
L. Randy Riley 44 Executive Vice President 1993
and Director
Herbert F. Kozlov 43 Secretary and Director 1988
Brett Tollman 34 Director 1991
Lawrence J.
Twill, Sr. 58 Director 1987
MICHAEL WAHL has been a director of the Company since its inception in May
1984. Upon the consummation of the acquisition of the Acquired Companies, Mr.
Wahl became the Company's Chairman and Chief Executive Officer, effective
October 1, 1993. Since 1984, Mr. Wahl has served as the Chairman of the Board
of the Company. Since May 1986, Mr. Wahl has also served as the chief
executive officer of the Company. Mr. Wahl served as the Company's HMG
President from 1976 to April 1986.
ANDREW WAHL has been a director of the Company since its inception in May
1984. Upon the consummation of the acquisition of the Acquired Companies, Mr.
Wahl became the President effective October 1, 1993, and relinquished his roles
as Chairman and Chief Executive Officer. From May 1984 to October 1993, Mr.
Wahl served as the Company's chief executive officer. In December 1990,
Mr. Wahl became the Secretary of the Company. From July 1987 to October
1993, Mr. Wahl has also served as the Company's Chairman of the Board.
Additionally, Mr. Wahl served as the Company's President from May 1984 until
December 1990. From September 1980 until May 1984, Mr. Wahl served as Vice
President for HMG, where his primary responsibilities were in the areas of
new business development and pension and profit-sharing management.
ROBERT V. CUDDIHY, JR. has been the Company's chief financial officer and
Secretary since July 1987 and a director since February 1988. In March 1989,
Mr. Cuddihy also assumed the responsibilities of chief operating officer of the
Company. In December 1990, Mr. Cuddihy became the Company's President and
discontinued his function as its Secretary. Upon the consummation of the
acquisition of the Acquired Companies, Mr. Cuddihy relinquished his role as
President, effective October 1, 1993. From July 1981 until July 1987, Mr.
Cuddihy was with KPMG Peat Marwick, Certified Public Accountants, where he last
served as a senior audit manager.
L. RANDY RILEY has been a director of the Company since March 1994. Mr.
Riley is, and for at least the past five years has been, employed by HMG in an
executive capacity, most recently as President of HMG. He was previously
employed by Ernest & Julio Gallo and by Colgate-Palmolive Company in senior
marketing positions.
HERBERT F. KOZLOV has been a director of the Company since February 1988.
Since August 1989, Mr. Kozlov has also served as the chief executive officer of
EVS. Upon consummation of the acquisition of the Acquired Companies, Mr.
Kozlov assumed the responsibilities of Corporate Secretary. Mr. Kozlov is a
member of Parker Duryee Rosoff & Haft, counsel to HMG. Mr. Kozlov has been a
practicing attorney for more than ten years.
BRETT TOLLMAN has been a director of the Company since December 1991. In
October 1993, Mr. Tollman became the President and Chief Operating Officer of
Tollman-Hundley Hotels. Prior thereto and for more than five years, Mr.
Tollman was an Executive Vice President of Tollman-Hundley Hotels.
LAWRENCE J. TWILL, SR. has been a director of the Company since July 1987.
Mr. Twill has been President of Ashwood Capital, a private merchant bank, since
March 1991. From February 1990 to February 1991, he was Managing Director of
Peers & Co., which at the time was a subsidiary of Kemper Securities, Inc.
From June 1988 to February 1990, he served as Executive Vice President,
Investment Banking and a member of the Executive Committee of Bateman
Eichler, Hill Richards, a subsidiary of Kemper Securities, Inc. From
February 1986 to June 1988, Mr. Twill was the Chairman and Chief Executive
Officer of Woolcott & Company, an investment banking firm, and from April
1984 to March 1985 he was the President and Chief Executive Officer of
New York Air, Inc. Mr. Twill is also a member of the Board of Directors of
United Waste Systems, Inc.
Michael Wahl is the father of Andrew Wahl. There are no other family
relationships among HMG's officers and directors.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Executive officers are
elected annually by the Board of Directors to hold office until the first
meeting of the Board following the next annual meeting of stockholders and
until their successors are chosen and qualified.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than 10% stockholders are required by the SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, HMG believes that through December 31, 1995, all
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Item 11. Executive Compensation.
Summary Compensation
Set forth below is the aggregate compensation for services rendered in all
capacities to HMG during its fiscal years ended December 31, 1995, 1994 and
1993 by its chief executive officer and each of its executive officers whose
compensation exceeded $100,000 during its fiscal year ended December 31, 1995.
Summary Compensation Table
Long-Term Compensation
----------------------
Annual Compensation Awards Pay outs
------------------- ------ --------
Other ALL All
Name and Annual Restricted Long-Term Other
Principal Compen- Stock Number of Incentive Compen-
Position Year Salary Bonus sation(1) Awards Options Payouts sation
- -------- ---- ------ ----- -------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Wahl 1995 $250,000 $100,000
Chief 1994 $250,000 $100,000
Executive 1993 $475,000 (2) 604,000
Officer
Andrew Wahl 1995 $190,000 $76,500
President 1994 $190,000 $125,000
1993 $185,000 300,000
Robert V.
Cuddihy,
Jr. 1995 $150,000 $100,000
Chief 1994 $150,000 $125,000
Operating 1993 $150,000 96,000
Officer
Chief
Financial
Officer
L. Randy
Riley 1995 $210,000
Executive 1994 $210,000 $70,000
Vice
President
(1) Personal benefits provided to Messrs. Michael Wahl, Andrew Wahl, Cuddihy
and Riley did not exceed the disclosure thresholds established under SEC
rules and therefore are not included in this table.
(2) Includes $412,500 of compensation paid by HMG during the nine months
ended September 30, 1993, and $62,500 paid by the Company during the
three months ended December 31, 1993.
</TABLE>
<PAGE>
Set forth below is further information with respect to the unexercised
options to purchase the Company's Common Stock granted in the year ended
December 31, 1995 and prior years under the Company's 1986, 1991 and 1993
Stock Option Plans.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<S> <C> <C> <C> <C> <C> <C>
Number of Securities
Number of Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired December 31, 1995 at December 31, 1995
on Value Unexer- Unexer-
Name Exercise Realized Exercisable cisable Exercisable cisable
- ---- -------- -------- ----------- ------- ----------- -------
Michael Wahl 644,400 $1,933,200
Andrew Wahl 5,000 $8,750 376,750 $1,130,250
Robert V.
Cuddihy, Jr. 2,500 $2,500 153,850 $461,550
L. Randy
Riley 40,400 54,000 $121,200 $162,000
</TABLE>
Employment Agreements
Effective upon the consummation of the acquisition of the Acquired
Companies, Michael Wahl became the Company's Chairman of the Board and chief
executive officer pursuant to a five year employment contract ("Wahl
Employment Agreement") at a base salary of no less than $250,000 per year. He
is also entitled to receive such bonuses as may be awarded to him from time to
time by the Board in its sole discretion.
Upon termination of the Wahl Employment Agreement by the Company for any
reason other than for cause, the Company will be obligated to continue to make
salary payments to Mr. Wahl, or to his estate in the event of his death, for a
period of up to two years after such termination. The Wahl Employment
Agreement also precludes Mr. Wahl from competing with the Company for a period
of two years following termination of employment.
With the exception of Michael Wahl, none of the executive officers is
employed by the Company pursuant to an employment agreement.
Compensation of Directors
The Company's policy is to reimburse directors for travel and out-of-
pocket expenses incurred, if any, to attend its directors' meetings. See
"Compensation Committee Interlocks and Insider Participation".
<PAGE>
Board Compensation Committee Report on Executive Compensation
Although the Company has a Compensation Committee whose members are Brett
Tollman and Lawrence J. Twill, Sr., the Board as a whole rather than the
Compensation Committee has set compensation for its executive officers for
each of the past three years. Four of such directors received cash
compensation as executive officers of the Company.
Upon the consummation of the acquisition of the Acquired Companies,
Michael Wahl, who had previously been the chief executive officer of HMG,
became Chairman of the Board and Chief Executive Officer of the Company
pursuant to an employment agreement (the "Wahl Employment Agreement"). In
negotiating the Wahl Employment Agreement, the Board of Directors determined
that Mr. Wahl should receive a base salary equal to that which he received
under a five year employment agreement entered into in 1990 with HMG under the
former owners. In order to induce Mr. Wahl to enter into such prior
employment agreement, HMG had agreed to pay Mr. Wahl the additional sum of
$1.0 million, of which $750,000 had been paid, with the balance payable to Mr.
Wahl in two installments of $125,000 each due in 1994 and 1995, respectively.
The Wahl Employment Agreement superseded Mr. Wahl's prior employment
agreement with HMG and released HMG from its obligation to pay Mr. Wahl these
two remaining $125,000 installments and provided for no new inducement
payments. The Board of Directors granted Mr. Wahl options to acquire the
Company's Common Stock in lieu of any such payments (the "Wahl Options").
Although the Board of Directors believed that the Wahl Employment
Agreement was reasonable in the context of both his prior level of
compensation from HMG and those compensation arrangements known to the Board
of Directors to be then in effect between other concerns in the in-store
marketing and merchandising display industry and their respective chief
executive officers, the Board of Directors recognized that in view of the then
existing relationship between the Company and HMG, the terms of the Wahl
Employment Agreement could be viewed as having been arrived at on a non-arms-
length basis. Consequently, the Board of Directors retained William M.
Mercer, Incorporated ("Mercer"), an independent compensation consultant, to
evaluate the reasonableness of both the Wahl Employment Agreement options
granted to Mr. Wahl and the other directors and executive officers of the
Company (collectively, the "Option Grants"). After reviewing Mr. Wahl's
employment arrangements with HMG and the Wahl Employment Agreement, Mercer
rendered a written report to the Board of Directors that the terms of the Wahl
Employment Agreement were reasonable.
In evaluating the reasonableness of the Wahl Employment Agreement, Mercer
considered the present market value of Mr. Wahl's services, as established by
his employment agreement with HMG; cash flow impact on the stockholders of the
Company of the acquisition of the Acquired Companies on a fully diluted basis,
assuming exercise of the Option Grants; and compensation arrangements of chief
executive officers and other senior executives of companies in the point-of-
purchase marketing industry having recently been involved in significant
financial transactions.
In reaching a determination that the Wahl Employment Agreement, inclusive
of Wahl Options, was reasonable, Mercer concluded that the terms of the Wahl
Employment Agreement were not substantially more valuable than those of Mr.
Wahl's employment agreement with HMG. Mercer also concluded that despite the
dilutive impact of the exercise of the Wahl Options, the Company's cash flow
would not be adversely impacted based upon anticipated combined operating
results of the Company and the HMG Companies following the consummation of the
acquisition of the Acquired Companies and that the value of the Wahl
Employment Agreement was comparable to the value of compensation arrangements
for chief executive officers of other companies in the point of purchase
marketing industry.
Prior to this engagement by the Board of Directors to evaluate the Wahl
Employment Agreement and the Option Grants, Mercer had no prior relationship
with the Company or any person associated with the Company.
<PAGE>
Compensation levels afforded to Andrew Wahl, Robert V. Cuddihy, Jr., L.
Randy Riley and to the Company's other executive officers are based in
substantial part upon a comparative evaluation by the Company's Board of
Directors of each such person's functional responsibility and performance in
that particular segment of HMG's operations for which each is responsible and,
where discernable, the profitability of that segment.
During 1994 and 1995, the Board approved the payment of bonuses to a
number of employees, including executive officers. These bonuses were
approved after considering the significant transactions initiated and
consummated by the executive officers on behalf of the Company during the past
two years. The Board noted that the Company's executive officers
accomplishments included the arrangement of acquisition and working capital
financing from its bank lender and the consummation of (i) the acquisition of
the Acquired Companies, (ii) the Saatchi Adjustment, (iii) the underwritten
public offering, (iv) the European Marketing Agreement and (v) the acquisition
of the display operations from Benson Eyecare Corporation and long-term supply
agreement with Benson Eyecare's Foster Grant Group.
March 1, 1996
Michael Wahl - Chairman Herbert F. Kozlov
Andrew Wahl Brett Tollman
Robert V. Cuddihy, Jr. Lawrence J. Twill, Sr.
L. Randy Riley
Performance Graph
The following graph compares the yearly percentage change in the
Company's cumulative total stockholder return on its Common Stock (based on
the market price of the Company's Common Stock) with the cumulative total
return of U.S. companies on The Nasdaq Stock Market and non-financial
companies on The Nasdaq Stock Market.
<TABLE>
1/1/91 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
<S> <C> <C> <C> <C> <C> <C>
HMG Worldwide $100 $150 $ 47 $520 $180 $160
Nasdaq US $100 $161 $187 $215 $210 $296
Nasdaq Non-
Financial $100 $161 $176 $203 $195 $268
</TABLE>
<PAGE>
Compensation Committee Interlocks and Insider Participation
Each member of the Board of Directors participated in the determination
of the level of compensation of the Company's executive officers. Five of
such directors are officers of the Company, i.e., Michael Wahl - Chief
Executive Officer, Andrew Wahl - President, Robert V. Cuddihy, Jr. - Chief
Operating Officer and Chief Financial Officer, L. Randy Riley, Executive Vice
President and Herbert F. Kozlov - Secretary.
Herbert F. Kozlov, a director of the Company, is a member of Parker
Duryee Rosoff & Haft, counsel to HMG. Fees paid to such firm by the Company
for the year ended December 31, 1995 were approximately $142,000.
Lawrence J. Twill, Sr., a director of the Company, is President of
Ashwood Capital. Such firm, from time to time, also serves as an investment
banking advisor to the Company.
<PAGE>
<TABLE>
<CAPTION>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of March 19, 1996 based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each
director of the Company, (ii) certain executive officers of the Company, (iii)
each person known by the Company to be the owner of more than 5% of its
outstanding shares of Common Stock and (iv) all executive officers and
directors as a group:
Name and Address of Number of Approximate
Beneficial Holder Shares(1) Percentage of Class
- ------------------ --------- -------------------
<S> <C> <C>
Michael Wahl(2) 972,875(3) 11.8%
475 Tenth Avenue
New York, NY 10018
Andrew Wahl(2) 575,203(4) 7.2%
475 Tenth Avenue
New York, NY 10018
Robert V. Cuddihy, Jr. 177,808(5) 2.3%
475 Tenth Avenue
New York, NY 10018
Herbert F. Kozlov 132,976(6) 1.7%
529 Fifth Avenue
New York, NY 10017
L. Randy Riley 49,133(9) 1.0%
475 Tenth Avenue
New York, NY 10018
Brett Tollman 24,400(7) (13)
Tollman-Hundley Hotels
12 East 49th Street, 24th Floor
New York, NY 10017
Lawrence J. Twill, Sr. 36,150(8) (13)
111 East 30th Street (16A)
New York, NY 10016
Gilmour 1994 Jersey Trust 972,222(10,11) 12.8%
7 Bond Street
St. Helier
Jersey, Channel Island
State of Wisconsin
Investment Board 740,000 9.8%
P.O. Box 7842
Madison, WI 53707
All executive officers 1,968,545(12) 22.0%
and directors as a group
(7 persons)
</TABLE>
<PAGE>
(1) Includes shares issuable pursuant to currently exercisable options and
options which will be exercisable within 60 days of March 20, 1995.
Except as otherwise indicated, the persons named herein have sole voting
and disposition power with respect to the shares beneficially owned.
(2) In connection with the term loan used to retire the Acquisition note.
Michael Wahl and Andrew Wahl have agreed to restrictions upon the
disposition of shares of the Company's Common Stock owned by them.
(3) Includes 644,400 shares issuable upon exercise of options.
(4) Includes 376,750 shares issuable upon exercise of options.
(5) Includes 153,850 shares issuable upon exercise of options.
(6) Includes 115,100 shares issuable upon exercise of options.
(7) Includes 24,400 shares issuable upon exercise of options.
(8) Includes 25,400 shares issuable upon exercise of options.
(9) Includes 40,400 shares issuable upon exercise of options.
(10) The trustee of the Gilmour 1994 Jersey Trust (the "Trust") is Hill
Samuel (Channel Islands) Trust Company Limited. The directors of the
trustee have indirect shared voting and dispositive powers with
respect to such shares.
(11) Does not include 35,000 shares beneficially owned by David Harrison
Gilmour, a primary beneficiary of the Trust, and 100,002 shares
beneficially owned by Mr. Gilmour's spouse.
(12) Includes 1,385,660 shares issuable upon exercise of options owned by
such executive officers and directors.
(13) Less than one percent.
Item 13. Certain Relationships and Related Transactions.
In 1994, the Company advanced $250,000 to Robert V. Cuddihy, Jr., an
officer and Director. Such amount is due to be repaid in one installment due
December 31, 1997. Unpaid amounts bear interest at a fluctuating rate equal
to the six months U.S. Treasury bill rate. In 1995, Messr. Cuddihy made a
prepayment of $66,422 plus accrued interest. At December 31, 1995, the unpaid
balance of such advance was $183,578.
In 1995, the Company advanced $100,000 to Andrew Wahl, an officer and
Director. Such amount is due to be repaid in one installment due January 1,
1997. Unpaid amounts bear interest at a fluctuating rate equal to the six
months U.S. Treasury bill rate. In 1995, Messr. Wahl made a prepayment of
$25,000. At December 31, 1995, the unpaid balance of such advance was $75,000.
Herbert F. Kozlov, a director of the Company, is a member of Parker
Duryee Rosoff & Haft, counsel to the Company. Fees paid to such firm by the
Company for the year ended December 31, 1995 were approximately $142,000.
Lawrence J. Twill, Sr., a director of the Company, is President of
Ashwood Capital. Such firm, from time to time, also serves as an investment
banking advisor to the Company.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements. See Index to Consolidated Financial
Statements in Item 8 hereof.
(2) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts and Reserves
(3) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
3(a) Certificate of Incorporation, as amended (6)
(b) By-laws(1)
10(a) 1986 Stock Option Plan(1)*
(b) 1991 Stock Option Plan(2)*
(c) 1993 Stock Option Plan(3)*
(d) Lease between Seymour M. Klein, Trustee under Will of Louis Adler,
Deceased, and Registrant, dated as of February 1, 1987(4)
(e) Lease between Seymour M. Klein, Trustee under Will of Louis Adler,
Deceased, and Registrant, dated as of September 30, 1987(4)
(f) Agreement between Louis Adler Realty Company and Registrant, dated
December 16, 1993, for the lease of the 12th Floor at 475 Tenth
Avenue, New York, New York(6)
(g) Agreement between Louis Adler Realty Company and Registrant, dated
December 16, 1993, for the lease of the 8th Floor at 475 Tenth
Avenue, New York, New York(6)
(h) Surrender of Lease between Louis Adler Realty Company and
Registrant, dated December 16, 1993, for the lease termination of the
9th Floor at 475 Tenth Avenue, New York, New York(6)
(i) Stock Purchase Agreement between Ingleby Communication Corporation
and Registrant, dated January 2, 1990(5)
(j) IBM Assistance Agreement, dated November 6, 1990, between
Electronic Voting Systems, Inc. and International Business Machines
Corporation(6)
(k) Purchase and Exchange Agreement, dated as of April 30, 1993, by and
among Saatchi & Saatchi Company PLC, a corporation organized under
the laws of England, Saatchi & Saatchi Marketing Services Group,
Inc., a Delaware corporation, Saatchi & Saatchi Advertising B.V., a
corporation organized under the laws of the Netherlands, and
Registrant(3)
(l) Supplement, dated as of August 20, 1993, to Purchase and Exchange
Agreement dated as of April 30, 1993 by and among Saatchi & Saatchi
Company PLC, a corporation organized under the laws of England,
Saatchi & Saatchi Marketing Services Group, Inc., a Delaware
corporation, Saatchi & Saatchi Advertising B.V., a corporation
organized under the laws of the Netherlands, and Registrant(3)
(m) Employment Agreement, dated April 30, 1993, between Registrant,
Marlboro Marketing, Inc., a New York corporation, and Michael
Wahl(3)*
(n) Revolving Credit Agreement between IBJ Schroder Bank and Trust
Company and Registrant, dated October 1, 1993(6)
(o) Amendment No. 1 to Revolving Credit Agreement between IBJ Schroder
Bank and Trust Company and Registrant, dated March 31, 1994(6)
(p) Term Loan Agreement between IBJ Schroder Bank and Trust Company and
Registrant, dated March 31, 1994(6)
(q) 1994 Stock Option Plan (7)*
(r) Stock Purchase Agreement, dated as of September 30, 1995, between
Benson Eyecare Corporation and Intermark Corp.
(s) Display Purchase Agreement, dated as of September 30, 1995, between
HMG Worldwide In-Store Marketing, Inc. and Foster Grant L.P. and
Benson Eyecare Corporation
<PAGE>
(t) Marketing Support and Equipment Sale Agreement, dated as of October 1,
1995, between Turbo Screen B.V., Tchai Holdings B.V., HMG Europe B.V.
and HMG Worldwide In-Store Marketing, Inc.
21 Subsidiaries of the Registrant (6)
23 Consents of Friedman Alpren & Green LLP
27 Financial Data Schedule
(b) Registrant did not file any reports on Form 8-K during the last quarter
of the period ended December 31, 1995.
(1) Denotes document filed as an exhibit to Registrant's Proxy Statement,
dated November 25, 1986, and incorporated herein by reference.
(2) Denotes document filed as an exhibit to Registrant's Proxy Statement,
dated February 7, 1992, and incorporated herein by reference.
(3) Denotes document filed as an exhibit to Registrant's Proxy Statement,
dated September 7, 1993, and incorporated herein by reference.
(4) Denotes document filed as an exhibit to Registrant's Registration
Statement on Form S-1 (File No. 33-12728) and incorporated herein by
reference.
(5) Denotes document filed as an exhibit to Registrant's Current Report on
Form 8-K, dated January 2, 1990, and incorporated herein by reference.
(6) Denotes document filed as an exhibit to Registrant's Registration
Statement on Form S-2 dated August 9, 1994 (File No. 33-44832) and
incorporated herein by reference.
(7) Denotes document filed as an exhibit to Registrant's Proxy Statement,
dated October 21, 1994.
* Management contract or compensatory plan or arrangement
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HMG WORLDWIDE CORPORATION
Date: March 29, 1996 By:/s/Robert V. Cuddihy, Jr.
----------------------------
Robert V. Cuddihy, Jr.
Chief Operating Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated:
/s/Michael Wahl
- ------------------------
Michael Wahl Chairman of the March 29, 1996
Board and Chief
Executive Officer
/s/Andrew Wahl
- ------------------------
Andrew Wahl President and March 29, 1996
Director
/s/Robert V. Cuddihy, Jr.
- -------------------------
Robert V. Cuddihy, Jr. Chief Operating March 29, 1996
Officer, Chief
Financial Officer
and Director
/s/L. Randy Riley
- -------------------------
L. Randy Riley Executive Vice March 29, 1996
President
/s/Herbert F. Kozlov
- -------------------------
Herbert F. Kozlov Director March 29, 1996
/s/ Brett Tollman
- -------------------------
Brett Tollman Director March 29, 1996
/s/Lawrence J. Twill, Sr.
- -------------------------
Lawrence J. Twill, Sr. Director March 29, 1996
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed as part of this Report:
PAGE
Independent Auditors' Report A-2
Schedule II - Valuation and Qualifying
Accounts and Reserves A-3
Schedules other than those listed are omitted as not required or applicable.
A-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
HMG WORLDWIDE CORPORATION
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in HMG WORLDWIDE CORPORATION'S
annual report to shareholders in this FORM 10-K, and have issued our report
thereon dated March 26, 1996. Our audits were made for the purpose of forming
an opinion on those statements taken as a whole. The schedules listed in the
index above are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
FRIEDMAN ALPREN & GREEN LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 26, 1996
A-2
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Additions/
Deductions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts Deductions(a) of Period
--------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1995:
Allowance for
doubtful accounts $773 ($ 47) $ - ($130) $596
==== ==== ==== ==== ====
Year ended
December 31, 1994:
Allowance for
doubtful accounts $518 $265 $ - ($ 10) $773
==== ==== ==== ==== ====
Year ended
December 31, 1993:
Allowance for
doubtful accounts $178 $ - $350 (b) ($ 10) $518
==== ==== ==== ==== ====
(a) Specified write-off of accounts receivable.
(b) Amount represents the fair market value of the allowance for uncollectible
accounts of the Acquired Companies at October 1, 1993.
A-3
</TABLE>
<PAGE>
Exhibit 10(r)
---------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
BENSON EYECARE CORPORATION
AND
INTERMARK CORP.
with respect to the sale and purchase of all of the
Capital Stock of HMG Pennsylvania Corp.
---------------------------------------------
September 30, 1995
---------------------------------------------
---------------------------------------------
---------------------------------------------
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of the 30th day of
September,1995 by and between BENSON EYECARE CORPORATION, a Delaware
corporation ("Benson") and INTERMARK CORP.,a New York corporation
("Purchaser"), a subsidiary of HMG Worldwide Corporation ("HMG").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Benson owns an aggregate of ten thousand (10,000)
shares of the Common Stock, par value $1.00 per share of HMG Pennsylvania
Corp., a Texas corporation (the "Company"), which constitutes all of the
issued and outstanding shares of the capital stock of the Company (the
"Shares"), the business that is to remain in the Company being the
manufacture and sale of product displays (the "Business"), and the other
business which is to be transferred to Benson at or prior to the Closing
being a missile nose cone polishing business (the "Transferred Business");
and
WHEREAS, Benson desires to sell to Purchaser, and Purchaser
desires to acquire from Benson, all of the Shares, on the terms and
subject to the conditions (including, without limitation, Benson's
retention of specified assets and assumption of specified liabilities of
the Company associated with the operations of the Company prior to the
Closing Date hereinafter referred to) set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1.Purchase of Shares. At the Closing (as defined
herein), Benson shall sell to Purchaser, and Purchaser shall purchase
from Benson, the Shares. The certificates representing the Shares shall
be transferred and delivered to Purchaser duly endorsed in blank or
accompanied by duly executed stock powers against payment of the Purchase
Price (as defined below).
2.Purchase Price
(1)Consideration. The agreed total
consideration for the Shares shall be Ten Dollars ($10.00) (the "Purchase
Price") and certain other consideration as set forth herein.
(2)Payment of Purchase Price. The cash
portion of the Purchase Price shall be paid in cash by the Purchaser to
Benson at the Closing.
3.Representations and Warranties of Benson. Benson
hereby represents and warrants to Purchaser as follows:
(1)Ownership of Shares; Liens. Benson is the
record owner and holder of the Shares, which Shares represent all of the
issued and outstanding capital stock of the Company. The Shares are duly
authorized, validly issued, fully paid and nonassessable. The Shares are
owned by Benson free and clear of all liens, encumbrances, claims,
charges or interests of others, and are subject to no restrictions with
respect to transferability. Benson has full power and authority to
transfer to Purchaser the Shares, in accordance with the terms and
conditions of this Agreement. At Closing, Benson will convey to
Purchaser good and valid title to the Shares, free and clear of all
liens, encumbrances, claims, charges or interests of others.
(2)Existence and Good Standing. The Company
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas, with all requisite power and
authority to own, operate and lease its properties and to carry on its
Business as and where it is now being conducted. The Company is
qualified to do business and is in good standing in each jurisdiction in
which such qualification is necessary, except in those jurisdictions
where the failure to so qualify would not have a material adverse effect
on the Company.
(3)Capitalization. The authorized capital
stock of the Company consists of one million (1,000,000) shares of Common
Stock, par value $1.00 per share, of which ten thousand (10,000) shares
are issued and outstanding.
(4)Rights, Warrants, Options. There are no
outstanding (a) securities or instruments convertible into or exercisable
for any of the capital stock or other equity interests of the Company;
(b) options, warrants, subscriptions or other rights to acquire capital
stock or other equity interests of the Company; or (c) commitments,
agreements or understandings of any kind, including employee benefit
arrangements, relating to the issuance or repurchase by the Company of
any capital stock or other equity interests of the Company, any such
securities or instruments convertible or exercisable for securities or
any such options, warrants or rights.
(5)Authority and Enforceability. Benson is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. Benson has the corporate power, and
is duly authorized by all necessary corporate action, to execute and
deliver this Agreement and to assume and perform its obligations
hereunder. This Agreement and the Display Purchase Agreement are valid
and binding agreements of Benson and Foster Grant Group, L.P. enforceable
in accordance with their terms, except to the extent that its enforcement
is limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the enforcement of creditors'
rights generally and by general principles of equity. The execution and
delivery of this Agreement by Benson does not, and the performance of its
obligations hereunder shall not (with or without the giving of notice or
the lapse of time or both), (a) violate or conflict with any provision of
its Restated Certificate of Incorporation or By-laws; (b) except as set
forth on Schedule 3.5, violate in any material respect any agreement,
instrument, obligation or any judgment, order, writ or decree, applicable
to Benson; or (c) to the best of Benson's knowledge, and except as set
forth on Schedule 3.5, violate or require the consent, authorization,
approval of, or exemption by or filing with any governmental, public or
regulatory body or authority.
(6)Balance Sheet and Tangible Assets, Liabilities.
(a)Attached hereto as Schedule 3.6 is a true and
complete copy of the Company's unaudited adjusted balance sheet dated
August 31, 1995 (the "Balance Sheet"). The Balance Sheet has been
prepared in accordance with accounting principles consistently applied in
prior periods. At August 31, 1995, the Company owned the physical assets
(excluding book intangibles) reflected on the Balance Sheet (the "Net
Tangible Assets"), and will own such Assets on the Closing Date, free of
any undisclosed liens or encumbrances, subject to changes in the Net
Tangible Assets which (i) have occurred in the ordinary course of
business of the Business since August 31, 1995 and, (ii) which ordinary
course changes will not be material in kind or amount. The accounts
payable reflected on such Balance Sheet relate to Net Tangible Assets.
Benson makes no representation or warranty concerning the fair market
value of any of the assets represented on the Balance Sheet.
(b)It is understood and agreed that the Balance Sheet
has been adjusted to delete certain assets relating to the Transferred
Business and liabilities to iabilities to Benson or its designee on or
prior to the Closing Date (the "Transferred Liabilities").
(c)Since August 31, 1995, Benson has operated the
Business in the ordinary course, consistent with past practices, except
for matters related to this transaction.
(d)Closing Balance Sheet. Within fourty-five (45) days
following the Closing, Benson shall deliver to Purchaser a closing
adjusted balance sheet, dated as of September 30, 1995, which closing
adjusted balance sheet shall be true and complete and prepared in
accordance with accounting principals consistently applied in prior
periods. Such closing adjusted balance sheet shall, among other things,
accurately reflect the changes from the August 31, 1995 Balance Sheet.
Purchsaer shall thereupon have a thirty (30) day period in which to
review said closing adjusted balance sheet and report any disagreements
with respect thereto to Benson. If, within thirty (30) days thereafter
Benson and Purchaser have not reached agreement with respect to the
closing adjusted balance sheet, either party may refer said disagreement
to binding arbitration, in accordance with the provisions of Sectuion
8.15 hereof. Benson shall indemnify and hold harmless Purchaser from and
against any adverse changes from the August 31, 1995 Balance Sheet to the
closing adjusted balance sheet not in the ordinary course of business or
made pursuant to this agreement.
(7)Charter, By-laws and Corporate Records. A
true and complete copy of (a) the Certificate of Incorporation of the
Company as amended and in effect on the date hereof, (b) the By-laws of
the Company, as amended and in effect on the date hereof, and (c) the
minute books(s) of the Company have been previously made available to
Purchaser. Such minute books contain complete and accurante records of
all meetings and other corporate actions of the board of directors,
commttees of the board of directors and stockholders of the Company from
June 30, 1993 to the date hereof.
(8)Real Property. Other than as set forth on
Schecule 3.8 (the "Owned Property"), the Company does not own any fee
simple interest in real property. In addition, the Company does not
lease or sublease any real property other than as set forth on Schedule
3.8.
(9)No Litigation. Except as set forth in
Schedule 3.9, no suit, action or to the best of knowledge of Benson,
legal, administrative arbitration or other proceeding or investigation by
any federal, state, local or other governmental agency is now bending or,
to the best knowledge of Benson, threatened against the Company, which,
if decided adversely, would have a material adverse effect on the
Business. It is understood and agreed that Benson will retain al
liability and responsibility for all pending and threatened litigation in
existence as of the date hereof. Without limiting the generality of the
foregoing, Benson shall continue to control all pending litigation
disclosed in such Schedule 9 and shall fully indemnify Purchaser and the
Company from and against any loss, damage, liability, claim or other
expense related thereto or arising therefrom, pursuant to the provisions
of Section 7 hereinbelow. The Purchaser and the Company, and their
officers, directors, employees, agents and representatives shall
cooperaate with and provide documents and other assistance to Benson to
the extent reasonably required in connection with any such litigation;
the Purchaser's and the Company's out-of-pocket expenses incurred in
connection with providing such cooperation and assitance shall be
reimbursed by Benson.
(10)Intellectual Property. Schedule 3.10
hereto sets forth all material trademarks, service marks, copyrights,
patents and tradenames (or licenses thereof or thereto) which are owned
or used by the Company in the operation of the Business.
(11)Broker's or Finder's Fee. Benson has not
engaged, given consent to or authorized any broker, investment banker or
third party to act on Benson's or the Company's behalf, as a broker or
finder in connection with the transactions contemplated by this
Agreement, nor has it taken any action which would cause anyone to become
entitled to compensation as a result of the transactions contemplated by
this Agreement.
(12)List of Bank Accounts. Set forth on Schedule 3.12
is: (a) the name and address of each bank or other institution in which
the Company maintains an account (cash, securities or other) and (b) the
account number of the relevant account. The Purchaser, however,
acknowledges that it is not receiving as part of this transaction any of
the cash on hand in the Company's bank accounts on or prior to the Closing
Date and it is understood and agreed that Purchaser and Company will not
be responsible for any overdrafts.
(13)No Undisclosed Liabilities.
(a)Other than as set forth in the Balance Sheet or any
of the Schedules hereto, and excluding any liabilities which Seller has
agreed to retain and indemnify purchaser with respect, to there are no
material liabilities (whether absolute, accrued, contingent, or otherwise)
of the Business or the Company required by generally accepted accounting
principles to be set forth on a current balance sheet (except those
liabilities incurred in the ordinary course of the Business, consistent
with past practices, since the date of the Balance Sheet).
(b)In addition, Benson has
disclosed to Purchaser all obligations, liabilities, claims and
circumstances concerning the Company, the Business and the Company's
assets which could give rise to any cost, claim, liability or expense in
excess of $100,000 in the aggregate.
(14)Taxes. All federal, state and local tax
returns of the Company and reports that were required to have been filed
by the Company(which if not filed could materially adversely affect
Purchaser's operations of the Company's Business), have been filed (or
caused to be filed or an extension for filing has been requested) and,
except as described in Schedule 3.14, all taxes due and payable by the
Company with respect to such returns and reports and with respect to
operations through the date hereof have been paid in full or will be paid
in full. All taxes due or payable through and including the Closing
Date, and all claims for refunds arising with respect to any taxes
payable or paid through and including the Closing Date, shall be for the
account of Benson.
(15)Permits and Licenses. The Company has all
material permits, licenses and other authorizations necessary for the
conduct of its Business as currently conducted, except for any permits,
licenses and other authorizations, the failure to obtain of which would
not have a material adverse effect on the Business of the Company. All
such licenses, permits and franchises are valid and in full force and
effect and Benson, to the extent required by this Agreement, shall use
its best efforts so that Purchaser shall receive full benefit of such
licenses, permits and franchises.
(16)Material Contracts.
(a)Schedule 3.16 (and, to the
extent applicable hereto, Schedules 3.8, 3.18 and/or 3.22) sets forth an
accurate and complete list of all material contracts to which the Company
is a party and relating to the Business or by which it or any of the
Business's assets is bound, pursuant to which any party is required to
pay to the other cash or other property in an aggregate amount exceeding
Fifty Thousand Dollars ($50,000.00) or to perform services of a value
exceeding Fifty Thousand Dollars ($50,000.00) in the aggregate. Each
such contract is in full force and effect, and, except as set forth in
Schedule 3.16, there exists no material event of default or material
event, occurrence, condition or act which, with the giving of notice, the
lapse of time or the happening of any other event or condition would
become a material default thereunder. The Company has not violated in
any material respect any of the terms or conditions of any such contract.
(b)The aggregate amount of all
contracts of the Company not disclosed in the Schedules annexed hereto
(excluding any contracts assigned or transferred to Benson as part of the
Transferred Business) does not exceed $100,000.
(17)Subsidiaries. The Company owns no capital
stock or other proprietary interest in any other entity.
(18)Employee Relations. Except as set forth on
Schedule 3.18, there are no labor strikes or labor grievances now pending
against the Company, relating to the operation of the Business. Except
as set forth on Schedule 3.18, the Company (i) is not a party to or bound
by an agreement to continue the employment of any employee and (ii) is
not subject to any collective bargaining agreement relating to any
employees. The union contract set forth in such Schedule 3.18 is
currently in full force and effect, having been renewed for a three (3)
year term according to its terms and conditions.
(19)Personal Property. Except as set forth on
Schedule 3.19, the Company has good and valid title to all personal
property, tangible and intangible owned by it and reflected on the
Balance Sheet, free and clear of all security interests, liens,
encumbrances, mortgages, pledges, leases, defects in title, restrictions
and other burdens except as set forth in Schedule 3.19 (or in Schedule
3.16, with respect to leased equipment) (other than security interests,
liens, encumbrances and other burdens relating to individual items of
personal property having an individual value of less than $10,000 and an
aggregate value of less than $25,000). All material tangible property
used in the operation of the Business is in satisfactory condition,
subject to normal wear and tear.
(20)Insurance. The Company (or Benson on
behalf of the Company) maintains adequate property and casualty insurance
on its tangible assets and liability insurance with respect to its
Business. All policies providing such insurance are listed in Schedule
3.20 and are in full force and effect and will remain in full force and
effect to the Closing Date. Notwithstanding anything contained in this
Agreement to the contrary, Purchaser shall not acquire, and the Company
shall not acquire or retain, any right, title, or interest in, to or
under any such insurance policies which are maintained by Benson.
(21)Environmental Matters.
(a)For the purposes of this Agreement, an
"Environmental Obligation" shall mean any condition, circumstance or
activity that has existed or that currently exists as of the Closing, with
respect to the Company, the Business or the Company's properties and/or
real estate that would subject the Company or the Purchaser to any cost,
expense, damages, claims, civil or criminal liability, injunctive relief,
penalty or obligation under any federal, state or local environmental or
public health and safety law, regulation, order, permit, license or
directive arising out of the handling, generation, treatment, storage,
disposal, transport, release, discharge, spill or emission of any
hazardous or toxic substances or wastes, pollutants, or contaminants.
(b)Except as disclosed in Schedule 3.21, to the best of
Benson's knowledge, no Environmental Obligations have existed since June
30, 1993 or currently exist.
(c)The Company holds all material permits, licenses,
consents, authorizations, approvals, privileges, waivers, exemptions,
orders (inclusionary or exclusionary) or other concessions required under
any federal, state or local law, rule or egulation which is material in
connection with the ownership or operation of the Company, the Business or
the Company's properties and the failure of which to obtain would have a
material adverse effect on the Company or the Business.
(d)Notwithstanding anything contained in this Agreement
to the contrary, Benson hereby agrees, for a six (6) year period
commencing on the Closing Date, as between Benson, on the one hand, and
Purchaser or the Company, on the other hand, to indemnify and hold the
Purchaser and the Company harmless from and against any loss, damage,
cost, liability, claim or other expense related to or arising from any
Environmental Obligation pursuant to the provisions of Section 7
hereinbelow; provided however, that the foregoing indemnity shall not
apply to any costs or expenses incurred in remediating or abating an
Environmental Obligation where such costs of remediation or abatement are
triggered by any Voluntary Construction. For purposes of this section
3.21(d), "Voluntary Construction" shall mean any modification, alteration,
remodeling, renovation, new construction or expansion of the Company's
facilities which is voluntarily undertaken by or on behalf of the Company
and (i) is not undertaken to comply with any law, regulation, ordinance,
statute, permit or license, or (ii) is not undertaken to repair or rebuild
any property which is damaged as a consequence of any casualty, accident
or deterioration which deterioration reasonably requires repair.
(e)For a period of six (6) years commencing on the
Closing Date, the Company shall allow Benson, at Benson's sole cost to
conduct periodic inspections ("Environmental Inspections") of the
Company's properties and real estate for the purpose of determining
whether any additional reasonable remediation or maintenance is required
or advisable in order to reduce the likelihood of any claims arising as a
consequence of any Environmental Obligation ("Additional Environmental
Maintenance"). Said inspections shall be conducted no more frequently
than two times in each calendar year, on ten(10) business days prior
notice, at a time mutually convenient to the Company and the inspector,
and shall be conducted by a qualified engineer or other expert. The
results of any such inspection shall be reported in writing to both the
Company and Benson. Benson and the inspector selected by Benson agree or
will agree to keep the results of such inspection confidential and not to
disclose the results thereof to any third party without the Company's
prior written consent. Benson shall have the right to perform any
Environmental Maintenance recommended by such inspector, subject to the
Company's consent, which will not be unreasonably withheld, at Benson's
sole cost and expense, provided that such maintenance (i) is performed by
an entity qualified to do so who maintains all necessary licenses or
permits and appropriate insurance; (ii) is performed at a time reasonably
convenient to the Company; and (iii) does not interfere unreasonably with
the Company's use and enjoyment of the property.
(f)The Purchaser agrees that the first $10,000 per
annum of Additional Environmental Maintenance expenses (whether resulting
from an Environmental Inspection or otherwise) shall be borne by the
Purchaser.
(22)Employee Benefit Plans.
(a)Schedule 3.22 sets forth a list of all pension,
retirement, profit sharing, savings, medical, disability, hospitalization,
deferred compensation, or group insurance contracts or plans maintained by
the Company for any of its employees (the "Company Plans"). Except as set
forth on Schedule 3.22, none of the Company Plans are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(b)Also listed in Schedule 3.22 are certain benefit
plans maintained by Benson and offered to participating employees of
Benson and its subsidiaries generally (the "Benson Plans"), e.g., Benson's
401(k) Savings Plan. It is understood and agreed that neither Purchaser
nor the Company shall assume or retain any responsibility or liability for
the sponsorship of, or any other liability or obligation relating to, any
of the Benson Plans, other than payment obligations related thereto and
reflected on the Balance Sheet or arising after the date thereof through
the Closing Date in an amount which is not material. It is understood and
agreed that the Company's employees currently participating in any such
Benson Plans will, upon the Closing Date, cease to participate in such
Benson Plans except to the extent expressly provided in any such Benson
Plan or under applicable law, and the Company shall on the Closing Date
cease to be a participating employer under such Benson Plans.
(23)Customers. Other than the fact that the Company
and the Purchaser have had a customer/supplier arrangement which will
change as a result of the transactions contemplated hereby, neither the
Company nor Benson knows, and has no reason to believe, that either as a
result of the transactions contemplated hereby or for any other reason
(exclusive of expiration of the term of a contract upon the passage of
time), any present customer or supplier of the Company material
(individually or in the aggregate) to the Business will not continue to
conduct business with the Company after the Closing Date in substantially
the same manner as it has conducted business with the Company in the past.
(24)Absence of Certain Changes or Events. Other than
the changes in the relationships among the Purchaser, the Company and
Foster Grant Group, L.P. ("FGG") which are contemplated by this Agreement,
since December 31, 1994 there has not been any material change in the
Business or the Company's contractual relationship with any customer or
supplier which might reasonably be expected to materially and adversely
affect the prospects of the Company.
(25)No Known Impediment. Benson is not a party to or
bound by any agreement, judgment or contractual or other restriction and
is not aware of any other circumstance or condition, which would preclude
the Company from continuing to operate the Business in the same manner as
it traditionally has, after ownership of all the capital stock of the
Company is transferred to the Purchaser by Benson.
(26)Completeness of Information. The information,
exhibits and reports furnished in writing by Benson or on its behalf to
the Purchaser in connection with the negotiation, preparation, delivery
and closing of this Agreement are true and correct in all material
respects, do not contain any material misstatements of fact or omit any
statements of fact necessary to make the statements contained therein not
misleading or incomplete in any material respect.
4.Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants to Benson as follows:
(1)Existence and Good Standing. Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of New York with all requisite power and authority
to own, operate and lease its properties and to carry on its business as
and where it is now being conducted and Purchaser is in good standing in
each jurisdiction in which such qualification is necessary, except in
those jurisdictions where the failure to so qualify would not have a
material adverse effect on the Purchaser's ability to enter into and
consummate this Agreement and purchase the Shares.
(2)Authority and Enforceability. Purchaser has the
corporate power, and is duly authorized by all necessary corporate action,
to execute and deliver this Agreement and the Note (as hereinafter
defined) and to assume and perform its obligations hereunder and under the
Note. This Agreement and the Note are valid and binding agreements of
Purchaser enforceable in accordance with their respective terms, except to
the extent that such enforcement is limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the enforcement of creditors' rights generally and by general principles
of equity. The execution and delivery of this Agreement and the Note do
not, and the performance by Purchaser of its obligations hereunder and
thereunder, shall not (with or without the giving of notice or the lapse
of time or both), except as set forth in Schedule 4.2,(a) violate or
conflict with any provision of its Certificate of Incorporation or By-
laws; (b) violate in any material respect any material agreement, material
instrument, material obligation or any judgment, order, writ or decree
applicable to Purchaser; or (c) to the best of Purchaser's knowledge,
violate or require the consent, authorization, approval of, or exemption
by or filing with any governmental, public or regulatory body or
authority.
(3)No Litigation. No suit, action or legal,
administrative, arbitration or other proceeding or investigation by any
federal, state, local or other governmental agency is now pending or, to
the knowledge of Purchaser, threatened or likely against Purchaser, which
seeks to prevent or impair the consummation of the transactions
contemplated by this Agreement.
(4)Broker's or Finder's Fee. Purchaser has not banker
or third party to act on Purchaser's behalf, as a broker or finder in
connection with the transactions contemplated by this Agreement, nor has
Purchaser taken any action which would cause any such party to become
entitled to compensation as a result of the transactions contemplated by
this Agreement.
(5)Purchase for Investment. Purchaser is acquiring the
Shares for investment and not with a view to the distribution or resale
thereof.
(6)Independent Investigation. The Purchaser has made
its own independent due diligence investigation of the condition of the
Company and the Company's assets, financial and otherwise,and is not
relying on any representations (other than those contained in this
Agreement) by Benson in regard to the purchase of the Shares.
(7)No Reliance. In acquiring the Shares and operating
the Business of the Company after such acquisition, the Purchaser will not
be relying upon the efforts of Benson or any of its affiliates (other than
the obligations of Benson or any of its affiliates specifically set forth
in this Agreement or the Display Purchase Agreement referred to in Section
6.1).
5.Closing.
(1)Closing. The closing of the sale and purchase of
the Shares shall be held at the offices of Parker Duryee Rosoff & Haft,
529 Fifth Avenue, New York, New York 10017 on or before October 30, 1995,
(the "Closing Date"), or on such other date and at such other place and
time as may be mutually agreed upon by the parties (the "Closing"). All
events to occur, payments to be made and documents to be delivered at the
Closing shall be deemed to have occurred, been made or delivered as of
September 30, 1995 (the "Effective Date") and none shall be deemed to have
occurred, been made or delivered until all have occurred, been made and
delivered.
(2)Documents to be Delivered by Benson. At the
Closing, Benson shall deliver to Purchaser the following documents, among
others:
(a)a certificate evidencing the Shares, duly endorsed
in blank or accompanied by a duly executed stock
power;
(b)certificates of the Secretaries of State of the
States of Delaware and Texas, respectively, dated within fifteen (15) days
of the Closing Date, certifying that Benson and the Company, respectively,
are corporations existing under the laws of the States of Delaware and
Texas and are in good standing;
(c)written resignations, effective as of the Closing
Date, of such directors and officers of the Company as Purchaser may
request;
(d)the corporate minute book(s) and the stock transfer
ledger of the Company, complete and up to date in all material respects;
(e)a Certificate of the Secretary of Benson setting
forth a copy of the resolutions adopted by Benson's Board of Directors
authorizing and approving the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby;
(f)an Instrument of Transfer and Assumption with
respect to the Transferred Liabilities, substantially in the form of
Schedule 5.2(f) hereto;
(g)an itemized listing of the accounts payable
described in the Balance Sheet;
(h)a listing of all employees of the Company engaged in
the Transferred Business, which employees are being transferred to the
employ of Benson or its designee as of the Closing Date;
(i)the Display Purchase Agreement referred to in
Section 6.1; and
(j)such other documents of transfer, certificates and
other documents as Purchaser may have reasonably requested.
(3)Documents to be Delivered by Purchaser. At the
Closing, Purchaser shall deliver to Benson the following:
(a)payment of the Purchase Price in accordance with the
terms of Section 2 hereof;
(b)a Certificate of the Secretary of State of the State
of New York, dated within fifteen (15) days prior to the date hereof
certifying that the Purchaser is a corporation existing under the laws of
the State of New York;
(c)a Certificate of the Secretary of the Purchaser
setting forth a copy of the resolutions adopted by the Purchaser's Board
of Directors, authorizing and approving the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;
(d)the Note defined in Section 6.2, below;
(e)such other documents and certificates as Benson may
have reasonably requested; and
(f) the Display Purchase Agreement referred to in
Section 6.1.
(4)Closing Procedure. All actions to be taken, all
deliveries to be made, and all documents to be executed and delivered at
the Closing shall be deemed to have been taken, made and delivered
simultaneously. Notwithstanding the foregoing or anything contained in
this Agreement to the contrary, upon completion of the Closing and
satisfaction or waiver of the condition subsequent set forth in and
pursuant to Section 6.5, (a) all transactions contemplated by this
Agreement shall be deemed effectively to have occurred as of the
Effective Date, (b) for financial accounting purposes all profits and
losses of the Business shall be deemed to have been incurred for the
account of the Purchaser and the Company after the Effective Date, and
(c) for financial accounting purposes the Purchaser shall be deemed to
have possessed effective operational control of the Business from the
Effective Date, without restriction. Notwithstanding the foregoing, any
operating cash loss of the Business during the period between the
Effective Date and the December 31, 1995 shall be for the account of
Benson, and appropriate payment by Benson to reflect any such loss shall
be made no later than March 1, 1996.
6.Additional Covenants and Agreements.
(1)Display Purchases. The parties agree to execute and
deliver (or in the case of Benson, to cause its affiliated entity, Foster
Grant Group, L.P. ("FGG") to execute and deliver) at Closing a Display
Purchase Agreement in the form attached hereto as Schedule 6.1.
(2)Loan Funding. Benson hereby agrees to deposit with
HMG Worldwide Corporation One Million Dollars ($1,000,000) (the "Deposit")
at Closing. The Deposit shall be held without interest and shall
constitute a downpayment against shipments delivered by Purchaser and/or
the Company under the Display Purchase Agreement described in Section 6.1,
and shall be applied, dollar for dollar, against the first twenty-five
percent (25%) of the total shipment invoice for each shipment invoiced
during the first contract period of such Display Purchase Agreement, and
the balance of the remaining principal of the Deposit (if any) shall be
repaid by HMG Worldwide Corporation by October 31, 1996. Repayment of the
Deposit by Purchaser, to the extent not so applied, shall be evidenced by
a promissory note in the form attached hereto as Schedule 6.2 (the
"Note"). Any failure to apply the Deposit as stated herein or otherwise
to repay this Deposit or any portion thereof shall constitute a default
under the Display Purchase Agreement described in Section 6.1, and upon
the occurrence of any such event and failure to cure within two (2) days
after notice thereof FGG may terminate and cancel such agreement
immediately without further notice. Provided, however, that if a dispute
exists as to the calculation of the balance due on such note, no default
shall have occurred thereunder unless and until such dispute has been
finally determined by arbitration in accordince with '8.15 hereof and HMG
Worldwide Corporation shall have failed to cure within two (2) days after
receipt of the arbitrator's decision.
(3)Non-Competition.
(a)In consideration of the sale of the Shares to the
Purchaser, Benson agrees with the Purchaser that for a period of five (5)
years from the Closing Date it shall not, directly or indirectly, in any
capacity, including that of owner, partner, consultant or shareholder,
without the prior consent of the Purchaser, engage in, own, manage,
operate, control or participate in the ownership, management, operation or
control of, or be connected in any manner with any business, the primary
business of which is the manufacture or sale of product displays and which
is directly competitive with the Business; it being understood that
ownership, for investment purposes only, of no more than 5% of any class
of equity securities of any public company shall not constitute a
violation of this undertaking.
(b)From and after the Closing Date, Benson further
agrees, except as may be required by law or in connection with any
arbitration proceeding with the Purchaser, that it will not, directly or
indirectly, divulge to anyone (other than the Company or any persons
employed or designated by the Company) any knowledge or information of any
type whatsoever of a confidential nature relating to the Business or any
documents related thereto; including, without limitation, any information
of any kind relating to the Business customers or potential customers,
customer list, Company or customer's marketing plans, market research,
results data, strategic or other business plan, methods and procedures for
marketing or production methods or processes (in any event unless
ascertainable from public or published information or trade sources).
(c)The parties intend that the above provisions of this
Section 6.3 be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is
sought. If any particular provision of the text set forth above shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom such revision or portion adjudicated to be
invalid or unenforceable.
(4)Access to Records. Following the Closing Date:
(a)Purchaser agrees to provide, and cause the Company
to provide to Benson, reasonable access to and the right to make copies of
all records of the Company, pertaining to the operations and the Business
of the Company including, but not limited to, in connection with any tax
return, audit, investigation and litigation, and Purchaser agrees to
maintain such records for a period of at least six (6) years after the
Closing.
(b)Benson agrees to provide to Purchaser and the
Company, reasonable access to and the right to make copies of all records
of the Transferred Business, pertaining to the operations of the
Transferred Business, including, but not limited to, in connection with
any tax return, audit, investigation and litigation, and Benson agrees to
maintain such records for a period of at least six (6) years after the
Closing.
(5)Conditions to Closing.
(a)Conditions Precedent.
(1)The parties acknowledge and agree that
Purchaser shall be permitted to conduct an environmental investigation at
the site identified in Schedule 3.8, for the purpose of, among other
things, confirming that Purchaser's current plans for remodeling or
construction shall not cause or precipitate any Environmental Obligation.
Purchaser's receipt prior to Closing of a report on the results of such
investigation satisfactory to Purchaser, at its sole discretion, shall be
a condition precedent to the Purchaser's obligations hereunder.
(2)Purchaser's receipt of the written consent of
its senior lender, IBJ Schroder Bank & Trust Company, to the transactions
contemplated hereby prior to the Closing shall be deemed a condition
precedent to Purchaser's obligations hereunder.
(3)The parties acknowledge and agree that
Purchaser shall be permitted to conduct, through its consultant, an
independent valuation of the underfunded liability of the Company's
defined benefit plan described in Schedule 3.22. Purchaser's receipt of
such valuation, in form and content acceptable to Purchaser in Purchaser's
sole discretion prior to Closing shall be a condition precedent to the
Closing.
(4)The parties acknowledge and agree that
Purchaser will conduct an independent inquiry and investigation into the
value of the Business's display inventory and its operating forecasts for
November and December 1995. It shall be a condition precedent to the
Purchaser's obligations hereunder that Purchaser shall, at its sole
discretion, be satisfied with the results of such inquiry and
investigation. Purchaser, but not Seller, shall have the right in
Purchaser's sole discretion to waive compliance with any of the foregoing
conditions precedent.
(b)Further Conditions to the Obligations of the
Parties. The obligations of the parties to perform obligations to be
performed at or subsequent to the Closing shall be subject to the
fulfillment at or prior to the Closing of the following additional
conditions, any one or more of which may be waived by Purchaser:
(i)Representations and Warranties True. The
representations and warranties of the parties contained herein shall be
true and correct in all respects on the date of this Agreement and the
Closing Date as though such representations and warranties were made at
and on such date, except (i) for those untruths or inaccuracies which
individually or in the aggregate would not either materially impair or
preclude Benson's or the Company's or Purchaser's ability to consummate
the transactions contemplated hereby or have a material adverse effect on
the Company and (ii) for changes expressly permitted or contemplated by
this Agreement.
(ii)Performance. Benson and Purchaser shall have
performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by them on or prior to the Closing Date except for those
failures to so perform or comply which individually or in the aggregate
would not either materially impair or preclude Benson's, Purchaser's or
the Company's ability to consummate the transactions contemplated hereby
or have a material adverse effect on the Company.
(iii)Certificates. Benson shall furnish such
certificates of its officers to evidence compliance with the conditions
set forth in Sections 8.01 and 8.02 as may be reasonably requested by the
Purchaser.
(iv)Certain Proceedings. No writ, order, decree
or injunction of a court of competent jurisdiction or governmental entity
shall have been entered against Benson, Purchaser or the Company which,
and no proceedings therefor shall have been threatened or commenced by any
governmental entity which seek to, prohibit or restrict the consummation
of the transactions contemplated hereby or would otherwise restrict
Purchaser's exercise of full rights to own and operate the business of the
Company.
(v)Consents and Approvals. All necessary consents
and approvals of any United States or any other governmental authority or
any other third party required for the consummation of the transactions
contemplated hereby (including without limitation any such consents and
approvals required under any Environmental Law) shall have been obtained.
(vi)Material Adverse Change. There shall not have
occurred since August 31, 1995 any material adverse change in the general
affairs, management, business, operations, assets, condition (financial or
otherwise) or prospects of the Company.
(vii)Purchaser shall have obained and delivered
the guarantee of HMG Worldwide Corporation in the form set forth in
Schedule 6.5(d)(iv).
(c)Condition Subsequent. The parties acknowledge and
agree that Purchaser intends to seek industrial revenue development bond
("IDRB") funding from Berks County, Pennsylvania in conneciton with
financing the aquisition contemplated hereby. Purchaser's ability to
obtain a commitment for such IDRB financing no later than December 15,
1995 shall be deemed a condition subsequent to the Closing. In the event
that any of the condition subsequent described in this Section 6.5(b)
shall not have been satisfied within the time periods specified, then
Purchaser shall have the right, by written notice to Benson given on or
before 5:00 p.m. on December 18, 1995, to cancel this transaction. If
such condition subsequent shall have been satisfied within the periods
specified, or in the event the Purchaser shall have failed to provide such
written notice within the required time period, the Purchaser shall have
no other right to cancel the transaction under this Section 6.5(b). In
the event the Purchaser shall have provided such notice, then all
documents executed in connection therewith, including (without limitation)
this Agreement and the Display Purchase Agreement, shall be null and void
and of no further force or effect whatsoever.
(6)Relocation of Transferred Business. Benson shall
have a period of sixty (60) days following the Closing Date to relocate
the Transferred Business and certain Benson property from the Company's
premises, including (without limitation) the removal of all machinery and
other assets of the Transferred Business. During such period, Benson will
reimburse Purchaser and/or the Company (as the case may be) upon request
all direct costs or expenses incurred by them in connection with the
ongoing presence, operation or removal of such Transferred Business and
certain Benson property and/or such relocation, including (without
limitation) costs and expenses related to employee salaries or wages,
employee benefits, utilities, and similar costs. Notwithstanding anything
contained in this Agreement to the contrary, Benson shall be solely
responsible for any and all wages, employee benefits and severance
benefits (including without limitation medical benefits, as applicable) of
any kind payable to any employees of the Company engaged in the
Transferred Business and listed on Schedule 6.6. Upon effecting the
relocation of the Transferred Business and certain Benson property, Benson
shall leave the portion of the premises occupied by the Transferred
Business "broom clean", and Benson shall repair, or cause to be repaired,
any and all damages to such premises caused as a result of or in
connection with said relocation.
(7)Loss Reattribution. It is understood and agreed
that Benson may make an election under the Internal Revenue Code and
applicable U.S. Treasury Regulations to retain the maximum allowable
amount of the Company's net operating loss carry forwards ("NOL's").
Purchaser, shall, and shall cause the Company to, cooperate reasonably
with Benson, at Benson's expense, in preparing and filing required
statements, forms and other documents in connection with such election.
7.Indemnification.
(1)Survival of Representations and Warranties. The
representations, warranties and covenants of each party contained in this
Agreement, or in any document delivered on the date hereof, shall be
deemed continuing and shall survive through the period ending September
30, 1997, with the exception of (a) the representation and warranty
contained in Section 4.5, which shall survive indefinitely,(b) the
representation and warranty contained in Section 3.14, which shall survive
until expiration of all applicable statutes of limitations, (c) the
covenant contained in Section 3.9, which shall survive, with respect to
each matter of pending litigation, for a period ending ninety (90) days
after the final determination (i.e., entry of a final judgment from which
no appeal can be taken and/or expiration of all time periods within which
to appeal) or other final settlement, respectively, of each matter of
pending litigation described therein, and (d) the covenant, indemnity,
representation and warranty contained in Section 3.21, which shall survive
for a period of six (6) years after the Closing Date.
(2)Indemnification.
(a)Benson agrees to indemnify and hold harmless each of
the Purchaser, the Company and their affiliates, directors, officers,
employees, agents and representatives (collectively, the "Purchaser
Indemnified Persons") from and against and to reimburse each of the
Purchaser Indemnified Persons, for any and all losses, damages,
liabilities, deficiencies, claims and expenses (including reasonable
counsel fees) incurred by any Purchaser Indemnified Person resulting from
or arising out of (i) any misrepresentation or breach of any
representation or warranty made by Benson in this Agreement, (ii) any
failure by Benson in the performance of any of the covenants which Benson
is to perform hereunder, (iii) any failure by Benson in the satisfaction
and discharge of any of the Transferred Liabilities, (iv) any matter
against which Purchaser and/or the Company are indemnified by Benson under
Section 3.9 hereof, (v) any matter against which Purchaser and/or the
Company are indemnified by Benson under Section 3.21(b) hereof and, (vi)
any claim made by a third party (other than any Purchaser Indemnified
Person) which if true would entitle any Purchaser Indemnified Person to
indemnification pursuant to clauses (i), (ii), (iii), (iv) or (v) above.
(b)Purchaser agrees to indemnify and hold harmless
Benson, its affiliates, directors, officers, employees, agents and
representatives (collectively, the "Benson Indemnified Persons") from and
against and to reimburse each Benson Indemnified Person for any and all
losses, damages, liabilities, claims, deficiencies and expenses (including
reasonable counsel fees) incurred by each Benson Indemnification Person
and resulting from or arising out of (i) any misrepresentation or breach
of any representation or warranty made by Purchaser in this Agreement,
(ii) any failure by Purchaser in the performance of any of the covenants
which Purchaser is to perform hereunder, (iii) any failure by the
Purchaser or the Company in the satisfaction and discharge of any of the
liabilities of the Company or the Business, other than the Transferred
Liabilities and/or any of the liabilities against which Benson has agreed
to indemnify the Purchaser and the Company under Section 3.9 and Section
3.21(b), or (iv) any claim made by a third party (other than any Benson
Indemnified Person) which if true, would entitle any Benson Indemnified
Person to indemnification pursuant to clauses (i), (ii) or (iii) above.
(c)Purchaser and Benson shall each assert any right to
indemnification by furnishing to other, with a written notice showing the
nature of the claim and, if known, the amount or approximate amount of the
claim. For purposes of this Agreement, any party claiming indemnification
under this Section 7 shall hereafter be called the "Indemnitee" and any
party against whom indemnification is sought shall hereafter be called the
"Indemnitor". If such assertion of a right to indemnification is based on
a claim of a third party, such notice shall be given within a reasonable
period after the Indemnitee has actual notice of such claim. For this
purpose, a reasonable period shall mean such period of time as will give
the Indemnitor reasonably sufficient time, taking into account the date
upon which the Indemnitee has actual notice of such claim, in which to
respond to such claim in light of any time deadline to do so of which the
Indemnitee is aware or upon reasonable inquiry should be aware, and
further taking into account any actual prejudice to the Indemnitor as a
consequence of any unreasonable delay by the Indemnitee in giving notice.
(d)In the event the Indemnitee asserts a right to
indemnification based upon a claim of a third party, the Indemnitor shall
have the right to contest such claim, at the Indemnitor's expense, by
giving the Indemnitee notice of the election to do so within thirty (30)
days after the written notice referred to in Section 7.2(c) above has been
given. Failure by the Indemnitor to give such notice within such thirty
(30) day period (or failure thereafter to actually assume the defense of
and/or contest such claim) shall constitute a waiver by the Indemnitor of
its right to contest such claim, in which event the Indemnitee may (but
need not) contest such claim in such manner as the Indemnitee deems
appropriate and may settle such claim on such terms as it may deem
appropriate. If the Indemnitor elects to contest any such claim, the
Indemnitor shall not consent to the entry of any judgment or order against
or affecting the Indemnitee (other than a judgment or dismissal on the
merits and with no costs to be paid by the Indemnitee) or enter into any
settlement except with the written consent of the Indemnitee, which
consent shall not be unreasonably withheld. The Indemnitor and the
Indemnitee shall cooperate in reasonable requests for documents (including
providing reasonable access to Benson's, Purchaser's and the Company's
respective books and records), testimony and other forms of litigation or
claims assistance in connection with the contest by either the Indemnitor
or the Indemnitee of such claim of a third party. The amount with respect
to which the Indemnitee is entitled to indemnification under this Section
7 in the case of a claim of a third party shall include, without
limitation, the reasonable expenses, including reasonable counsel fees or
otherwise, incurred by the Indemnitee in connection with such claim
(whether or not the Indemnitor elects to contest such claim) and the
amount of any judgment, damage or other liability and interest arising
from such claim or the settlement thereof (including a settlement made by
the Indemnitee under circumstances where the Indemnitor has waived the
right to contest and/or defend such claim in the manner set forth above).
(e)The determination of the amount of any loss, cost,
expense or other damage subject to subparagraph (a) or (b) shall take into
account and such amount shall be reduced by, (i) any reduction in federal
or state income taxes of the party claiming indemnification attributable
thereto, (ii) the amount of any insurance proceeds received by such party
in connection therewith, and (iii) any third party payments by virtue of
indemnification or subrogation.
(f)Except as otherwise set forth herein, no party shall
have any obligation under the indemnification provisions set forth in
Section 7.2(a) or 7.2(b) above: (i) unless notice of a claim for indemnity
in respect of any matter has been given to such party on or before the
expiration of the relevant period set forth in Section 7.1 hereof, and
(ii) until and only to the extent that the aggregate of all claims or
liabilities for which such party is responsible under such indemnification
provisions exceeds $100,000 (the "Basket"); provided, however, that no
item shall be included in the Basket if the amount of any such claim or
liability is less than $5,000, unless and until the aggregate of all such
items less than $5,000 equals or exceeds $25,000. Notwithstanding the
foregoing, (i) the Basket shall not apply to limit any claim for
indemnification (A) by Purchaser or the Company under Sections
7.2(a)(iii), 7.2(a)(iv) or Sections 3.6, 3.9, 3.13(b), 3.16(b), or
3.21(b), or (B) by Benson under Section 7.2(b)(iii) relating to the
Company's defined benefit plan described in Schedule 3.22. Benson shall
not under any circumstances be liable for claims or liabilities under
Section 7.2(a) which exceed $4,000,000; provided, that there shall be no
cap on Benson's liability and duty to indemnify pursuant to Sections
7.2(a)(iii) and 7.2(a)(iv) or Sections 3.9 and 3.21(b). Purchaser shall
not under any circumstances be liable for claims or liabilities under
Section 7.2(b) which exceed $4,000,000; provided, that there shall be no
cap on Purchaser's liability to Seller with respect to the benefit plans
set forth in Exhibit 3.22.
(g)The parties acknowledge and agree that in addition
to any equitable remedy available to any party, their sole legal remedy
for any alleged breach by the other of any provision of this Agreement or
otherwise relating to the enforcement or performance of this Agreement,
(except to the extent otherwise expressly set forth herein) shall be to
seek indemnification under the terms of this Section 7. Nothing in this
Agreement shall preclude any party hereunder from asserting any common law
or statutory claim for contribution, indemnification or a claim over.
8.Miscellaneous.
(1)Expenses. Each party shall pay or cause to be paid
its own legal and accounting expenses and costs relating to the
negotiation, execution and performance of this Agreement and any other
costs and expenses relating to this Agreement and the Closing. No such
expenses whatsoever shall be attributed to the Company.
(2)Notices. All notices, requests, demands and other
communications hereunder shall be deemed to be duly given when (i)
personally delivered, (ii) when mailed, certified or registered mail, with
postage prepaid, addressed to the party for whom intended at the address
provided below, or to such other address as such party may hereafter
specify in a written notice to the other parties, given in the manner set
forth in this Section or (iii) when sent by facsimile (with receipt
acknowledged):
If to Benson: Benson Eyecare Corporation
55 Theodore Fremd Avenue
Suite B-302
Rye, New York 10580
Attention: Martin E. Franklin
Fax No: (914) 967-9405
With a copy to: Benson Eyecare Corporation
1601 Valley View Lane,
Dallas, Texas 75234
Attention: Peter H. Trembath,
General Counsel
Fax No: (214) 888-2447
If to Purchaser: HMG Worldwide Corporation
475 Tenth Avenue
New York, New York 10016
Attention: Robert V. Cuddihy, Jr.
Fax No: (212 ) 564-3395
With a copy to: Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attention: Herbert F. Kozlov, Esq.
Fax No: (212) 972-9487
(3)Publicity. No public announcement or other
publicity regarding this Agreement or the transactions contemplated hereby
shall be made prior to or after the date hereof without the prior written
approval of both Benson and the Purchaser as to form, content, timing and
manner of distribution. Notwithstanding the foregoing, nothing in this
Agreement shall preclude Benson or the Purchaser from making any public
announcement or filing required by federal or state securities laws or
stock exchange rules.
(4)Entire Agreement. This instrument, including the
Schedules and Exhibits hereto, and the Display Purchase Agreement embody
the entire agreement among the parties hereto with respect to the
transactions contemplated herein, and there have been and are no
agreements, representations or warranties between the parties other than
those set forth or provided for herein.
(5)Headings. The headings used in this Agreement are
for convenience only and shall not constitute a part hereof.
(6)Modification; Waiver. No modification or waiver of
any provisions of this Agreement or consent to any departure therefrom
shall be effective unless in writing.
(7)Counterparts. This Agreement or any addendum
thereto may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(8)Assignment; Binding Nature. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be
assigned by Benson or Purchaser without the prior written consent of the
other party, and any attempted assignment without such written consent
shall be null and void and without legal effect; provided, however, that
without limitation to the foregoing, the Company's rights, interests, and
obligations hereunder may be assigned to any successor entity by virtue of
a merger of the Company with any such entity or otherwise. This Agreement
shall be binding upon and inure to the benefit of all the parties named
herein and their respective permitted heirs, personal representatives,
successors and assigns.
(9)Further Assurances. Benson and Purchaser agree to
execute any and all other documents and to take such other action or
corporate proceedings as may be necessary or desirable to more fully and
effectively carry out the terms hereof, as any party hereto may reasonably
request at any time or from time to time after the date hereof and without
payment of any additional consideration.
(10)Construction. This Agreement shall be interpreted
without regard to any presumption or rule requiring construction against
the party causing this Agreement to be drafted.
(11)Severability. If any provision of this Agreement
shall be held to be unenforceable, then the invalidity of such specified
provision herein shall not be held to invalidate any other provision
herein and such other provisions shall remain in full force and effect.
(12)No Third-Party Beneficiaries. Each of the
provisions of this Agreement is for the sole and exclusive benefit of the
parties thereto, and shall not be deemed for the benefit of any other
person.
(13)Exhibits and Schedules. All Exhibits and Schedules
attached hereto are incorporated by reference into, and made a part of,
this Agreement. Information set forth in any Schedule to the Agreement
shall be deemed to be incorporated in every other Schedule to this
Agreement to the extent applicable.
(14)Governing Law. This Agreement and all amendments
hereof shall be construed in accordance with and governed by the laws of
the State of New York, without regard to the conflicts of law principles
thereof.
(15)Arbitration. If any dispute or claim shall arise
in respect of the enforcement or interpretation of this Agreement, then
the party seeking relief (the "Indemnified Party") shall give written
notice to the other party (the "Indemnifying Party") describing such
dispute or claim in reasonable detail. The Indemnified Party shall be
entitled to give such notice prior to the establishment of the amount of
its losses, damages and expenses and to supplement its claim from time to
time thereafter by further notices as they are established. The
Indemnifying Party shall respond to such claim for indemnification within
fifteen (15) business days after receipt of the claim stating its
acceptance or objection to the indemnification claim and explaining its
position in respect thereto in reasonable detail. If the Indemnifying
Party does not timely so respond, it will be deemed to have accepted the
Indemnified Party's indemnification claim as specified in the notice given
by the Indemnified Party. If the Indemnifying Party gives timely notice
of acceptance or is otherwise deemed to have accepted the indemnification
claim, it shall cure the matter giving rise to the claim as promptly as
possible. If the Indemnifying Party gives a timely objection notice, then
the parties shall negotiate in good faith to attempt to resolve the
dispute. Upon the expiration of thirty (30) days from the objection
notice or such longer period as to which the Indemnified and Indemnifying
Parties may mutually agree, if the parties have not resolved their
dispute, then such dispute shall be arbitrated before three (3)
arbitrators in the City of New York, New York, in accordance with the then
Commercial Rules of the American Arbitration Association. The award of
the arbitrators shall be final, binding and conclusive on the parties.
Judgment upon the award by the arbitrators may be entered in any court
having jurisdiction. The prevailing party in any such arbitration shall
be entitled to recover from, and have paid by, the other party hereto, all
fees and disbursements of such arbitrators. Provided, however, that any
party hereto may assert a claim for contribution, indemnity, or a claim
over against any other party hereto in any litigation, action, proceeding
or administrataive tribunal where a non-party to this Agreement has
asserted claims which give rise to a party hereto asserting such a claim
for indemnification, contribution or a claim over.
(16)Jurisdiction and Venue. The parties hereto hereby
agree that any suit brought to enforce any arbitration award under Section
8.15 hereof shall be subject to the exclusive jurisdiction of the federal
and state courts situated in New York County, New York. The parties to
this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of New
York by virtue of a failure to perform an act required to be performed in
the State of New York and irrevocably and expressly agree to submit to the
jurisdiction of the courts of the State of New York for the purpose of
resolving any disputes among the parties relating to this Agreement or the
transactions contemplated hereby. The parties irrevocably waive, to the
fullest extent permitted by law, any objection which they may now or
hereafter have to the venue of any suit, action or proceeding arising out
of or relating after arbitration to this Agreement, or any judgment
rendered in connection herewith being brought in New York County, New
York, and further irrevocably waive any claim that New York County, New
York, is an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
BENSON EYECARE CORPORATION
By:_____________________________
Title:__________________________
INTERMARK CORP.
By:_____________________________
Title:__________________________
<PAGE>
TABLE OF CONTENTS
1. Purchase of Shares. 1
2. Purchase Price 1
2.1 Consideration 1
2.2 Payment of Purchase Price 2
3. Representations and Warranties of Benson. 2
3.1 Ownership of Shares; Liens 2
3.2 Existence and Good Standing. 2
3.3 Capitalization. 2
3.4 Rights, Warrants, Options. 2
3.5 Authority and Enforceability. 2
3.6 Balance Sheet and Tangible Assets, Liabilities. 3
(d) Closing Balance Sheet. 3
3.7 Charter, By-laws and Corporate Records. 4
3.8 Real Property 4
3.9 No Litigation. 4
3.10 Intellectual Property. 5
3.11 Broker's or Finder's Fee. 5
3.12 List of Bank Accounts. 5
3.13 No Undisclosed Liabilities. 5
3.14 Taxes. 5
3.15 Permits and Licenses. 6
3.16 Material Contracts. 6
3.17 Subsidiaries. 6
3.18 Employee Relations. 6
3.19 Personal Property. 6
3.20 Insurance. 7
3.21 Environmental Matters. 7
3.22 Employee Benefit Plans. 8
3.23 Customers. 9
3.24 Absence of Certain Changes or Events 9
3.25 No Known Impediment. 9
3.26 Completeness of Information. 9
4. Representations and Warranties of Purchaser. 10
4.1 Existence and Good Standing. 10
4.2 Authority and Enforceability. 10
4.3 No Litigation. 10
4.4 Broker's or Finder's Fee. 10
4.5 Purchase for Investment. 11
4.6 Independent Investigation. 11
4.7 No Reliance. 11
5. Closing. 11
5.1 Closing. 11
5.2 Documents to be Delivered by Benson. 11
5.3 Documents to be Delivered by Purchaser. 12
5.4 Closing Procedure. 13
6. Additional Covenants and Agreements. 13
6.1 Display Purchases. 13
6.2 Loan Funding. 13
6.3 Non-Competition. 14
6.4 Access to Records. 14
6.5 Conditions to Closing. 15
(a) Conditions Precedent 15
(b) Further Conditions to the Obligations of the
Parties 15
(c) Condition Subsequent 17
6.6 Relocation of Transferred Business. 17
7. Indemnification. 18
7.1 Survival of Representations and Warranties. 18
7.2 Indemnification. 18
8. Miscellaneous. 21
8.1 Expenses. 21
8.2 Notices. 21
8.3 Publicity. 22
8.4 Entire Agreement. 22
8.5 Headings. 22
8.6 Modification; Waiver. 22
8.7 Counterparts. 22
8.8 Assignment; Binding Nature. 22
8.9 Further Assurances. 22
8.10 Construction. 22
8.11 Severability. 22
8.12 No Third-Party Beneficiaries. 23
8.13 Exhibits and Schedules. 23
8.14 Governing Law. 23
8.15 Arbitration. 23
8.16 Jurisdiction and Venue. 24
<PAGE>
LIST OF SCHEDULES
Schedule Number Title
3.5 Authority and Enforceability
3.6 Balance Sheet and Tangible Assets, Liabilities
3.8 Real Property
3.9 No Litigation
3.10 Intellectual Property
3.12 List of Bank Accounts
3.14 Taxes
3.16 Material Contracts
3.18 Employee Relations
3.19 Personal Property
3.20 Insurance
3.21 Environmental Matters
3.22 Employee Benefit Plans
4.2 No Violation
5.2(f) Instrument of Transfer and Assumption
6.2 Promissory Note
6.5(b)(vii) HMG Guarantee
6.6 Employees of Transferred Business
<PAGE>
Exhibit 10 (s)
DISPLAY PURCHASE AGREEMENT
AGREEMENT dated as of September 30, 1995 among and between HMG
Worldwide In-Store Marketing, Inc. a New York corporation ("HMG"); Foster
Grant Group, L.P., a Delaware limited partnership ("FGG"); and Benson
Eyecare Corporation, a Delaware corporation ("Benson").
WHEREAS, HMG and Benson have entered into a stock purchase
agreement (the "SPA") with respect to the purchase by HMG of all of the
capital stock of HMG Pennsylvania Corp. (the "Stock Purchase
Transaction"); and
WHEREAS, in order to induce HMG to enter into and perform the
Stock Purchase Transaction, Benson and FGG have agreed that they will
enter into and perform this Display Purchase Agreement;
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and in consideration for HMG entering into
and performing the Stock Purchase Transaction, it is agreed as follows:
I.Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
A."Merchandising Display Systems" shall mean non-corrugated
durable display systems and parts and components of such display
systems, where such display systems are intended to be used at
retail purchase locations to contain and display eyewear products
(e.g., eyeglasses, reading glasses, sunglasses and related
eyewear accessories) offered to consumers, but shall not include
tooling, prototypes, models, creative and design, taxes, shipping
and insurance;
B.The term of this Agreement shall be for the period
commencing as of September 30, 1995 and ending on December 31,
2002 (the "Term") unless terminated earlier in compliance with
section 6.2 and section 6.5(b) of the SPA;
C."affiliate" shall mean any entity which is controlled by
or under common control with another entity;
D."FGG" means Foster Grant Group, L.P. and its affiliates;
E. "Contract Year" shall mean any twelve-month period
commencing on January 1 and ending on December 31 during the
Term, except that the First Contract Year shall be the 14-month
period commencing November 1, 1995 and expiring December 31,
1996.
F."Comparable Vendor" shall mean a company (other than HMG)
that, principally through its employees and not through
subcontractors, engineers, designs, assembles, manufactures and
sells Merchandising Display Systems and provides services
(including, for example, design services, modeling, prototypes
and creative services) at levels of quality, value, service and
timeliness comparable to HMG. Companies that principally broker
or subcontract the foregoing services, or manufacture
Merchandising Display Systems outside of the United States, shall
not be considered Comparable Vendors.
G."HMG's Costs" shall mean all actual direct and indirect
costs of materials (including but not limited to display
components, packing, pallets and consumable supplies) and HMG's
actual direct and indirect labor costs (including but not limited
to wages, benefits, payroll taxes and labor costs associated with
assembling, manufacturing, warehousing and in-bound freight) and
shall also include any actual out-of-pocket costs associated with
fulfilling an order to manufacture and sell Merchandising Display
Systems (including but not limited to freight, shipping,
insurance, warehousing, storage, duty, sales and excise taxes).
For purposes of calculating HMG's Costs in accordance with this
Agreement, HMG shall utilize its then-current blended hourly
labor costs, blended to take into account any and all differing
labor rates and costs at all HMG manufacturing and/or assembly
sites. HMG's Costs shall not include corporate overhead, general
administrative costs, under-funded pension and retiree medical
benefits costs existing as of September 30, 1995, or indirect
overhead and depreciation and amortization.
II.Merchandising Display Systems Purchase Guidelines. Subject to
the terms and conditions set forth in this Agreement:
A.FGG agrees that during each Contract Year of the Term of
this Agreement, it will purchase from HMG or its affiliates not
less than seventy percent (70%), measured on a dollar value
basis, of all of the Merchandising Display Systems purchased by
FGG. In the event during any Contract Year FGG fails to purchase
from HMG at least 70% of the Merchandising Display Systems to be
purchased by FGG during such Contract year, then in order to
compensate HMG for FGG's non-compliance with the provisions of
this section 2(a), FGG shall pay to HMG, within 30 days of the
close of the applicable Contract Year, an amount equal to 30% of
the dollar volume shortfall of FGG's Merchandising Display
Systems purchases.
B.FGG agrees that during the Term it will not manufacture
Merchandising Display Systems, whether for its own use or for
resale to third parties.
C.During the Term FGG shall be required to purchase from HMG
an average not less than Four Million Five Hundred Thousand
Dollars ($4,500,000) of Merchandising Display Systems per
Contract Year, except that for the First Contact Year, which is a
period of 14 months rather than 12 months, the $4,500,000 sum
shall be proportionately increased to Five Million Two Hundred
Fifty Thousand Dollars ($5,250,0000). In calculating the dollar
amount of FGG's purchases of Merchandising Display Systems from
HMG for purposes of this paragraph, costs and charges for
tooling, prototypes, models, creative and design, taxes, shipping
and insurance shall be excluded;
D.In the event that FGG has failed to purchase and pay for
an aggregate of at least of $14,250,000 of Merchandising Display
Systems from HMG during the first, second and third Contract
Years (i.e., the Contract Years ending December 31, 1998) (the
"First Measurement Period"), then within 30 days following the
close of the third Contract Year FGG shall make a lump-sum
payment to HMG equal to the product of the following formula:
($14,250,000, minus the aggregate dollar amount of
FGG's actual purchases of and payments for
Merchandising Display Systems from HMG during the
First Measurement Period) x .30.
E.In the event that FGG has failed to purchase and pay for
an aggregate of at least $9,000,000 of Merchandising Display
Systems from HMG during the fourth and fifth Contract Years
(i.e., the Contract Years from January 1, 1999 through December
31, 2000) (the "Second Measurement Period"), then within 30 days
following the close of the fifth Contract Year FGG shall make a
lump-sum payment to HMG equal to the product of the following
formula:
( $9,000,000, minus the aggregate dollar amount of
FGG's actual purchases of and payments for
Merchandising Display Systems from HMG during the
Second Measurement Period) x .30.
F.In the event that FGG has failed to purchase and pay for
an aggregate of at least $9,000,000 million of Merchandising
Display Systems from HMG during the sixth and seventh Contract
Years (i.e., the Contract Years from January 1, 2001 through
December 31, 2002) (the "Third Measurement Period"), then within
30 days following the close of the seventh Contract Year FGG
shall make a lump-sum payment to HMG equal to the product of the
following formula:
($9,000,000, minus the aggregate dollar amount of
FGG's actual purchases of and payments for
Merchandising Display Systems from HMG during the
Third Measurement Period) x .30.
G.The multiplier of .30 in the formulae set forth in each of
paragraphs 2(d), 2(e) and 2(f) shall be reduced from .30 to .10
with respect to the dollar volume of orders for the purchase of
Merchandising Display Systems offered to HMG in accordance with
the provisions of paragraph 3 of this Agreement where HMG has
elected not to submit any bid or has otherwise declined the order
with respect to the purchase and sale of such Merchandising
Display Systems.
H.In calculating the dollar volume of FGG's purchases of
Merchandising Display Systems from HMG for purposes of this
paragraph 2, to the extent that FGG has paid to HMG ReBid Fees
(as set forth in paragraph 3(f)(ii) below) the purchases of
Merchandising Display Systems from which the ReBid Fees have been
calculated and paid shall be deemed to be purchases of
Merchandising Display Systems from HMG.
I.In calculating the dollar volume of FGG's purchases of
Merchandising Display Systems from HMG for purposes of this
paragraph 2, to the extent that FGG has paid to HMG Non-Bid Fees
(as set forth in paragraph 3(g) below) the purchases of
Merchandising Display Systems from which the Non-Bid Fees have
been calculated and paid shall be deemed to be purchases of
Merchandising Display Systems from HMG.
III.HMG's Right of Last Refusal. In the event FGG seeks to
purchase Merchandising Display Systems from a party other than HMG, FGG
shall follow the following procedures:
A.FGG may solicit written bids for the purchase of
Merchandising Display Systems from Comparable Vendors of
Merchandising Display Systems (a "Non-HMG Bid");
B.If FGG determines it would accept a Non-HMG Bid, 5
business days prior to accepting such a bid it shall so inform
HMG in writing and provide HMG with all relevant information
relating to the Non-HMG Bid;
C.From the time at which HMG has received all documentation
and other information relating to the Non-HMG Bid FGG would
accept, HMG shall have a right of last refusal, for a period of 5
business days, to submit its bid;
D.In the event that HMG's bid to provide Merchandising
Display Systems of comparable quality is within one hundred ten
percent (110%) of the price set forth in the acceptable Non-HMG
Bid, FGG shall award the order to HMG;
E.In the event that HMG does not submit a bid that is within
one hundred and ten percent (110%) of the acceptable Non-HMG Bid,
FGG shall then have a maximum 10 days in which to advise HMG
whether it intends to accept the HMG bid or the Non-HMG Bid.
F.If FGG advises HMG that FGG intends to accept the Non-HMG
Bid, HMG shall then have a maximum of 7 business days in which
HMG may elect to submit a revised HMG bid (an "HMG ReBid"), which
HMG ReBid HMG has calculated at a price less than or equal to
115% of "HMG's Costs". If HMG elects to submit an HMG ReBid, the
HMG ReBid shall be accompanied by a schedule which reports HMG's
Costs in reasonable detail. If HMG submits an HMG ReBid, then
FGG shall in its discretion, either:
a.award the order to HMG within seven (7) business days
after receipt of the HMG ReBid on the terms set forth in the
HMG ReBid; or
b.award the order to the Non-HMG Bidder within seven
(7) business days after receipt of the HMG ReBid, in which
case FGG immediately will so notify HMG that it has accepted
the Non-HMG Bid and, within five (5) days after delivery to
or on behalf of FGG of the goods and services subject to the
Non-HMG Bid, FGG shall pay to HMG a fee equal to thirty
percent (30%) of the aggregate amount of all purchases
pursuant to the Non-HMG Bid (a "ReBid Fee").
G.If FGG accepts a Non-HMG Bid where HMG has elected not to
submit an HMG ReBid, FGG will notify HMG that it has accepted the
Non-HMG Bid and, within five (5) days after delivery to or on
behalf of FGG of the goods and services subject to the Non-HMG
Bid, FGG shall pay a fee to HMG equal to ten percent (10%) of the
aggregate amount of all purchases pursuant to the Non-HMG Bid (a
"Non-Bid Fee").
H.In the event FGG disputes the calculation of HMG's Costs
in connection with any HMG ReBid, FGG shall so advise HMG in
writing prior to accepting any Non-HMG Bid. The parties shall
then confer and attempt to resolve any disagreement with respect
to the calculation of HMG's Costs within five (5) business days
of FGG notifying HMG of its disagreement with the calculation of
HMG's Costs. If at the end of such five (5) business day period
the parties have not resolved their disagreement, either party
may submit the issue of the calculation of HMG's Costs to binding
arbitration before the American Arbitration Association in New
York City, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. The parties
agree that the American Arbitration Association shall appoint a
single arbitrator to resolve any disputes as to the calculation
of HMG's Costs, and further agree that the arbitrator appointed
by the American Arbitration Association shall be a certified
public accountant with experience in cost accounting for
manufacturing companies. Such arbitrator shall not be affiliated
with any accounting firm used by FGG, Benson or HMG. The
arbitrator shall render his or her ruling within ten (10) days of
the dispute being fully submitted. Within three (3) business
days after receipt of the arbitrator's decision, HMG may elect to
submit an HMG ReBid in accordance with the Arbitrator's decision,
in which event FGG may then exercise either of the options set
forth in paragraphs 3(f)(i) and (ii), within the time periods
set forth therein.
a.In the event FGG or HMG disputes whether an entity
qualifies as a Comparable Vendor, the party disputing each
issue shall so advise the other party in writing. The
parties shall then confer and attempt to resolve any
disagreement with respect to whether an entity is a
Comparable Vendor within five (5) business days of such
dispute being raised. If at the end of such five (5)
business day period the parties have not resolved their
disagreement, either party may submit the issue of whether
an entity is a Comparable Vendor to binding arbitration
before the American Arbitration Association in New York
City, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. The
parties agree that the American Arbitration Association
shall appoint a single arbitrator to resolve any disputes
whether an entity is a Comparable Vendor, and further agree
that the arbitrator appointed by the American Arbitration
Association shall be an independent individual with
experience in marketing and merchandising. The arbitrator
shall render his or her ruling within five (5) days of the
dispute being fully submitted. FGG will not accept any Non-
HMG Bid from a party as to whom there is a dispute whether
that party is a Comparable Vendor until five (5) business
days after the arbitrator has decided the issue. HMG may
submit a last refusal bid in accordance with paragraph 3
hereof during such five (5) day period.
b.In order for FGG to verify the calculation of HMG's
Costs, and in order for HMG to verify the volume of
Merchandising Display Systems purchased by FGG, the parties
hereby agree that all relevant books and records, invoices,
files, correspondence, contracts, and other documents shall
be available for inspection at the location where such books
and records, etc., are regularly maintained, on five (5)
days prior notice. Any party performing such an inspection
shall bear its own costs and agrees that the books and
records examined, and the contents thereof, and any
information obtained as a consequence of such examination
shall be utilized only for purposes of enforcing the
provisions of this Agreement and shall otherwise be kept
confidential.
IV.The provisions of Section 3 shall be suspended for the balance
of any Contract Year from and after the point at which the parties have
agreed that FGG has offered to purchase from HMG in accordance with the
provisions of this Agreement both (i) $4,5000,000 worth of Merchandising
Display Systems (except for the First Contract Year, for which the sum
shall be $5,250,000), and (ii) at least 70% of the Merchandising Display
Systems to be purchased by FGG during such Contract year. Provided,
however, that at the expiration of any such Contract Year the provisions
of this Section 3 shall be reinstated in full.
V.This Agreement shall be binding upon and inure to the benefit
of FGG, Benson and HMG and each of their affiliates, permitted successors
and assigns. Without limitation to the foregoing, this Agreement shall be
binding upon any entity which acquires substantially all of the assets,
capital stock, equity interest or business of Benson or FGG.
VI.In the event of any dispute arising under this Agreement or in
connection with the purchase by FGG and its affiliates of Merchandising
Display Systems from HMG, such dispute shall be submitted to the American
Arbitration Association for binding arbitration, before a single
arbitrator, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The exclusive judicial forum and venue
for any dispute which the parties are entitled to litigate in court will
be the federal and state courts situated in the State of New York, County
of New York, and the parties hereby irrevocably consent to the
jurisdiction and venue of such courts for such purposes.
VII.This Agreement constitutes the full, complete and final
expression of the parties' understanding with respect to the subject
matter hereof and may only be modified in writing, signed by the parties
hereto.
VIII.This Agreement is the product of mutual negotiation and
drafting and neither party will be considered the "draftsman" of this
Agreement. This Agreement shall be governed and controlled in accordance
with the laws of the State of New York without regard to New York choice
of law or conflict of laws provisions. This Agreement is deemed to be an
agreement made and to be performed within the State of New York. The
parties irrevocably consent to the jurisdiction and venue of the federal
and state courts situated in New York City with respect to the enforcement
of this Agreement or any arbitration award rendered in connection with
this Agreement.
IX.In order to induce HMG to enter into this Agreement and the
stock purchase transaction, Benson has executed and delivered the
guarantee set forth as Exhibit 1 hereto.
X.Notices. All notices, requests, demands and other
communications hereunder shall be deemed to be duly given when (i)
personally delivered, (ii) when mailed, certified or registered mail, with
postage prepaid, addressed to the party for whom intended at the address
provided below, or to such other address as such party may hereafter
specify in a written notice to the other parties, given in the manner set
forth in this Section or (iii) when sent by facsimile (with receipt
acknowledged):
If to Benson: Benson Eyecare Corporation
555 Theodore Fremd Avenue
Suite B-302
Rye, New York 10580
Attention: Martin E. Franklin
Fax No: (914) 967-9405
With a copy to: Foster Grant Group, L.P.
1601 Valley View Lane,
Dallas, Texas 75234
Attention: Peter H. Trembath, General Counsel
Fax No: (214) 247-3588
If to Purchaser: HMG Worldwide In-Store Marketing, Inc.
475 Tenth Avenue
New York, New York 10016
Attention: Robert V. Cuddihy, Jr.
Fax No: (212) 564-3395
With a copy to: Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attention: Herbert F. Kozlov, Esq.
Fax No: (212) 972-9487
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HMG WORLDWIDE IN-STORE MARKETING, INC.
By:___________________________________
BENSON EYECARE CORPORATION
By:___________________________________
FOSTER GRANT GROUP, L.P.
By:___________________________________
Bonneau General, Inc. General Partner
<PAGE>
EXHIBIT 10 (t)
HMG Europe B.V.
10A Valkenierstraat
Ridderkerk, The Netherlands 2984 AZ
MARKETING SUPPORT AND EQUIPMENT SALE AGREEMENT
The undersigned:
1. TURBO SCREEN B.V., a company incorporated under the laws of the
Netherlands with its offices at Kolenbranderstraat 24 in (2984 AT)
Ridderkerk, The Netherlands ("Tchai"); and
2. TCHAI HOLDINGS B.V., a company incorporated under the laws of the
Netherlands with its offices at Kolenbranderstraat 24 in (2984 AT)
Ridderkerk, The Netherlands ("Holdings"); and
3. HMG EUROPE B.V., a company under the laws of the Netherlands with
its offices at 10A Valkenierstraat Ridderkerk, The Netherlands 2984 AZ
("HMG Europe"); and
4. HMG WORLDWIDE IN-STORE MARKETING, INC. a company under the laws
of the State of New York with its offices at 475 Tenth Avenue, New York,
New York 10018 ("HMG US").
WHEREAS:
1. HMG Europe, HMG US, and Tchai wish to enter into a marketing
agreement whereby Tchai will provide HMG Europe and HMG US with production
and product development support in Holland; HMG Europe will provide Tchai
with sales and marketing leads and access to new product development.
2. Tchai wishes to retain as their own certain HMG Europe employees.
3. Tchai wishes to acquire certain property and equipment from HMG
Europe.
HEREBY DECLARE TO HAVE AGREED AS FOLLOWS:
ARTICLE 1 - HMG EUROPE PERSONNEL;
1. Tchai shall acquire from HMG Europe four employees, Rob
Bergervoet, Andrie De Quaasteniet, Theo van Steenbergen and Yolanda Vis
(the "Named Employees") effective October 1, 1995 ("Transfer Date"). HMG
Europe shall be responsible for each of the Named Employees' salary,
vacation, holiday pay and other benefits (collectively, "Compensation")
earned but unpaid, if any, prior to the Transfer Date. Tchai shall be
responsible for all Compensation pertaining to the Named Employees arising
subsequent to the Transfer Date.
2. HMG Europe shall be responsible for all Compensation payable to
the Named Employees on or prior to the Transfer Date or relating to the
period prior to the Transfer Date, including taxes and social premiums.
HMG Europe indemnifies and holds Tchai harmless with respect to any and
all losses, damages, costs, and expenses which Tchai incurs as a
consequence of any breach by HMG Europe of this provision.
3. Tchai shall be responsible for any severance benefits to the
Named Employees arising at any time. Tchai indemnifies and holds HMG
Europe harmless with respect to any and all losses, damages, costs, and
expenses which HMG Europe incurs as a consequence of any breach by Tchai
of this provision.
4. Upon expiration of this Agreement and for a two year period
thereafter, HMG US, HMG Europe and Tchai shall not solicit each others'
employees without written consent from the other party.
ARTICLE 2 - MARKETING SUPPORT;
1. Tchai hereby retains HMG Europe, and HMG Europe and HMG US hereby
retain Tchai, to help and support the other in connection with the
marketing and sale of goods and services manufactured, distributed or sold
by each party . This Agreement shall apply with respect to new customers
introduced by one party to the other party.
2. As for the total consideration of all services to be rendered by
each party to the other, the parties agree to pay commissions as follows:
a) A commission shall be paid to the party providing the
client introduction at the rate of (i) ten percent (10%) of "Net Sales"
(as defined hereinafter) of merchandising, display, fixture systems, or
electronic (computer) devices, where such goods are sold by the other
party at its full, non-discounted sales price. Products are deemed to have
been sold at their full, non-discounted sales price if they are sold at a
mark-up greater than or equal to 150% of direct materials, components and
direct labor costs (excluding all fixed costs and overhead items). In
the event goods are sold at a mark-up of less than 150%, commissions shall
be payable on a sliding scale as set forth below:
Mark-up Commission
<1.5 10%
1.4 - 1.49 8%
1.3 - 1.39 6%
1.2 - 1.29 4%
1.1 - 1.19 2%
b) "Net Sales" shall mean the invoice amount (less returns,
discounts, credits, rebates, allowances, and all expenses or disbursements
passed through or charges to the customer, including without limitation,
freight, insurance, postage, travel and taxes) of orders. No commission
shall be payable on sales of prototypes, tooling, or software development,
or on consulting or design fees unless the parties have agreed otherwise
on a project-by-project basis. In order to avoid confusion or disputes as
to whether a commission is due on sales in relation to a defined project
for a particular customer, prior to that prospective customer placing an
order with either party, a written Customer Project Introduction
Acknowledgement form (annexed hereto as Exhibits A.1 and A.2), shall be
issued and agreed to by the parties thereby requesting confirmation and a
commission on such particular project.
3. Commissions payable pursuant to the Agreement shall be payable to
the introducing party on orders, in relation to projects for which a
Customer Project Introduction Acknowledgement Form has been completed,
placed during the term of the agreement ("Commission Period").
Commissions will also be payable on additional orders placed in the
Commission Period or during the two year period thereafter ("Commission
Extension Period") if such order is either a first order or a repeat order
that directly relates from or directly relates to a clearly defined
project started in the Commission Period for which a Customer Project
Introduction Acknowledgement form was completed in the Commission Period.
4. Commissions payable pursuant to this Agreement shall be earned
and payable only if, as, when and to the extent that the Net Sales upon
which commissions are calculated have actually been received by the party
who has produced and sold the goods.
5. Each party shall prepare monthly commission statements reporting
detailed sales and commission activity. Each commission statement shall
be prepared within 30 days after the end of the month and shall be
accompanied with a payment for the amount due pursuant to the commission
statement. All commissions shall be payable in the local currency of the
original sale.
6. Either party may terminate or resign the arrangement set forth in
Article 2.1 on thirty days prior written notice. Absent such termination
or resignation, the term of the arrangement created in Article 2.1 shall
be the period October 1, 1995 to and including September 30, 1998. No
termination, resignation or expiration of the arrangement created in
Article 2.1 shall effect any other provision of this Agreement.
ARTICLE 3 - EQUIPMENT;
1. HMG Europe shall sell to Tchai the equipment listed in Exhibit B,
inclusive of HMG Europe's rights to the standard equipment operating
software with respect to any such equipment, for dfl 50,000, payable in
two equal installments due October 15, 1995 and October 31, 1995.
2. HMG hereby represents that the equipment is in good working order
subject to normal wear and tear from use and is free and clear of any
liens, mortgages, pledges or encumbrances of any nature whatsoever.
ARTICLE 4 - USE OF NAMES;
1. Tchai shall be entitled to use the name "An Independent Sales
Representative of HMG Worldwide" on its business cards and stationary
during the term of this agreement.
2. HMG Europe shall be entitled to use the name "An Independent
Sales Representative of Tchai Displays" on its business cards and
stationary during the term of this agreement.
3. The provisions of this Article 4 shall terminate upon the
termination of the provisions of Article 2.1.
ARTICLE 5 - GUARANTEES;
1. Holdings guarantees any and all commission payments which may be
due and payable by Tchai as a result of this Agreement vis-a-vis HMG
Europe. Furthermore, Holdings guarantees the full and proper performance
by Tchai of its obligations vis-a-vis HMG Europe Customers (Customer
Project Introductions Acknowledgements) referred to it under this
agreement.
2. Holdings will cause that all subsidiaries, partnerships and joint
ventures of Holdings (the "Tchai Group") will comply with the arrangements
set forth in Article 2, in the sense that any of such companies will pay
commissions in accordance with Article 2 of this Agreement in the event
that it performs work for an HMG Europe Customer for which Tchai, if it
would have performed such work, would have to pay commissions in
accordance with said Article 2.
3. HMG US cause that all subsidiaries, partnerships and joint
ventures of HMG US (the "HMG Group") will comply with the arrangements set
forth in Article 2, in the sense that any of such companies will pay
commissions in accordance with Article 2 of this Agreement in the event
that it performs work for a Tchai Customer for which HMG Europe or HMG US,
if it would have performed such work, would have to pay commissions in
accordance with said Article 2.
ARTICLE 6 - MISCELLANEOUS;
1. Each party shall be solely responsible for all of its own
expenses and obligations arising out of the representation described
herein and shall comply, at its own expense, with all applicable laws or
governmental regulations.
2. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes any prior
agreements between them. This Agreement can be amended only in writing
executed by the parties hereto.
3. The nature of the services referred hereunder are personal and
this Agreement may not be assigned unless otherwise approved in writing by
the other party.
4. Nothing in this agreement shall constitute an agent
relationship. No party to this agreement shall be authorized to represent
or act on behalf or in the name of any of the other parties to this
agreement.
5. Any dispute arising pursuant to this Agreement shall be resolved
through arbitration in accordance with the rules of the International
Chamber of Commerce. Any such arbitration shall be conducted in
Amsterdam, Holland provided that all such arbitrations, including any
written submissions and oral proceedings shall be conducted solely in the
English language before a single arbitrator who fluently reads and speaks
the English language.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
23rd day of October, 1995.
HMG WORLDWIDE IN-STORE HMG EUROPE B.V.
MARKETING, INC.
BY: --------------- BY:---------------
TURBO SCREEN B.V. TCHAI HOLDINGS B.V.
BY: --------------- BY:---------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8139
<SECURITIES> 0
<RECEIVABLES> 9277
<ALLOWANCES> 596
<INVENTORY> 5254
<CURRENT-ASSETS> 22739
<PP&E> 3227
<DEPRECIATION> 1084
<TOTAL-ASSETS> 32648
<CURRENT-LIABILITIES> 20115
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 10000
<TOTAL-LIABILITY-AND-EQUITY> 32648
<SALES> 47641
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<CGS> 38479
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<OTHER-EXPENSES> 19171
<LOSS-PROVISION> 56
<INTEREST-EXPENSE> 793
<INCOME-PRETAX> (10104)
<INCOME-TAX> 14
<INCOME-CONTINUING> (10118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10118)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
