<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No.1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): MAY 4, 1999
-----------
The Aristotle Corporation
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-23150 06-116584
-------- ------------- ------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
27 Elm Street, New Haven, Connecticut 06510
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 867-4090
--------------
<PAGE>
The Aristotle Corporation the "Registrant" hereby amends its Current Report
on Form 8-K dated May 4, 1999 ("Current Report") by amending Items 7(a) and
(b) to include certain financial statements and pro forma financial information.
As amended, Items 7(a) and (b) are set forth below in their entirety.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
- ------ ------------------------------------
On May 4, 1999, the Registrant acquired all of the outstanding stock of
Simulaids, Inc., ("Simulaids") a privately-held New York company, pursuant to a
Stock Purchase Agreement dated as of April 30, 1999 between the Registrant and
Kevin Sweeney (the "Seller"). Simulaids, located in Woodstock, New York,
manufactures health and medical education teaching aids. Simulaids' proprietary
products include manikins and simulation kits used for training in the CPR,
emergency rescue and patient care fields. Simulaids' products are sold
throughout the United States and internationally via distributors and catalogs
to end-users such as fire and emergency medical departments and nursing and
medical schools. Simulaids has become a wholly-owned operating subsidiary of
Aristotle.
In accordance with the Stock Purchase Agreement, the Registrant paid a
purchase price of approximately $8.4 million in cash. The Registrant utilized
$3.4 million of its approximately $12.0 million in cash and obtained $5.0
million of bank financing for the balance of the purchase price. The
consideration paid by the Registrant was determined through arms-length
negotiations between the Registrant and the Seller.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ------ ------------------------------------------------------------------
(a) Financial statements of business acquired.
-----------------------------------------
The audited financial statements of Simulaids as of December 31,
1998 and 1997 and for each of the years in the three year period ended
December 31, 1998, which have been audited by independent auditors KPMG
LLP, whose report thereon is also included herein.
(b) Pro forma financial information.
-------------------------------
Unaudited pro forma consolidated balance sheet as of March 31, 1999
and unaudited pro forma consolidated statement of operations for the
nine months ended March 31, 1999 and the year ended June 30, 1998.
(c) Exhibits.
--------
2.1 Stock Purchase Agreement between The Aristotle Corporation and
Kevin Sweeney dated as of April 30, 1999
23 Consent of KMPG LLP
*99.1 Press Release dated May 4, 1999.
_____________
* Previously filed with Form 8-K filed May 18, 1999
2
<PAGE>
SIMULAIDS, INC
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
SIMULAIDS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report
Balance Sheets 2
Statements of Income 3
Statements of Shareholder's Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Simulaids, Inc.:
We have audited the accompanying balance sheet of Simulaids, Inc. as of December
31, 1998. Further, we were engaged to audit the accompanying balance sheet as
of December 31, 1997, and the related statements of income, shareholder's equity
and cash flows for the years ended December 31, 1998, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Except as discussed in the following paragraph, we conducted our audit 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 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
audit provides a reasonable basis for our opinion.
Because we were not engaged as auditors until after December 31, 1997, we were
not present to observe the physical inventory taken for December 31, 1997, 1996
or 1995 and we were unable to satisfy ourselves regarding inventory quantities
by means of other audit procedures. Furthermore, the Company did not maintain
certain of its accounting records with respect to inventories at those dates,
and adequate evidential matter in support of recorded transactions was not
available in all cases. The amount of inventory at December 31, 1997, 1996 and
1995, materially affects the determination of the results of operations and cash
flows for the years ended December 31, 1998, 1997 and 1996.
Because of the matter discussed in the preceding paragraph the scope of our work
was not sufficient to enable us to express, and we do not express, an opinion on
the financial position at December 31, 1997 or on the results of its operations
and its cash flows for the years ended December 31, 1998, 1997 and 1996.
In our opinion, the balance sheet of Simulaids, Inc. as of December 31, 1998
presents fairly, in all material respects, the financial position of Simulaids,
Inc. as of December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
March 19, 1999
<PAGE>
SIMULAIDS, INC.
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 499,101 662,920
Trade accounts receivable (notes 3 and 4) 221,950 224,456
Inventories (notes 2 and 3) 987,239 833,198
Prepaid expenses and other current assets 50,236 22,697
----------- -----------
Total current assets 1,758,526 1,743,271
----------- -----------
Property, plant and equipment:
Land 61,944 61,944
Buildings and improvements 1,020,291 994,550
Machinery and equipment 1,291,634 1,238,005
Leasehold improvements 83,585 83,585
Cassette tapes 1,032,142 939,460
Office furniture, fixtures and equipment 127,716 124,861
Computer equipment 122,163 111,253
Vehicles 61,028 61,028
----------- -----------
3,800,503 3,614,686
Less: accumulated depreciation and amortization 2,565,829 2,320,764
----------- -----------
Net property, plant and equipment 1,234,674 1,293,922
Other assets:
CSV of officer's life insurance, net of
loans of $18,012 in 1998 and 1997 199,900 182,727
Patent costs, net of accumulated
amortization of $2,366 in 1998 and $1,912
in 1997 4,089 4,543
Deposits 15,809 586
Loan commitment fee, net - 2,275
----------- -----------
Total other assets 219,798 190,131
----------- -----------
Total assets $ 3,212,998 3,227,324
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Mortgage payable $ - 127,500
Trade accounts payable 75,332 50,392
Corporate taxes payable 5,295 2,862
Due to shareholder - 76,525
Accrued expenses 51,262 26,981
----------- -----------
Total liabilities 131,889 284,260
----------- -----------
Shareholder's equity:
Common stock, $1 par value.
Authorized 2,000 shares; issued and
outstanding 100 shares in 1998 and 1997 100 100
Additional paid-in capital 5,741 5,741
Retained earnings 3,075,268 2,937,223
----------- -----------
Total shareholder's equity 3,081,109 2,943,064
----------- -----------
Commitments and contingencies (note 3)
Total liabilities and shareholder's
equity $ 3,212,998 3,227,324
=========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIMULAIDS, INC.
Statements of Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 5,860,417 $ 5,478,380 $ 5,624,835
Cost of goods sold 3,266,388 2,965,358 3,258,789
------------ ----------- -----------
Gross profit 2,594,029 2,513,022 2,366,046
Selling, expenses 330,507 491,776 460,577
General and administrative expenses 873,246 744,074 640,365
------------ ----------- -----------
Income from operations -
manufacturing division 1,390,276 1,277,172 1,265,104
------------ ----------- -----------
Operating income (loss) -
video division (2,330) 21,969 20,245
------------ ----------- -----------
Other income (expense):
Other 126 7,912 1,633
Interest income 28,788 11,646 8,692
Interest expense (note 6) (11,187) (13,963) (20,800)
------------ ----------- -----------
17,727 5,595 (10,475)
------------ ----------- -----------
Income before income taxes
and shareholder's salary 1,405,673 1,304,736 1,274,874
State income tax provision 13,700 8,383 5,563
------------ ----------- -----------
Income before shareholder's
salary 1,391,973 1,296,353 1,269,311
Shareholder's salary 228,903 221,290 593,397
------------ ----------- -----------
Net income $ 1,163,070 $ 1,075,063 $ 675,914
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIMULAIDS, INC.
Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings Total
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 100 5,741 2,639,003 2,644,844
Net income -- -- 675,914 675,914
Distributions -- -- (751,068) (751,068)
------- ---------- ----------- -----------
Balance at December 31, 1996 100 5,741 2,563,849 2,569,690
Net income -- -- 1,075,063 1,075,063
Distributions -- -- (701,689) (701,689)
------- ---------- ----------- -----------
Balance at December 31, 1997 100 5,741 2,937,223 2,943,064
Net income -- -- 1,163,070 1,163,070
Distributions -- -- (1,025,025) (1,025,025)
------- ---------- ----------- -----------
Balance at December 31, 1998 $ 100 5,741 3,075,268 3,081,109
======= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIMULAIDS, INC.
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,163,070 1,075,063 675,914
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 247,794 260,296 252,049
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 2,506 1,903 134,100
Increase in inventories (154,041) (297) 2,727
(Increase) decrease in prepaid and other
current assets (27,539) 14,052 (17,809)
(Increase) decrease in deposits (15,223) 5,000 --
Increase (decrease) in trade accounts
payable 24,940 (6,961) (5,073)
Increase (decrease) in accrued and
other payables 26,714 294 (11,349)
-------------- ------------ -----------
Net cash provided by
operations 1,268,221 1,349,350 1,030,559
-------------- ----------- -----------
Cash flows from investing activities:
Increase in cash surrender value of
officers life insurance (17,173) (15,702) (15,373)
Purchase of property, plant and equipment (185,817) (137,378) (365,613)
-------------- ----------- -----------
Net cash used in investing
activities (202,990) (153,080) (380,986)
-------------- ----------- -----------
Cash flows from financing activities
Decrease in mortgage payable (127,500) (21,000) (151,352)
(Decrease) increase in due to shareholder (76,525) 76,525 --
Distributions to shareholder (1,025,025) (701,689) (751,068)
----------- ----------- -----------
Net cash used in financing
activities (1,229,050) (646,164) (902,420)
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (163,819) 550,106 (252,847)
Cash and cash equivalents at beginning of year 662,920 112,814 365,661
------------- ----------- -----------
Cash and cash equivalents at end of year $ 499,101 662,920 112,814
============= =========== ============
Supplemental cash flows information:
Cash paid during the year for interest $ 11,187 13,963 20,800
============= =========== ============
Cash paid during the year for income tax $ 14,900 5,500 11,300
============= =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIMULAIDS, INC.
Notes to Financial Statements
December 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) DESCRIPTION OF BUSINESS
Simulaids, Inc. (the "Company") operates two plants in Woodstock, N.Y.
engaged in the manufacturing of manikins and related products. The
Company sells both domestically and internationally and creates
training aids for emergency medical, rescue and law enforcement
personnel. The Company's raw materials are readily available, and the
Company is not dependent on a single supplier or only a few suppliers.
In addition, the Company operates a local retail video rental facility
in Saugerties, N.Y.
(b) CASH EQUIVALENTS
Cash equivalents consist of overnight repurchase agreements and money
market accounts with an initial term of three months or less at date
of purchase. For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost or market using the first-
in, first-out method.
(d) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost.
Depreciation on plant and equipment is calculated on the straight-line
or declining balance methods over the estimated useful lives of the
assets.
<TABLE>
<S> <C>
Buildings 40
Molds and Dies 7
Cars 5
Cassette tapes 1
Equipment 5-7
Furniture and fixtures 7
Improvements various
</TABLE>
<PAGE>
SIMULAIDS, INC.
Notes to Financial Statements
December 31, 1998 and 1997
(e) INCOME TAXES
The Company is a subchapter S corporation and, accordingly, no
provision has been made for Federal income taxes since the tax is the
responsibility of the individual owner and not the Company. Income tax
expense for 1998 and 1997 reflect state income taxes at the subchapter
S rate.
(f) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
revenues and expenses and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
(g) IMPAIRMENT OF LONG-LIVED ASSETS ON LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(2) INVENTORIES
At December 31, 1998 and 1997, inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $283,167 $285,350
Work-in-progress 129,577 135,435
Finished goods 567,722 412,413
-------- --------
$980,466 $833,198
======== ========
</TABLE>
<PAGE>
SIMULAIDS, INC.
Notes to Financial Statements
December 31, 1998 and 1997
(3) COMMITMENTS AND CONTINGENCIES
FINANCIAL GUARANTEES
As of December 31, 1998, the Company has issued guarantees aggregating
$3.5 million on borrowings by the owner of the Company. The guarantees are
secured by accounts receivable, fixed assets and inventory of the
suppliers. No amount has been accrued for the Company's obligation under
its guaranty arrangements.
LEASES
The Company leases two of its facilities from the owner of the Company on a
month-to-months basis. Rent expense related to these facilities was
$19,305, $18,900 and $19,766 in 1998, 1997 and 1996, respectively.
(4) BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are located throughout the United States and
internationally. Three, two and two customers accounted for more than five
percent of the Company's sales in 1998, 1997 and 1996, respectively, and no
account receivable from any customer exceeded $50,000 at December 31, 1998.
The Company estimates an allowance for doubtful accounts based on the
credit worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could effect the Company's
estimate of its bad debts.
(5) MORTGAGE PAYABLE
At December 31, 1997, the Company had a mortgage loan in the amount of
$127,500 bearing interest at 10% annually. The loan was repaid in 1998.
Interest expense for 1998, 1997 and 1996 was $11,187, $13,963 and $20,800,
respectively.
<PAGE>
PRO FORMA FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma statements of operations for the nine
months ended March 31, 1999 and the year ended June 30, 1998 reflect the
historical accounts of the Registrant for those periods, except for the
exclusion of the discontinued operation of The Strouse, Adler Company, adjusted
to give pro forma effect to the Simulaids acquisition as if the transaction had
occurred at the beginning of each period presented.
The following unaudited pro forma balance sheet as of March 31, 1999
reflects the historical accounts of the Registrant as of that date adjusted to
give pro forma effect to the Simulaids acquisition as if the transaction had
occurred as of March 31, 1999.
The pro forma financial data and accompanying notes should be read in
conjunction with the Consolidated Financial Statements and related notes
included in the Registrant's 1998 Annual Report on Form 10-K previously filed
with the Securities and Exchange Commission (the "Commission"), and the
Form 10-Q for the quarter ended March 31, 1999 previously filed with the
Commission. The Registrant believes that the assumptions used in the following
statements provide a reasonable basis on which to present the pro forma
financial data. The pro forma financial data is provided for informational
purposes only and should not be construed to be indicative of the Registrant's
financial condition or results of operations had the Simulaids acquisition been
consummated on the dates assumed and are not intended to project the
Registrant's financial condition on any future date or results of operations for
any future period.
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net Sales............................ $ - $ 4,409/1/ $ 4,409
Cost of goods sold.................. - 2,663/1/ 2,663
---------- ------- ----------
Gross Profit ................... - 1,746 1,746
---------- ------- ----------
Operating Expenses:
Selling............................ - 209/1/ 209
General and administrative......... 655 649/1/ 1,304
Product and development............ - 67/1/ 67
Goodwill amortization ............. - 169/2/ 169
---------- ------- ----------
Operating income (loss) from
continuing operations.......... (655) 652 (3)
---------- ------- ----------
Other income (expense):
Investment and interest income..... 609 (158)/3/ 451
Interest expense................... - (291)/4/ (291)
---------- ------- ----------
609 (449) 160
---------- ------- ----------
Income (loss) from continuing
operations before income
taxes.......................... (46) 203 157
Provision for income taxes........... (49) (33)/5/ (82)
---------- ------- ----------
Income (loss) from continuing
operations..................... (95) 170 75
Accreted dividends .................. 178 - 178
---------- ------- ----------
Income (loss) from continuing
operations available to
common shareholders............ $ (273) $ 170 $ (103)
========== ======= ==========
Loss from continuing operations
per share:
Basic ............................... $ (.22) $(.08)
========== ==========
Diluted ............................. $ (.22) $(.08)
========== ==========
Weighted average shares:
Basic ............................... 1,223,700 1,223,700
========== ==========
Diluted ............................. 1,223,700 1,223,700
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated pro forma financial statements.
<PAGE>
FOOTNOTES TO PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) Historical sales, cost of sales and operating expenses of Simulaids for the
nine month period ended March 31, 1999, as adjusted for the following:
(a) Cost of sales includes the impact of purchase accounting related to
valuing inventory and property and equipment at fair market value on
the date of acquisition. Included in the pro forma cost of sales
adjustment is (i) $259 of additional costs resulting from the increase
in the historical carrying value of the inventory and resulting sale
of such inventory in the nine months ended March 31, 1999 and (ii) $32
of lower costs resulting from an increase in the historical carrying
value of the property and equipment offset by revised remaining
economic lives of the acquired assets.
(b) Selling expenses reflects $133 of lower costs resulting from the
impact of a revised employment agreement with the Seller that was
entered into as a condition of the acquisition of Simulaids.
(2) Amortization of goodwill for the nine month period ended March 31, 1999.
Goodwill of $5,643 is being amortized on a straight line basis over a
25 year life.
(3) Reduction of the Registrant's investment and interest income resulting from
the use of $3,400 of cash as partial consideration for the acquisition of
Simulaids, at an annualized interest rate of 6.20%.
(4) Registrant interest expense resulting from the use of bank borrowings of
$5,000 as partial consideration for the acquisition of Simulaids, at an
annualized interest rate of 7.75%.
(5) Income tax provision for state taxes incurred on the income of Simulaids.
No federal income taxes are reflected due to the Registrant's net operating
loss carryforwards.
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net Sales.......................... $ - $ 5,527/1/ $ 5,527
Cost of goods sold................. - 3,371/1/ 3,371
---------- ------- --------
Gross Profit ............... - 2,156 2,156
---------- ------- --------
Operating Expenses:
Selling.......................... - 412/1/ 412
General and administrative....... 685 780/1/ 1,465
Product and development.......... - 93/1/ 93
Goodwill amortization ........... - 225/2/ 225
Nonrecurring tax claim
contingency fee ...... 480 - 480
---------- ------- --------
Operating income (loss) from
continuing operations........ (1,165) 646 (519)
---------- ------- --------
Other income (expense):
Investment and interest income.... 151 (151)/3/ -
Interest expense.................. (5) (388)/4/ (393)
---------- ------- --------
146 (539) (393)
---------- ------- --------
Income (loss) from continuing
operations before income
taxes ....................... (1,019) 107 (912)
Benefit from (provision for) income
taxes............................ 1,182 (30)/5/ 1,152
---------- ------- --------
Income from continuing
operations before minority
interest..................... 163 77 240
Minority interest ................. 72 - 72
---------- ------- --------
Income from continuing
operations................... 91 77 168
Accreted dividends ................ 126 - 126
---------- ------- --------
Income(loss) from continuing
operations available to
common shareholders........... $ (35) $ 77 $ 42
========== ======= ==========
Income (loss) from continuing
operations per share:
Basic ............................. $ (.03) $ .04
========== ==========
Diluted ........................... $ (.03) $ .04
========== ==========
Weighted average shares:
Basic ............................. 1,151,920 1,151,920
========== ==========
Diluted ........................... 1,151,920 1,181,920
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated pro forma financial statements.
<PAGE>
FOOTNOTES TO PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) Historical sales, cost of sales and operating costs of Simulaids for the
twelve month period ended June 30, 1998, as adjusted for the following:
(a) Cost of sales includes the impact of purchase accounting related to
valuing inventory and property and equipment at fair market value on
the date of acquisition. Included in the pro forma cost of sales
adjustment is (i) $259 of additional costs resulting from the increase
in the historical carrying value of the inventory and resulting sale
of such inventory in the twelve months ended June 30, 1998 and (ii)
$59 of lower costs resulting from an increase in the historical
carrying value of the property and equipment offset by revised
remaining economic lives of the acquired assets.
(b) Selling expenses reflects $123 of lower costs resulting from the
impact of a revised employment agreement with the Seller that was
entered into as a condition of the acquisition.
(2) Amortization of goodwill for the twelve month period ended June 30, 1998.
Goodwill of $5,643 is being amortized on a straight line basis over a 25
year life.
(3) Reduction of the Registrant's investment and interest income resulting from
the use of $3,400 of cash as partial consideration for the acquisition of
Simulaids, at an annualized interest rate of 5.80%.
(4) Registrant interest expense resulting from the use of bank borrowings of
$5,000 as partial consideration for the acquisition of Simulaids, at an
annualized interest rate of 7.75%.
(5) Income tax provision for state taxes incurred on the income of Simulaids.
No federal income taxes are reflected due to the Registrant's net operating
loss carryforwards.
<PAGE>
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents........ $ 8,152 $(3,163)/1/ $ 4,989
Marketable securities............ 811 - 811
Marketable securities held in
escrow, at market value ....... 710 - 710
Accounts receivable.............. - 391/2/ 391
Inventories...................... - 1,226/3/ 1,226
Other current assets............. 160 126/2/ 286
------- ------- -------
Total current assets............. 9,833 (1,420) 8,413
Property and equipment ............. 11 1,486/4/ 1,497
------- ------- -------
Other assets:
Marketable securities, at
market value ................. 2,098 - 2,098
Goodwill......................... - 5,643/5/ 5,643
Other noncurrent assets.......... 52 7/2/ 59
------- ------- -------
Total other assets............... 2,150 5,650 7,800
------- ------- -------
$11,994 $ 5,716 $17,710
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable and current
maturities of long-term debt... $ - $ 5,025/6/ $5,025
Current maturities of Series F,G
and H preferred stock.......... 799 - 799
Accounts payable................. - 44/2/ 44
Accrued expenses................. 189 401/7/ 590
Accrued tax reserves............. 720 104/8/ 824
------- ------- -------
Total current liabilities........... 1,708 5,574 7,282
------- ------- -------
Deferred tax liability.............. - 27/8/ 27
------- ------- -------
Long-term debt, less current
maturities ....................... - 115/2/ 115
------- ------- -------
Total liabilities................... 1,708 5,716 7,424
------- ------- -------
Series E preferred stock............ 2,250 - 2,250
------- ------- -------
Stockholders' equity................ 8,036 - 8,036
------- ------- -------
$11,994 $ 5,716 $17,710
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated pro forma financial statements.
<PAGE>
FOOTNOTES TO PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) Use of $3,400 of cash as partial consideration for the acquisition of
Simulaids, offset by $237 of cash acquired.
(2) Historical assets, liabilities, and debt of Simulaids as of March 31, 1999.
(3) Historical inventories of $967 obtained in the acquisition of Simulaids, as
adjusted for a $259 fair market value purchase price adjustment.
(4) Historical property and equipment of $1,191 obtained in the acquisition of
Simulaids, as adjusted for a $295 fair market value purchase price
adjustment.
(5) Excess of purchase price over the fair market value of assets and
liabilities assumed in the acquisition of Simulaids:
<TABLE>
<CAPTION>
<S> <C>
Purchase price to Seller $8,400
Transaction costs incurred 165
Tax obligations resulting from the acquisition 131
------
Total purchase price 8,696
Fair market value of assets and liabilities assumed 3,053
------
Excess of purchase price over the fair market value
of assets and liabilities assumed $5,643
======
</TABLE>
(6) Inclusion of historical debt of $25 of Simulaids assumed in the
acquisition and bank borrowing of $5,000 used as partial consideration by
the Registrant in the acquisition of Simulaids.
(7) Historical accrued expenses of Simulaids of $236 obtained in the
acquisition of Simulaids and accrued transaction costs incurred in
connection with the acquisition of Simulaids.
(8) Tax obligations resulting from the acquisition of Simulaids.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ARISTOTLE CORPORATION
-------------------------
(Registrant)
Date: July 16 , 1999 /s/ Paul McDonald
------ --------------------------------------
Paul McDonald, Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
2.1 Stock Purchase Agreement between The Aristotle Corporation and
Kevin Sweeney dated as of April 30, 1999
23 Consent of KMPG LLP
*99.1 Press Release dated May 4, 1999.
______________
* Previously filed with Form 8-K filed on May 18, 1999
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BETWEEN
THE ARISTOTLE CORPORATION
AND
KEVIN SWEENEY
Dated as of April 30, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of April 30, 1999 (the "Agreement"),
between The Aristotle Corporation, a corporation organized under the laws of the
State of Delaware (the "Purchaser"), and Kevin Sweeney, an individual residing
at Baumgarten Road, Woodstock, New York 12498 (the "Seller").
The Seller is the holder of 100 shares (the "Shares") of common stock, par
value $1.00 per share (the "Common Stock"), of Simulaids, Inc., a corporation
organized under the laws of the State of New York (the "Company"), which shares
of Common Stock constitute all of the issued and outstanding shares of Common
Stock of the Company;
The Purchaser desires to acquire from the Seller, and the Seller desires to
sell to the Purchaser, for the consideration hereinafter provided, the Shares;
and
Certain terms used in this Agreement are defined in Section 7.2 of this
Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Sale and Purchase of Shares.
---------------------------
1.1. Sale and Purchase of Shares. Subject to the terms and conditions
of this Agreement and on the basis of the representations, warranties, covenants
and agreements herein contained, contemporaneously with the execution hereof,
the Seller sells, assigns and conveys the Shares to the Purchaser, and the
Purchaser purchases, acquires and accepts from the Seller, the Shares.
2. Purchase Price.
--------------
2.1. Amount of Purchase Price. The aggregate purchase price for the
------------------------
Shares is Eight Million, Four Hundred Thousand Dollars ($8,400,000) in cash or,
in a form acceptable to the Seller and the Purchaser, cash equivalents (the
"Purchase Price") payable to accounts designated by the Seller and KeyBank
National National Association ("KeyBank").
3. Representations and Warranties of the Seller. The Seller hereby
--------------------------------------------
represents and warrants to the Purchaser as follows:
3.1. Organization and Good Standing. (a) The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of New York and has full corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now conducted. The
Company is not required to be qualified or authorized to do business as a
foreign corporation in any other jurisdiction.
<PAGE>
(b) The minute books of the Company, as previously made available to
the Purchaser and its counsel, contain accurate records of all meetings and all
other material corporate action of the Company's board of directors (including
any committees thereof) and stockholders.
3.2. Authorization of Agreement. The Seller has all requisite
--------------------------
capacity, power and authority to execute and deliver this Agreement, the
Employment Agreement and each other agreement, document, instrument or
certificate contemplated by this Agreement or to be executed by the Seller in
connection with the consummation of the transactions contemplated by this
Agreement (this Agreement, the Employment Agreement and the other agreements,
documents, instruments or certificates delivered pursuant to this Agreement are
hereinafter referred to as the "Transaction Documents"), and to perform fully
his obligations hereunder and thereunder. This Agreement has been, and each of
the other Transaction Documents will be (when executed and delivered by the
Seller), duly and validly authorized, executed and delivered by the Seller and
(assuming the due authorization, execution and delivery by the Purchaser) this
Agreement constitutes, and each of the other Transaction Documents will
constitute (when executed and delivered by the Seller), legal, valid and binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms, subject, as to enforceability, to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
3.3. Subsidiaries. The Company has no subsidiaries and does not own
------------
any other capital stock or other proprietary interest, directly or indirectly,
in any corporation, association, trust, partnership, joint venture or other
entity or have any agreement to acquire any such capital stock or other
proprietary interest.
3.4. No Conflicts; Consents of Third Parties. (a) The execution and
---------------------------------------
delivery by the Seller of this Agreement and the other Transaction Documents,
the consummation of the transactions contemplated hereby or thereby, and the
compliance by the Seller with any of the provisions hereof or thereof does not
and will not (i) conflict with, or result in the breach of, any provision of the
certificate of incorporation or by-laws of the Company; (ii) conflict with,
violate, result in the breach or termination of, or constitute a default or give
rise to any "takeback" right or right of termination or acceleration or right to
increase the obligations or otherwise modify the terms thereof under any
Contract, Permit or Order to which the Company or the Seller is a party or by
which the Company or the Seller or the properties or assets of the Seller or the
Company are bound; (iii) constitute a violation of any Law applicable to the
Company; or (iv) result in the creation of any Lien upon the properties or
assets of the Company or the Seller. No consent, waiver, approval, Order, Permit
or authorization of, or declaration or filing with, or notification to, any
Person or Governmental Body is required on the part of the Company or the Seller
in connection with the execution and delivery of this Agreement or the other
Transaction Documents, or the compliance by the Seller, with any of the
provisions hereof or thereof.
(b) The Company is not a party to any agreement, contract or covenant
limiting the freedom of the Company to compete in any line of business or with
any person or other entity in any geographic region within or outside of the
United States of America.
2
<PAGE>
3.5. Capitalization. (a) The authorized capital stock of the Company
--------------
consists of 2,000 shares of Common Stock and no shares of preferred stock. As of
the date hereof, 100 shares of Common Stock are issued and outstanding, all of
which are owned of record and beneficially by the Seller and constitute the
Shares. The Shares are validly issued, fully paid and non-assessable. There is
no existing option, warrant, call, right, commitment or other agreement of any
character to which the Company is a party requiring, and there are no securities
of the Company outstanding which upon conversion or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock or other equity securities of the Company. Neither the Company nor
the Seller is a party to any voting trust or other voting agreement with respect
to any shares of capital stock or, except as disclosed on SCHEDULE 3.5 of the
Disclosure Schedule, to any agreement relating to the issuance, sale,
redemption, transfer or other disposition of capital stock of the Company.
(b) The Shares purchased by the Purchaser constitute all of the issued
and outstanding capital stock of the Company on a fully diluted basis.
3.6. Financial Statements. The Seller has delivered to the
--------------------
Purchaser copies of the Company's (i) balance sheet as at December 31, 1998 and
the related statement of income for the year ended December 31, 1998 (the "1998
Financials"), (ii) the Company prepared balance sheet as at March 31, 1999 (the
"1999 Financials") and (iii) its compiled balance sheets as at September 30,
1998, December 31, 1997 and December 31, 1996 and the related compiled
statements of income and of cash flows for the periods then ended (the "Compiled
Financials") (the 1998 Financials, including anY schedules thereto, the 1999
Financials and the Compiled Financials, are referred to herein as the "Financial
Statements"). Each of the Financial Statements was prepared in good faith from
the books and records of the Company, is complete and correct in all material
respects, has been prepared in accordance with generally accepted accounting
principles and in conformity with the practices consistently applied by the
Company and presents fairly the financial position, results of operations and
cash flows of the Company as at the dates and for the periods indicated, except
as set forth on SCHEDULE 3.6 of the Disclosure Schedule. The books of account
and other financial records of the Company from which the Financial Statements
have been prepared are complete and correct.
3.7. No Undisclosed Liabilities. Except to the extent set forth
--------------------------
in the Financial Statements, or as set forth on SCHEDULE 3.7 of the Disclosure
Schedule which, to the best knowledge of the Seller or the Company, sets forth
with specificity each liability of the Company (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
unasserted), the Company has no Indebtedness and, to the best knowledge of the
Seller or the Company, there is no basis for the assertion of any claim or
material liability of any nature against the Company, except obligations under
Contracts described on SCHEDULE 3.13 of the Disclosure Schedule or under
Contracts that are not required to be disclosed thereon.
3.8. Absence of Certain Developments. Except as expressly set
-------------------------------
forth on SCHEDULE 3.8 of the Disclosure Schedule, since December 31, 1998:
3
<PAGE>
(a) There has not been any Material Adverse Change nor has any event
occurred which is likely to result in any Material Adverse Change;
(b) There has not been any damage, destruction or loss, whether or not
covered by insurance, with respect to the property and assets of the Company;
(c) There has not been (i) any declaration, setting aside or
authorizing the payment of, any dividend or other distribution in respect of any
shares of capital stock of the Company or any repurchase, redemption or other
acquisition by the Company of any of the outstanding shares of capital stock or
other securities of, or other ownership interest in, the Company or (ii) any
amount or asset paid or otherwise distributed to the Seller, whether as
compensation or otherwise;
(d) The Company has not (i) awarded or paid any bonuses to (A) the
Seller or (B) other employees of the Company, (ii) entered into or modified or
amended any employment, deferred compensation, severance or similar agreement,
(iii) increased or agreed to increase the compensation payable or to become
payable by it to any of the Company's directors, officers, employees, agents or
Representatives or (iv) increased or agreed to increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation for disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such directors,
officers, employees, agents or Representatives (other than normal increases in
the ordinary course of business consistent with past practice and that in the
aggregate have not resulted in a material increase in the benefits or
compensation expense of the Company);
(e) There has not been any change by the Company in accounting
principles, methods or policies;
(f) Except for purchases of raw materials and sales of the Company's
products to customers in the ordinary course of business consistent with past
practice, the Company has not entered into any Contract requiring payments in
excess of $25,000, or conducted its business other than in the ordinary course
of business consistent with past practice;
(g) The Company has not (i) incurred or repaid any Indebtedness, (ii)
made any loans, advances or capital contributions to any other Person or (iii)
assumed, guaranteed, endorsed or otherwise became liable for the obligations of
any other Person.
(h) The Company has not failed to promptly pay and discharge any
current liabilities except where disputed in good faith by appropriate
proceedings;
(i) The Company has not mortgaged, pledged or subjected to any Lien
any of its assets, or acquired any assets or sold, assigned, transferred,
conveyed, leased or otherwise disposed of any assets of the Company (other than
the sale of inventory in the ordinary course of business consistent with past
practice);
4
<PAGE>
(j) The Company has not discharged or satisfied any Lien, or paid any
obligation or liability (fixed or contingent), except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not be
material to the Company;
(k) The Company has not canceled or compromised any debt or claim or
amended, canceled, terminated, relinquished, waived or released any (i) Contract
to which the Seller or any of his Affiliates is a party or (ii) any other
Contract or right except (in the case of this clause (ii)) in the ordinary
course of business consistent with past practice and which, in the aggregate,
would not be material to the Company;
(l) The Company has not suffered any Extraordinary Loss or
Extraordinary Losses (as defined in Opinion No. 30 of the Accounting Principles
Board of the American Institute of Certified Public Accountants and any
amendments thereto);
(m) The Company has not transferred or granted any rights under any
concessions, leases, licenses, agreements or Intellectual Property used by the
Company in its business;
(n) The Company has not made or committed to make any capital
expenditures or capital additions or betterments;
(o) The Company has not instituted or settled any Legal Proceeding;
(p) There have not been any amendments or changes in the certificate
of incorporation or the by-laws of the Company;
(q) The Company has not entered into any Contract to take any action
which, if taken prior to the date hereof, would have made any representation or
warranty set forth in this Agreement untrue or incorrect as of the date when
made;
(r) The Company has caused to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its business; and
(s) The Company has maintained and kept its properties in good repair,
working order and condition, normal wear and tear excepted.
3.9. Taxes.
-----
(a) The Company and the Seller (i) have timely, completely and
accurately filed, or caused to be filed, with all appropriate U.S. federal,
state or local or foreign governmental agencies, all required tax and
information returns or automatic extensions, of whatever nature, related to the
Company for tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired, (ii) have duly paid, caused to be paid, or made adequate
provision in the balance
5
<PAGE>
sheet included in the 1998 Financials for, all its taxes (including, but not
limited to, income, sales, property, payroll, employment, gross receipts, excise
and franchise taxes), assessments, charges, penalties and interest, of whatever
nature ("Taxes"), due and payable with respect to all periods ending on or prior
to December 31, 1998, and (iii) have no "open" years for any tax or information
returns.
(b) Neither the Seller nor the Company has received, directly or
indirectly, notice of, and neither of them is otherwise aware of, any pending,
threatened, ongoing or past audit or examination by any Governmental Body with
respect to Taxes relating to the Company; nor is the Seller or the Company a
party, directly or indirectly, to any action or proceeding by any Governmental
Body for assessment or collection of Taxes relating to the Company; nor has any
claim for assessment and collection, or any notice of deficiency, been asserted
or proposed against the Seller or the Company, directly or indirectly, with
respect thereto; nor has the Seller or the Company executed a waiver of any
statute of limitations with respect thereto.
(c) All material elections with respect to Taxes affecting the Company
as of the date hereof are set forth on SCHEDULE 3.9 of the Disclosure Schedule.
(d) The Company is not liable for Taxes of any other Person, is not
currently under any contractual obligation to indemnify any Person with respect
to Taxes, and is not a party to any tax sharing agreement or any other agreement
providing for payments by the Company with respect to Taxes.
(e) The Company is not a party to any joint venture, partnership or
other arrangement or contract which is likely to be treated as a partnership for
United States federal income tax purposes.
(f) The Company will not be required, as a result of a change in
method of accounting for any period prior to the date hereof, to include any
adjustment under Section 481 of the Code (or any corresponding provision of
foreign law) in taxable income for any period after the date hereof.
(g) There are no jurisdictions other than New York and the United
States in which a tax or information return has been filed by the Company, and
no claim has ever been made by any tax authority in any other jurisdiction that
the Company is subject to taxation or required to file a tax or information
return in such jurisdiction.
(h) The Company filed an election to become an S corporation on
December 31, 1986.
3.10. Real Property.
--------------
(a) SCHEDULE 3.10 of the Disclosure Schedule sets forth a complete
list of all real property and interests in real property owned by the Company
("Owned Properties"). The Company has good, marketable and insurable title in
fee simple to all Owned Properties, in each case free and clear of all Liens of
any nature whatsoever except as set forth on SCHEDULE 3.10 of the Disclosure
Schedule.
6
<PAGE>
(b) SCHEDULE 3.10 of the Disclosure Schedule sets forth a complete
list of all real property and interests in real property leased by the Company
(individually, a "Real Property Lease") and identifies, for each Real Property
Lease, the parties thereto, the address of the property subject thereto, the
rent payable thereunder, the terms of any renewal options, the substance of any
amendments or modifications thereto and any reciprocal easement or operating
agreements relating thereto. The Company has good, marketable and insurable
title to the leasehold estates in all Real Property Leases, in each case free
and clear of all Liens of any nature whatsoever except as set forth on SCHEDULE
3.10 of the Disclosure Schedule.
(c) None of the Real Property Leases is subject to any lease,
sublease, license or other agreement granting to any other Person any right to
the use, occupancy or enjoyment of the Real Property Leases or any part thereof.
(d) Each of the Real Property Leases is valid and enforceable in
accordance with its terms, and there is no default under any Real Property Lease
either by the Company or any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a
default thereunder. Each of the Real Property Leases, upon the consummation of
the transactions contemplated hereby and by the other Transaction Documents,
will continue to entitle the Company to the use, occupancy and possession of the
real property specified in such Real Property Lease. The Company has delivered
or otherwise made available to the Purchaser true, correct and complete copies
of the Real Property Leases, together with all amendments, modifications,
supplements or side letters affecting the obligations of any party thereunder.
(e) No previous or current party to any Real Property Lease has given
notice of or made a claim with respect to any breach or default thereunder.
3.11. Tangible Personal Property.
--------------------------
(a) SCHEDULE 3.11 of the Disclosure Schedule sets forth all personal
property of the Company, whether owned or leased ("Personal Property"), relating
to personal property used in the business of the Company or to which the Company
is a party or by which the Company or any of its respective properties or assets
is bound. The Company has delivered or otherwise made available to the
Purchaser true, correct and complete copies of all leases relating to leased
Personal Property ("Personal Property Leases"), together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder.
(b) Each of the Personal Property Leases is in full force and effect
and is valid, binding and enforceable in accordance with its terms, and there is
no default under any Personal Property Lease either by the Company or by any
other party thereto, and no event has occurred that with the lapse of time or
the giving of notice or both would constitute a default thereunder.
7
<PAGE>
(c) The Company has good and marketable title to all of the material
items of tangible personal property that are owned and used by it, free and
clear of any and all Liens, except as set forth on SCHEDULE 3.11 of the
Disclosure Schedule. All items of tangible personal property which,
individually or in the aggregate, are material to the operation of the business
of the Company are in good condition and in a state of good maintenance and
repair (ordinary wear and tear excepted) and are suitable for the purposes used
for the operation of the business of the Company.
3.12. Intellectual Property.
---------------------
(a) SCHEDULE 3.12 of the Disclosure Schedule contains a complete and
accurate list and brief description of all Intellectual Property owned or used
by the Company along with the name of any joint owner of such Intellectual
Property.
(b) All Intellectual Property used by the Company in the operation of
its business is either (i) owned by the Company free and clear of all Liens, or
(ii) subject to a right of use pursuant to a license or other agreement. Except
as set forth on SCHEDULE 3.12 of the Disclosure Schedule, no third party has
been granted by the Company the right to use any Intellectual Property owned or
used by the Company. To the best knowledge of the Company or the Seller, no
third party is infringing upon or misappropriating any Intellectual Property
used by the Company in the operation of its business and no activity in which
the Company is engaged violates or infringes upon any Intellectual Property or
other proprietary rights of any third party. There is no legal action by any
Person pending or, to the best knowledge of the Company or the Seller,
threatened against the Company with respect to such matters, and no claim with
respect to such matters has been received by the Company.
3.13. Material Contracts.
------------------
(a) Except as set forth on SCHEDULE 3.13 of the Disclosure Schedule,
or in the other Disclosure Schedules, neither the Company nor any of its
properties or assets is a party to or bound by any (i) Contract not made in the
ordinary course of business; (ii) employment, consulting, non-competition,
severance, golden parachute or indemnification Contract (including, without
limitation, in each case any Contract to which the Company is a party involving
employees of the Company); (iii) advertising, public relations, franchise,
distributorship or sales agency Contract; (iv) Contract involving the
commitment, payment or receipt in excess of $25,000 in the aggregate, except for
Contracts involving purchases of raw materials and sales of the Company's
products to customers in the ordinary course of business consistent with past
practice; (v) Contract granting a right of first refusal for the acquisition,
sale or lease of any assets or capital stock of the Company; (vi) Contract with
any Person involving a sharing of profits; (vii) mortgage, pledge, conditional
sales contract, security agreement, factoring agreement or other similar
Contract with respect to any real or tangible personal property of the Company;
(viii) loan agreement, credit agreement, promissory note, guarantee,
subordination agreement, letter of credit or any other similar type of Contract
evidencing Indebtedness; (ix) Contract with any Governmental Body; (x) Contract
with respect to the inspection, removal or remediation of Hazardous Materials;
(xi) retainer Contract with attorneys, accountants, actuaries, appraisers,
investment bankers or other professional advisers which is not terminable at the
will
8
<PAGE>
of either party without penalty or premium; or (xiii) commitment or agreement to
enter into any of the foregoing. The Company has delivered or otherwise made
available to the Purchaser true, correct and complete copies of the Contracts
listed on SCHEDULE 3.13 of the Disclosure Schedule, together with all
amendments, modifications, supplements or side letters affecting the obligations
of any party thereunder.
(b) (i) To the best knowledge of the Company or the Seller, (A) each
of the Contracts listed on SCHEDULE 3.13 of the Disclosure Schedule is valid and
enforceable in accordance with its terms, (B) there is no default under any
Contract listed on SCHEDULE 3.13 of the Disclosure Schedule by the Company or by
any other party thereto and (C) no event has occurred that with the lapse of
time or the giving of notice or both would constitute a default thereunder.
(ii) No previous or current party to any Contract listed on
SCHEDULE 3.13 has given notice of or made a claim with respect to any breach or
default thereunder.
3.14. Employees.
---------
(a) The Company has satisfactory relationships with its employees.
Except as set forth on SCHEDULE 3.14 of the Disclosure Schedule, no employee of
the Company has left the employ of the Company within the past thirty days.
(b) To the best knowledge of the Company or the Seller, no condition
or state of facts or circumstances exists which is likely to materially
adversely affect the Company's relations with its employees, including, without
limitation, the consummation of the transactions contemplated by this Agreement
or by the other Transaction Documents.
(c) The Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours and is not engaged in any unfair labor practice.
(d) No collective bargaining agreement with respect to the business of
the Company is currently in effect or being negotiated. The Company has not
encountered any labor union or collective bargaining organizing activity with
respect to its employees. The Company has no obligation to negotiate any such
collective bargaining agreement, and, to the best knowledge of the Company or
the Seller, there is no indication that the employees of the Company desire to
be covered by a collective bargaining agreement.
(e) There are no strikes, slowdowns or work stoppages pending or, to
the best knowledge of the Company or the Seller, threatened with respect to the
employees of the Company, nor has any such strike, slowdown or work stoppage
occurred or, to the best knowledge of the Company or the Seller, been
threatened.
(f) The Company has not received notice of the intent of any
government, body or agency responsible for the enforcement of labor or
employment laws to conduct an investigation of the Company, and, to the best
knowledge of the Company or the Seller, no such investigation is in progress.
9
<PAGE>
(g) A true and correct copy of a schedule listing as of December 31,
1998 the annual base salary or annualized wages of each employee of the Company
has been provided to the Purchaser.
(h) Except as set forth on SCHEDULE 3.14 of the Disclosure Schedule,
no employee of the Company has any employment agreement, non-disclosure
agreement, non-compete agreement or any other agreement regarding an employee's
employment with the Company. All of the Company's employees are "at will"
employees.
3.15. Employee Benefits.
-----------------
(a) Except as set forth on SCHEDULE 3.15(A) of the Disclosure
Schedule, there are no Employee Benefit Plans. "Employee Benefit Plan" means
any "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and any other plan,
policy, program, practice, agreement, understanding or arrangement (whether
written or oral) providing compensation or other benefits to any current or
former officer, employee or consultant (or to any dependent or beneficiary
thereof) of the Company or any ERISA Affiliate, which are, or within the last
six (6) years were, maintained by the Company or any ERISA Affiliate, or under
which the Company or any ERISA Affiliate has or had any obligation to contribute
or has or could have any liability (whether actual or contingent), including,
without limitation, all incentive, bonus, deferred compensation, severance pay,
vacation, holiday, cafeteria, disability, life, accident or other insurance,
stock purchase, stock option, stock appreciation right, phantom stock, or other
equity-based compensation plans. "ERISA Affiliate" means any entity (whether or
not incorporated) other than the Company that, with the Company, is or was a
member of a controlled group of corporations within the meaning of Section
414(b) of the Code, of a group of trades or businesses under common control
within the meaning of Section 414(c) of the Code, or of an affiliated service
group within the meaning of Section 414(m) of the Code.
The Company has delivered to the Purchaser true and complete copies of
(i) any procedures and policies relating to the employment of employees of the
Company and the use of temporary employees and independent contractors by the
Company (including written summaries of any unwritten procedures and policies),
(ii) plan instruments and amendments thereto (including written summaries of
unwritten plans or amendments) for all Employee Benefit Plans and related trust
agreements, insurance and other contracts, summary plan descriptions, and
summaries of material modifications, and material communications distributed to
the participants of each Plan and (iii) the two most recent Forms 5500 and
attached schedules for each such Employee Benefit Plan requiring such reports.
(b) Neither the Company nor any ERISA Affiliate maintains or
contributes to or has ever maintained or contributed to an Employee Benefit Plan
subject to Title IV of ERISA (including, without limitation, any "multiemployer
plan" within the meaning of Section 3(37) of ERISA), and no event has occurred
or is likely to occur and no condition exists or is likely to exist which could
result in the Company having any liability under Title IV of ERISA.
10
<PAGE>
(c) Each Employee Benefit Plan intended to be qualified under 401(a)
of the Code has received a favorable notification letter from the Internal
Revenue Service covering all amendments required by the Tax Reform Act of 1986
and prior legislation, and nothing has occurred and no circumstances exist that
adversely affect any such favorable notification. Each Employee Benefit Plan is
and has been maintained in form and operation in all material respects in
compliance with its terms and all applicable laws. As of and including the date
hereof, the Company shall have made all contributions required to be made with
respect to each Employee Benefit Plan, or adequate accruals therefor will have
been provided for and will be properly reflected on the books of the Company.
(d) There are no actions, claims (other than routine claims for
benefits), lawsuits or arbitrations pending or, to the best knowledge of the
Company or the Seller, threatened with respect to any Employee Benefit Plan or
against any fiduciary of any Employee Benefit Plan.
(e) No Employee Benefit Plan provides for post-retirement medical or
health, life insurance or death benefits, except as may be required by Part 6 of
Subtitle B of Title I of ERISA and Section 4980B of the Code ("COBRA").
(f) Except as set forth in SCHEDULE 3.15(F) of the Disclosure
Schedule, the Company has not proposed, announced or agreed to create any
additional Employee Benefit Plans or to amend or modify any Employee Benefit
Plan in a manner that would materially increase benefits or create new benefits.
(g) Except as set forth on SCHEDULE 3.15(G) of the Disclosure
Schedule, no person or entity has an employment, severance or independent
contractor agreement with the Company.
(h) The consummation of the transactions contemplated by this
Agreement will not result in (i) any payment (including, without limitation,
severance, unemployment compensation, golden parachute or bonus payments or
otherwise) becoming due to any current or former director, officer, employee or
consultant of the Company, (ii) any increase in the amount of compensation or
benefits payable in respect of any director, officer, employee or consultant of
the Company, (iii) accelerate the vesting or timing of payment of any benefits
or compensation payable in respect of any director, officer, employee or
consultant of the Company, or (iv) result in any "parachute payment" under
Section 280G of the Code, whether or not such amount may be considered
reasonable compensation for personal services rendered.
11
<PAGE>
3.16. Litigation.
----------
(a) There are no Legal Proceedings pending or threatened that question
the validity of this Agreement or any of the other Transaction Documents or any
action taken or to be taken in connection with the consummation of the
transactions contemplated hereby or thereby. SCHEDULE 3.16 of the Disclosure
Schedule sets forth a true, correct and complete list of all Legal Proceedings
pending or threatened against or affecting the Company, or any properties or
assets of the Company, at law or in equity.
(b) There is no outstanding or threatened Order of any Governmental
Body against, affecting or naming the Company or affecting any of the business,
properties or assets of the Company.
3.17. Compliance with Laws; Permits.
-----------------------------
(a) To the best knowledge of the Company or the Seller, the Company is
in compliance in all material respects with all Laws and Orders promulgated by
any Governmental Body applicable to the Company or to the conduct of the
business or operations of the Company or the use of the properties (including
any leased properties) and assets of the Company. The Company has not received,
and to the best knowledge of the Company or the Seller there has been no
issuance of, any notice of a violation or alleged violation by the Company of
any such Law or Order. Neither Seller nor the Company has been advised of any
pending investigation or review by any Governmental Body with respect to the
Company nor, to the best knowledge of the Company or the Seller, has such
investigation or review been threatened, nor has any Governmental Body notified
the Company or the Seller of its intention to conduct the same.
(b) The Company is not subject to any Legal Proceeding, Order,
settlement or, to the best knowledge of the Company or the Seller, investigation
alleging or addressing a material violation of, or material liability under, any
Law.
(c) SCHEDULE 3.17 of the Disclosure Schedule lists all Permits of the
Company of all Governmental Bodies, indicating, in each case, the expiration
date thereof, which Permits constitute, to the best knowledge of the Company or
the Seller, all Permits required by the nature of the operations of the Company
to permit its operations in the manner in which they are currently conducted.
Such Permits, to the best knowledge of the Company or the Seller, have been
validly issued to the Company by the appropriate Governmental Bodies in
compliance with all applicable Laws, and the Company has complied in all
material respects with all conditions of such Permits applicable to it. No
default or violation, or, to the best knowledge of the Company or the Seller,
event that with the lapse of time or giving of notice or both would become a
default or violation, has occurred in the due observance of any such Permit.
All such Permits are in full force and effect without further consent or
approval of any Person.
3.18. Environmental Matters.
---------------------
(a) To the best knowledge of the Seller or the Company, the Company is
in compliance with all applicable Environmental Laws which compliance includes,
but is not
12
<PAGE>
limited to, the possession by the Company of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof. Except as set forth on
SCHEDULE 3.18 of the Disclosure Schedule, the Company has not received written
notice of, and, neither the Company nor the Owned Properties, nor any
predecessor of the Company is the subject of, any Environmental Claim or
Remedial Action. To the best knowledge the Seller or the Company, there are no
circumstances or conditions related to the Business, the Owned Properties or any
property leased by the Company that are reasonably likely to prevent or
interfere with such compliance or give rise to an Environmental Claim or
Remedial Action in the future.
(b) There are no Environmental Claims that are pending or, to the best
knowledge of the Seller or the Company, threatened against the Company or, to
the best knowledge of the Seller or the Company, against any person or entity
whose liability for any Environmental Claim the Company has or may have retained
or assumed either contractually or by operation of law.
(c) To the best knowledge of the Seller or the Company, neither the
Company nor any other Person has (a) disposed of, transported or arranged for
the disposal of any Hazardous Materials to, at or upon: (i) any location other
than a site lawfully permitted to receive such Hazardous Materials, (ii) any
parcel of real property owned or leased by the Company; (iii) any site which,
pursuant to CERCLA or any similar state law (x) has been placed on the National
Priorities List, CERCLIS or their state equivalents, or (b) knowledge that there
has occurred or is presently occurring a Release, or threatened Release, of any
Hazardous Materials on, into or beneath the surface of, or adjacent to, any real
property owned or leased by the Company.
(d) SCHEDULE 3.18 of the Disclosure Schedule identifies (a) all
environmental audits, assessments, or occupational health studies undertaken by
the Company or its agents on its behalf, or undertaken by any governmental
authority, or any third party, relating to or affecting any real property owned
or leased by the Company; (b) the results of any groundwater, soil, air or
asbestos monitoring undertaken by the Company or its agents on its behalf, or,
to the best knowledge of the Company or the Seller, undertaken by any
governmental authority or any third party, relating to or affecting any real
property owned or leased by the Company; (c) all written communications between
the Company and any governmental authority arising under or related to
Environmental Laws; and (d) all outstanding citations issued under OSHA, or
similar state or local statutes, laws, ordinances, codes, rules, regulations,
orders, rulings or decrees relating to or affecting any real property owned or
leased by the Company.
3.19. Insurance. SCHEDULE 3.19 of the Disclosure Schedule sets forth
---------
a list of all policies of insurance of any kind or nature covering the Company
or paid for by the Company and covering any of its employees, properties,
assets, or operations, including, without limitation, policies of life,
disability, fire, theft, workers compensation, employee fidelity, product
liability and other casualty and liability insurance (the "Insurance Policies").
The Company has not received any notice of revocation or cancellation any of the
Company's Insurance Policies and, to the best knowledge of the Seller or the
Company, all of the Company's Insurance Policies are in full force and effect.
All of the Company's Insurance Policies are, to the best knowledge of the
Company or the Seller, binding and effective upon the issuers thereof (each of
whom is reputable and creditworthy) in accordance with their respective terms.
13
<PAGE>
3.20. Inventory; Receivables; Payables.
--------------------------------
(a) Except as set forth on SCHEDULE 3.20 of the Disclosure Schedule,
the inventory of the Company (including that reflected on the Financial
Statements) is, on the date hereof, in good and merchantable condition, and
suitable and usable or saleable in the ordinary course of business, subject to
defective or rejected material within allowances consistent with past practice,
and has been reflected on the Financial Statements and carried on the books of
account of the Company in accordance with generally accepted accounting
principles, consistently applied. Without limiting the generality of the
foregoing, such inventory does not include any material quantities of obsolete,
below standard quality or defective materials or any excess stock items, except
as have been reserved against as reflected on the Financial Statements. The
Company's assets include a sufficient but not an excessive quantity of each type
of inventory in order to meet the normal requirements of the Company's business,
consistent with past practices.
(b) All accounts receivable of the Company have arisen from bona fide
transactions in the ordinary course of business consistent with past practice
and are legally binding. All accounts receivable of the Company reflected on
the Financial Statements, or arising after the date thereof, are good and
collectible, to the best knowledge of the Company or the Seller, at the
aggregate recorded amounts thereof, net of any applicable reserve for returns or
doubtful accounts reflected thereon, which reserves are adequate and were
calculated in a manner consistent with past practice and in accordance with
generally accepted accounting principles consistently applied. Since December
31, 1998, to the best knowledge of the Company or the Seller, there has been no
event that could materially increase the ratio of uncollectible accounts
receivable ("Uncollectible Receivables") to the accounts receivable or cause the
Company's reserve, if any, for Uncollectible Receivables to be inadequate. To
the best knowledge of the Company or the Seller, none of such accounts
receivable is subject to any defense, counterclaim or setoff.
(c) All accounts payable of the Company reflected in the Financial
Statements or arising after the date thereof and prior to the date hereof are
the result of bona fide transactions in the ordinary course of business
consistent with past practice and have been paid or are not yet due and payable.
3.21. Major Suppliers and Customers.
-----------------------------
(a) Since December 31, 1997, there has not been any Material Adverse
Change in the business relationship of the Company with its suppliers and
neither the Company nor the Seller has any knowledge that there will be any such
change. The Company has no supplier from which it purchased more than 5% of its
materials or inventory during the fiscal year ended December 31, 1998, except as
disclosed on SCHEDULE 3.21(A) of the Disclosure Schedule.
14
<PAGE>
(b) Since December 31, 1997, there has not been any Material Adverse
Change in the business relationship of the Company with its customers and
neither the Company nor the Seller has any knowledge that there will be any such
change. Except as disclosed on SCHEDULE 3.21(B) of the Disclosure Schedule, the
Company has no customer to which it sold more than 5% of its inventory during
the fiscal year ended December 31, 1998.
3.22. Related Party Transactions. Except as set forth on SCHEDULE
--------------------------
3.22 of the Disclosure Schedule, since December 31, 1997 no officer, director or
affiliate (or any relative of any of them) of the Company has entered into any
transaction with or is a party to any Contract with the Company. No officer,
director or Affiliate (or any relative of any of them) of the Company owns any
direct or indirect interest of any kind in, or controls or is a director,
officer, employee or partner of, or consultant to, or lender to or borrower from
or has the right to participate in the profits of, any Person which is a
competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company.
3.23. Entire Business. The assets, properties and rights which will
---------------
be owned or leased by the Company as of the date hereof will constitute all of
the tangible and intangible property used by and necessary to the Company in
connection with the conduct of its business in accordance with past practice.
3.24. No Misrepresentation. No representation or warranty of the
--------------------
Seller contained in this Agreement (including the Disclosure Schedules hereto)
or in any other Transaction Document furnished to the Purchaser pursuant to the
terms hereof contains any untrue statement of a material fact or omits to state
a fact which would reasonably be deemed to be material to the business of the
Company. The Seller does not know of any facts which have caused or in the
future are reasonably likely to cause a Material Adverse Change which has not
been disclosed herein or in a Disclosure Schedule thereto. The representations
and warranties contained in this Section 3.24 or elsewhere in this Agreement or
in any other Transaction Document shall not be affected or deemed waived by
reason of the fact that the Purchaser and/or its Representatives should have
known that any such representation or warranty is or might be inaccurate in any
respect.
3.25. Product Liability and Recalls. (a) Except as disclosed on
-----------------------------
SCHEDULE 3.25 of the Disclosure Schedule, neither the Company nor the Seller is
aware of any claim, or the basis of any claim, against the Company for injury to
person or property of employees or any third parties suffered as a result of the
manufacture, sale or distribution of any product or the performance of any
service by the Company, including claims arising out of the allegedly defective
or unsafe nature of the products sold or distributed by the Company.
(b) There is no pending or, to the best knowledge of the Company or
the Seller, threatened recall or investigation of any product sold or
distributed by the Company.
(c) There are no liabilities or threatened claims for (a) product
returns, (b) warranty obligations or (c) product services other than those
arising in the ordinary course of business consistent with past practice.
15
<PAGE>
3.26. Financial Advisors. No Person has acted directly or indirectly
------------------
as a broker, finder or financial advisor for the Company or the Seller (other
than James Mushett, CPA and McCabe & Mack, LLP) in connection with the
negotiations relating to or the transactions contemplated by this Agreement or
by the other Transaction Documents and no Person is entitled to any brokerage
fee or commission or like payment in respect thereof contingent in any way on
agreements, arrangements or understandings made by or on behalf of the Company
or of the Seller.
4. Representations and Warranties of the Purchaser. The Purchaser hereby
-----------------------------------------------
represents and warrants to the Seller that:
4.1. Organization and Good Standing. The Purchaser is duly organized,
------------------------------
validly existing and in good standing under the laws of the State of Delaware.
4.2. Authorization of Agreement. The Purchaser has all requisite
--------------------------
corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents to be executed by the Purchaser in connection
with the consummation of the transactions contemplated hereby and thereby, and
to perform fully its obligations hereunder and thereunder. The execution,
delivery and performance by the Purchaser of this Agreement and each of the
other Transaction Documents to be executed by the Purchaser has been duly
authorized by all necessary action on behalf of the Purchaser. This Agreement
has been, and each of the other Transaction Documents will be (when executed and
delivered by the Purchaser), duly and validly executed and delivered by the
Purchaser and (assuming the due authorization, execution and delivery by the
Seller) this Agreement constitutes, and each of the other Transaction Documents
will constitute (when executed and delivered by the Purchaser), legal, valid and
binding obligations of the Purchaser, enforceable against the Purchaser in
accordance with their respective terms, subject, as to enforceability, to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3. No Conflicts; Consents of Third Parties. The execution and
---------------------------------------
delivery by the Purchaser of this Agreement and the other Transaction Documents
to be executed by the Purchaser, the consummation of the transactions
contemplated hereby or thereby, and the compliance by the Purchaser with any of
the provisions hereof or thereof does not and will not (a) conflict with, or
result in the breach of, the certificate of incorporation or by-laws of the
Purchaser, (b) conflict with, violate, result in the breach of, or constitute a
default under any Contract or Order to which the Purchaser is a party or by
which the Purchaser or its properties or assets are bound or (c) constitute a
violation by the Purchaser of any Law applicable to the Purchaser. Except as set
forth on SCHEDULE 4.3 of the Disclosure Schedule, no consent, waiver, approval,
Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of the
Purchaser in connection with the execution and delivery of this Agreement or the
other Transaction Documents to be executed by the Purchaser or the compliance by
the Purchaser with any of the provisions hereof or thereof which has not been
made or obtained.
16
<PAGE>
4.4. Litigation. There are no Legal Proceedings against the Purchaser
----------
pending or, to the best knowledge of the Purchaser, threatened that question the
validity of this Agreement or any of the other Transaction Documents or any
action taken or to be taken by the Purchaser in connection with the consummation
of the transactions contemplated hereby or thereby.
4.5. From and after the date hereof, for a period of at least two
(2) years, Purchaser shall cause the Company to maintain a presence in the
Company's current Woodstock, New York location reasonably commensurate with its
current presence.
4.6. Purchaser does not currently intend, and has no current plans to
re-sell the Company or its assets except to a Successor as defined herein.
5. Additional Representations, Warranties and Covenants of the Seller and
----------------------------------------------------------------------
the Purchaser.
-------------
5.1. Title to Shares. The Seller represents and warrants to, and
---------------
covenants and agrees with, the Purchaser that, the Seller has good and
marketable title to the Shares, free and clear of all Liens of any kind or
nature whatsoever, except as disclosed on SCHEDULE 5.1 of the Disclosure
Schedule, and that the Purchaser is obtaining good and marketable title to the
Shares, free and clear.
5.2. Resignation of Directors and Officers of the Company. The Seller
----------------------------------------------------
agrees that, at any time after the date hereof, if requested by the Purchaser,
each of the officers and directors of the Company will resign their respective
positions as officers and directors of the Company immediately upon receipt of
such request.
5.3. Necessary Elections and Consents. The Seller agrees, if so
--------------------------------
directed by the Purchaser and upon receipt by the Seller of a Guaranty of
Purchaser's obligations under this Section 5.3 satisfactory (in form and
substance and as to the Guarantor) to the Seller in his sole, absolute and
unfettered discretion, to join with the Purchaser in making an election under
Section 338 of the Code (and any similar provisions of state or local laws) (a
"338 Election") with respect to the purchase of the Shares pursuant to this
Agreement. Upon such direction, notwithstanding any other provision of this
Agreement, the Purchaser agrees to the following:
(a) Purchaser shall cause the Seller's 1999 federal (and state and
local, if applicable) tax return on which the 338 Election is made to be
prepared by a reputable preparer selected by the Purchaser and paid by the
Purchaser. The 338 Election forms shall be signed by the Purchaser and the
Seller.
(b) The Seller's obligation to join the Purchaser in the 338 Election
is conditioned on Arthur Andersen LLP furnishing an unqualified opinion letter
to the Seller, which letter shall state that the 338 Election is in full
compliance with the Code and the regulations relating to a 338 election,
including the allocation of Purchase Price (the "Andersen Allocation"). The
Andersen Allocation is subject to the Seller's consent, which consent shall not
be unreasonably withheld. In the event the Seller withholds his consent to the
Andersen Allocation,
17
<PAGE>
the Seller shall select one of Deloitte & Touche LLP, Ernst & Young LLP, KPMG
Peat Marwick LLP or PricewaterhouseCoopers LLP to, at the Purchaser's sole
expense, independently determine the allocation of the Purchase Price for the
338 Election, which determination, if supported by an opinion letter as required
above, shall be binding on both the Purchaser and the Seller.
(c) The Purchaser acknowledges that it and any accounting firm issuing
an opinion and allocation pursuant to Section 5.3(b) has (and will have)
knowledge that appraisals performed by KeyBank, in connection with a loan made
to the Seller appraised the Owned Property of the Company, at $1,050,000 and
that KeyBank made no appraisal of any tangible personal property and the Seller
and the Company have made no representations as to the value of such tangible
personal property of the Company.
(d) If, as a result of joining the Purchaser in making the 338
Election, the Seller shall incur any costs, including, without limitation,
additional taxes, interest, penalties, attorneys' fees and accountants fees, and
any other expenses attributable to joining the Purchaser in the 338 Election,
then Purchaser shall pay such costs on demand, prior to the due date of any
applicable return, and shall defend, indemnify and hold harmless the Seller for
any such costs, and/or the tax on any amount, received by him purusuant to this
Section 5.3. Any such additional costs shall be fully paid by the Purchaser.
For the purpose of this Section 5.3(d), "additional taxes" shall mean the
excess, if any, of (i) the taxes owed by the Seller on the sale of the Shares as
a result of joining the Purchaser in the 338 Election over (ii) the taxes that
would have been owed by the Seller on the sale of the Shares if he did not join
the Purchaser in the 338 Election.
5.4 Seller's Taxes. (a) The Purchaser shall, within 90 days of the
--------------
date hereof, provide the Seller with financial statements of the Company as of
April 30, 1999 and for the four-month period then-ended (the "Short-Year
Financials"). The Purchaser agrees to allow the Seller and his representatives
reasonable access during business hours to obtain additional information for the
purpose of preparing the Company's and Seller's 1998 tax returns, determining
the Seller's 1998 tax and determining the Company's 1999 subchapter "S" short
year taxable income for the period from January 1, 1999 to April 30, 1999 (the
"Short-Year Taxable Income").
(b) Upon completion of the 1998 tax returns referred to in Section
5.4(a), any sums due to Seller or the Purchaser pursuant to SCHEDULE 3.8 of the
Disclosure Schedule shall be so paid. Upon determination of the Company's
Short-Year Taxable Income based upon the Short-Year Financials, the Purchaser
shall pay to the Seller an amount equal to 43% of the Short-Year Taxable Income
(net of any interest payable to KeyBank) of the Company, as set forth in the
Short-Year Financials.
6. Further Agreements of the Parties.
---------------------------------
6.1. Indemnity. (a) The Seller agrees to indemnify, defend and hold
harmless the Purchaser (and each officer, director, shareholder, affiliate,
agent and permitted assign thereof) from and against any and all losses,
liabilities, damages, deficiencies, costs or expenses
18
<PAGE>
(including interest, penalties, and attorneys' fees, disbursements and related
charges) (collectively, "Losses") based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representations, warranties,
covenants or agreements of the Seller contained in this Agreement or the other
Transaction Documents.
(b) The Purchaser agrees to indemnify, defend and hold harmless the
Seller from and against any and all Losses based upon, arising out of or
otherwise in respect of any inaccuracy in or breach of any representations,
warranties, covenants or agreements of the Purchaser contained in this Agreement
or the other Transaction Documents.
7. Miscellaneous.
-------------
7.1. Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the Seller contained in this Agreement shall survive for the
benefit of the Purchaser as follows: (i) as to the representations and
warranties contained in Sections 3.5 and 5.1, forever; (ii) as to the
representations and warranties contained in Sections 3.15 and 3.18, the
applicable statutes of limitations; (iii) as to the representation and
warranties contained in Section 3.9, until 60 days following the expiration of
all periods allowed for objecting and appealing the determination of any
proceedings relating to any assessment or reassessment by any tax authority with
respect to the matters to which such representations and warranties pertain; and
(iv) as to all other representations and warranties, until two years following
the date hereof. The representations and warranties of the Purchaser shall
survive for the benefit of the Seller until two years following the date hereof,
except that the indemnity contained in Section 5.3(d) shall survive forever.
7.2. Certain Definitions.
-------------------
"Affiliate" shall have the meaning specified by Rule 12b-2 under
---------
the Securities Exchange Act of 1934, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means shares of the Company's Common Stock, no par
------------
value.
"Confidential Information" shall mean confidential records and
------------------------
information, including, but not limited to, development, marketing, purchasing,
organizational, strategic, financial, managerial, administrative, manufacturing,
production, distribution and sales information, distribution methods, data,
specifications and processes presently owned or at any time hereafter developed
by a Person or its agents or consultants or used presently or at any time
hereafter in the course of the business of such Person, that are not otherwise
part of the public domain.
"Contract" means any contract, agreement, indenture, note, bond, loan,
--------
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy. commitment or other arrangement or agreement, whether written
or oral.
19
<PAGE>
"Disclosure Schedule" means the Disclosure Schedule annexed
-------------------
hereto as Schedule I.
"Environmental Claim" means any accusation, allegation, notice of
-------------------
violation, action, claim, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Body or any Person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
adverse effects on the environment, or for fines, penalties or restrictions
resulting from or based upon (i) the existence, or the continuation of the
existence, of a Release (including, without limitation, sudden or non-sudden
accidental or non-accidental Releases) of, or exposure to, any Hazardous
Material or other substance, clinical, material, pollutant, contaminant, odor,
audible noise, or other Release in, into or onto the environment (including,
without limitation, the air soil, soil, surface water or Groundwater) at, in,
by, from or related to the Facilities or any activities conducted thereon-,
(ii) the environmental aspects of the transportation, storage, treatment or
disposal of Hazardous Materials in connection with the operation of the
Facilities; or (iii) the violation, or alleged violation, of any Environmental
Laws, Orders or Permits of or from any Governmental Body relating to
environmental matters connected with the Facilities.
"Environmental Law" means any Law concerning the environment, or
-----------------
activities that might threaten or result in damage to the environment or human
health, or any Law that is concerned in whole or in part with the environment
and with protecting or improving the quality of the environment and human and
employee health and safety and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
(42 U.S.C. (S) 9601 et seq.) the Hazardous Materials Transportation Act
(49 U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. (S) 6901 et seq), the Clean Water Act (33 U.S.C. (S) 1251 et seq),
the Clean Air Act (33 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. (S) 136 et seq.) and the Occupational Safety and
Health Act (29 U.S.C. (S) 651 et seq.) ("OSHA"), as such laws have been amended
or supplemented, and the regulations promulgated pursuant thereto, and any and
all analogous state or local statutes, and the regulations promulgated pursuant
thereto, and any and all treaties, conventions and environmental public and
employee health and safety statutes and regulations or analogous requirements of
non-United States jurisdictions in which the Company conducts any business.
"Facilities" means real property, leased or operated by the
----------
Company.
"Governmental Body" means any governmental or regulatory body, or
-----------------
political subdivision thereof, whether federal, state, local or foreign, or any
agency, instrumentality or authority thereof, or any court or arbitrator (public
or private).
"Hazardous Materials" means any substance, material or waste which is
-------------------
regulated by any local, state or federal Governmental Body in the Jurisdiction
in which the Company conducts business, or the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance,"
20
<PAGE>
"extremely hazardous waste" or restricted hazardous waste," "subject waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law, including but not limited to, petroleum products, asbestos
and polychlorinated biphenyls.
"Indebtedness" means at a particular time, without duplication,
------------
(i) any indebtedness for borrowed money or issued in substitution for or
exchange of indebtedness for borrowed money, including any bank overdraft or
other similar extension of credit, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than 30 days past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property" means all patents and patent applications, all
---------------------
trademarks, trade names, service marks and copyrights, all applications for
registration of such trademarks, trade names, service marks and copyrights, all
common law trade names, web site names, and all common law or statutory trade
secrets, including know-how, inventions, designs, processes and computer
programs (including source codes).
"Law" means any federal, state, local or foreign law (including common
---
law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Legal Proceeding" means any judicial, administrative or arbitral
----------------
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"Lien" means any lien, pledge, hypothecation, levy, mortgage, deed of
----
trust, security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Change" means any material adverse change in the
-----------------------
business, properties, results of operations, prospects or condition (financial
or otherwise) of the Company.
"Order" means any order, consent, consent order, injunction, judgment,
-----
decree, consent decree, ruling, writ, assessment or arbitration award.
"Permits" means any approvals, authorizations, registrations,
-------
consents, licenses, permits or certificates by any Governmental Body.
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"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Release" means any release, spill, effluent, emission, leaking,
-------
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the indoor or outdoor environment, or into or out of any property
owned, operated or leased by the Company, including the movement of any
Hazardous Material or other substance through or in the air, soil, surface
water, groundwater, or property.
"Remedial Action" means all actions, including, without limitation,
---------------
any capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat, or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Representatives" of a Person means its officers, employees,
---------------
agents, legal advisors and accountants.
"Shares" means the Common Stock to be purchased hereunder.
------
As used in this Agreement, the phrase "to the Seller's best knowledge", "to the
Company's best knowledge" or "to the best knowledge of" means the actual
knowledge of the Seller or the Company, including, without limitation, the
actual knowledge of Beverly Sweeney, the Company's Executive Vice President.
7.3. Expenses. Each party shall bear its own expenses in connection
--------
with the negotiation and execution of this Agreement and the transactions
contemplated hereby and by the other Transaction Documents, except that the
Purchaser (i) acknowledges that approximately $37,000 of the Seller's legal and
accounting expenses through March 31, 1999 have been paid by the Company and
(ii) agrees to pay for any legal and accounting expenses incurred by the Seller
after March 31, 1999 up to a maximum of $38,000.
7.4. Specific Performance. The Seller acknowledges and agrees that
--------------------
the breach or threatened breach of this Agreement would cause irreparable damage
to the Purchaser and that the Purchaser will not have an adequate remedy at law.
Accordingly, the Seller expressly acknowledges that the Purchaser shall be
entitled to specific performance, injunctive relief or any other equitable
remedy against the Seller, in the event of any breach or threatened breach of
any provision of this Agreement by the Seller. The rights and remedies of the
parties hereto are cumulative and shall not be exclusive, and each such party
shall be entitled to pursue all legal and equitable rights and remedies and to
secure performance of the obligations and duties of the other under this
Agreement, and the enforcement of one or more of such rights and remedies by a
party shall in no way preclude such party from pursuing, at the same time or
subsequently, any and all other rights and remedies available to it.
22
<PAGE>
7.5. Further Assurances. The Seller and the Purchaser each agree to
------------------
execute and deliver such other reasonable documents or agreements as may be
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby or by the other Transaction
Documents.
7.6. Submission to Jurisdiction; Waiver of Jury Trial; and Consent to
----------------------------------------------------------------
Service of Process.
------------------
(a) The parties hereto hereby irrevocably submit to the exclusive
jurisdiction of any federal or state court located within the State of New York
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby or by the other Transaction Documents and each
party hereby irrevocably agrees that all claims in respect of such dispute or
any suit, action or proceeding related thereto may be heard and determined in
such courts. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may now or hereafter have
to the laying of venue of any such dispute brought in such court or any defense
of inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
(c) Each of the parties hereto hereby consents to process being
served by any party to this Agreement in any suit, action or proceeding, by the
mailing of a copy thereof in accordance with the provisions of Section 7.10.
7.7. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
(including the schedules and exhibits hereto) represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the parties hereto. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or
23
<PAGE>
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
7.8. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York without giving
effect to the principles of conflict of laws thereunder.
7.9. Table of Contents and Headings. The table of contents and
------------------------------
section headings of this Agreement are for reference purposes only and are to be
given no effect in the construction or interpretation of this Agreement.
7.10. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be deemed given when delivered
personally, upon delivery to a nationally recognized overnight courier service,
or when mailed by certified mail, return receipt requested, to the parties at
the following addresses (or to such other address as a party may have specified
by notice given to the other party pursuant to this provision):
If to the Seller, to:
Kevin Sweeney
c/o Simulaids, Inc.
12 Dixon Avenue
Woodstock, NY 12498
Telephone: 914-679-2475
Fax: 914-679-8996
With a copy to:
McCabe & Mack LLP
63 Washington Street
Poughkeepsie, NY 12602
Attention: Phillip Shatz, Esq. and
Richard R. DuVall, Esq.
Telephone: 914-486-6800
Fax: 914-486-6971
If to the Purchaser, to:
The Aristotle Corporation
27 Elm Street
New Haven, CT 06510
Attention: Paul McDonald
Telephone: 203-867-4090
Fax: 203-562-1226
24
<PAGE>
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attention: Ezra G. Levin, Esq.
Telephone: (212) 715-9227
Fax: (212) 715-8000
All notices are effective upon receipt or upon refusal if properly delivered.
7.11. Severability. If any term, provision, covenant or condition of
------------
this Agreement or part thereof, or the application thereof to any Person, place
or circumstance shall be held to be invalid, unenforceable or void by a court of
competent jurisdiction, the remainder of this Agreement and such term,
provision, covenant or condition shall remain in full force and effect, and any
such invalid, unenforceable or void term, provision, covenant or condition shall
be deemed, without further action on the part of the parties hereto, modified,
amended and limited, and the court shall have the power to modify, amend, and
limit such term, provision, covenant or condition, to the extent necessary to
render the same and the remainder of this Agreement valid, enforceable and
lawful.
7.12. Binding Effect, Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights or any other rights of any kind in any Person
or entity not a party to this Agreement except as provided below. No assignment
of this Agreement or of any rights or obligations hereunder may be made by the
Seller (by operation of law or otherwise) without the prior written consent of
the Purchaser and any attempted assignment without such required consent shall
be void. The Purchaser may assign this Agreement and any or all rights and
obligations hereunder, in whole or in part, to any Affiliate of the Purchaser,
any purchaser of all or substantially all of the Purchaser's business or assets,
any successor by merger to the Purchaser, whether direct or indirect, by
purchase, merger, consolidation, operation of law or otherwise (any such
Affiliate, purchaser or successor by merger, a "Successor"). The Purchaser will
require any such Successor to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Purchaser would be
required to perform it if no such purchase, or succession had taken place. Upon
any such permitted purchase or succession the references in this Agreement to
the Purchaser shall also apply to any Successor unless the context otherwise
requires.
7.13. Confidential Information. All Confidential Information with
------------------------
respect to any party hereto is considered secret and will be disclosed in
confidence. Each party hereto acknowledges that, it may have access to and
become acquainted with Confidential Information of another party. Each party
hereto agrees that it will not, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Information. All records,
files, drawings, documents, equipment and other tangible items, wherever
located, relating in any way to or
25
<PAGE>
containing Confidential Information, which any party has directly or through one
or more Representatives, prepared or shall in the future prepare, shall be and
remain the sole and exclusive property of such party and shall be included in
the Confidential Information. Upon termination of this Agreement in accordance
with its terms, the parties shall promptly deliver any and all of the
Confidential Information and copies thereof of any other party, not previously
delivered to such party, that may be in its possession or under its control. The
foregoing restrictions shall not apply to the use, divulgence, disclosure or
grant of access to Confidential Information to the extent, but only to the
extent, (i) expressly permitted or required pursuant to any other written
agreement between the parties, (ii) such Confidential Information has been
publicly disclosed (not due to a breach by any party of its obligations
hereunder, or by breach of any other Person, of a fiduciary or confidential
obligation to a party) or (iii) a party is required to disclose Confidential
Information by or to any court of competent jurisdiction or any other
Governmental Body; provided, however, that the party required to disclose such
-------- -------
Confidential Information shall, prior to any such disclosure, immediately notify
the party which owns the Confidential Information of such requirement and
provided further, that such party shall have the right, at its expense, to
object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
7.14. Public Announcement. The parties shall cooperate with respect
-------------------
to any public announcement relating to the transactions contemplated hereby or
by the other Transaction Documents; and neither party will issue any public
statement announcing such transaction without the prior consent of the other,
except as such party in good faith (based upon advice of counsel) believes is
required by law and following notice to the other party.
7.15. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
/s/ Kevin Sweeney
------------------------------
KEVIN SWEENEY
THE ARISTOTLE CORPORATION
By : /s/ Paul McDonald
----------------------------------------
Paul McDonald
Vice President and Chief Financial Officer
26
<PAGE>
EXHIBIT 23
CONSENT OF KPMG LLP
-------------------
The Board of Directors
Simulaids, Inc.:
We consent to the inclusion of our report dated March 19, 1999 with respect to
the balance sheets of Simulaids, Inc. as of December 31, 1998 and 1997 and the
related statements of income, shareholder's equity and cash flows for each of
the years in the three year period ended December 31, 1998, which report appears
in the Form 8-K/A of The Aristotle Corporation.
/s/ KPMG LLP
KPMG LLP
New York, New York
July 15, 1999
